1 A. That’s correct.
2 Q. Have you reviewed loan documents, these loan
3 documents for the two loans that you’re -- or for
4 the loans on these music catalogs that you’ve talked
6 A. I did, yes.
7 Q. Do they have any covenants or conditions?
8 A. They do, yes.
9 Q. Any covenants regarding accruing additional
11 MR. MESEREAU: Objection. Foundation,
12 hearsay, and leading.
13 THE COURT: Overruled.
14 You may answer.
15 THE WITNESS: Yes, there is a covenant.
16 Covenants -- well, there is a covenant that says
17 that there’s no additional debt allowed unless
18 approved by Bank of America.
19 Q. BY MR. AUCHINCLOSS: Is there a covenant
20 against -- any covenant regarding, I should say,
21 further encumbering these two assets? In other
22 words, getting more -- mortgaging them further with
23 another agency?
24 A. Yes. There is also a covenant that says
25 that Mr. Jackson and/or his businesses are not
26 allowed to further encumber these two catalogs. In
27 other words, the only loan that can be on these two
28 catalogs is the two B of A loans. 8593
1 Q. So --
2 THE COURT: We’ll take our break.
3 MR. MESEREAU: Your Honor, we have a motion
4 to make.
5 THE COURT: Not now.
6 (Recess taken.)
8 (The following proceedings were held in
9 open court outside the presence and hearing of the
12 THE BAILIFF: You can have a seat, Mr.
14 THE COURT: The reason I’ve come in before we
15 bring the jury in is that I want to make a ruling
16 here that helps clarify what you’re trying to do,
17 both of you.
18 Initially I made an order that the District
19 Attorney was permitted to bring in general financial
20 information to provide evidence from which the jury
21 may or may not infer that the defendant was -- had
22 financial problems, from which they may or may not
23 infer that that gives him some motive to commit the
24 crimes the D.A. alleges he’s committed.
25 The offer of proof that was made in the
26 memorandum that you submitted, your trial
27 memorandum, was within what I perceived.
28 The thing that I’m uncomfortable with, and 8594
1 have been for a few minutes, is the constant having
2 your expert refer to, you know, letter after letter
3 from his advisors about his financial condition.
4 The expert has testified that he relied on the
5 balance sheet and income expenditure statements,
6 which is basically what you expect an expert to rely
7 on. And to some extent certainly he would rely on
8 other people’s opinions, financial advisors of Mr.
9 Jackson. But it’s not the kind of evidence that I’m
10 going to allow you to continue to bring up.
11 So you can -- my ruling is that his quotes
12 from -- that he wants to make or you want him to put
13 into evidence from Michael Jackson’s advisors are to
14 stop at this point.
15 I have advised them that those have limited
16 value to them, since they can’t accept those for the
17 truth of the matter asserted, but I think if we
18 continue in that vein, it’s not the right way to
19 present the evidence.
20 MR. AUCHINCLOSS: May I just tell the Court
21 how I intend to finish up, just so we’re --
22 THE COURT: They can’t hear you.
23 MR. AUCHINCLOSS: May I just tell the Court
24 how I intend to finish up?
25 THE COURT: You may.
26 MR. AUCHINCLOSS: Basically, just so you
27 know, Your Honor, we wanted to do this with balance
28 sheets. And as you know, we weren’t -- 8595
1 THE COURT: I don’t want to hear that. What
2 do you want to tell me?
3 MR. AUCHINCLOSS: At the end of the -- we’re
4 at the end of his testimony. And we’re going to
5 finish with the two summaries that were provided by
6 the Bank of America. Now, these are actual letters
7 that were SDT’d from Bank of America to
8 representatives. And just so you know, the
9 testimony is book-ended by the statement, balance
10 statement, and these letters.
11 THE COURT: Let me see the letters.
12 MR. AUCHINCLOSS: Okay. Well, I have a
13 copy, but --
14 THE COURT: Have you seen the letters,
16 MR. MESEREAU: I’m not sure what he’s
17 talking about.
18 MR. AUCHINCLOSS: This would be the Jane
19 Heller letter and the Maiorella letter from the Bank
20 of America indicating the status of the loan
21 balances as of 2004.
22 THE WITNESS: I have them here, if you want.
23 MR. MESEREAU: May I take a look, Your
25 THE COURT: Well, after me.
26 MR. MESEREAU: Okay. Excuse me.
27 MR. AUCHINCLOSS: Jane Heller and Maiorella.
28 THE COURT: So these are the status of the 8596
1 loans in 2004?
2 MR. AUCHINCLOSS: Yes. And these provide
3 conclusive evidence that everything that was
4 predicted, everything that was stated by all of the
5 letters that we have indicated, was borne out in the
6 resulting accumulation of debt and of what the --
7 THE COURT: Yeah, but the issue isn’t what
8 his financial status is today or whether you were
9 right or wrong.
10 MR. AUCHINCLOSS: I know, the issue is --
11 THE COURT: The issue is what was his frame
12 of mind in 2000 -- late 2002 and 2003.
13 MR. AUCHINCLOSS: And that’s what --
14 THE COURT: And not whether he was even
15 right. He could have been absolutely wrong. So --
16 MR. AUCHINCLOSS: That’s true.
17 THE COURT: So his financial statement today
18 isn’t at issue.
19 MR. AUCHINCLOSS: Well, I’m just saying
20 that’s why the letters are so important, because
21 they impute knowledge of the defendant.
22 THE COURT: Today.
23 MR. AUCHINCLOSS: No, the ones that we’ve
24 introduced so far. And this basically confirms that
25 the letters were all correct, and that they also
26 further show what was going on in 2003.
27 THE COURT: What they show is, in hindsight,
28 he was in trouble. But that’s not the issue. 8597
1 MR. AUCHINCLOSS: All right. So --
2 THE COURT: Did you look at the letters, Mr.
4 MR. MESEREAU: I’ve looked at them, Your
5 Honor. And I would object based on what the Court
6 just said. The point of their presentation is not
7 to talk about --
8 THE COURT: They can’t hear you.
9 MR. MESEREAU: I’m sorry, Your Honor.
10 The point they’re trying to prove is not
11 what is his financial status today. They’re
12 allegedly trying to suggest there was a motive in
13 2003 to conspire to do criminal acts because of
14 financial concerns, which of course we vigorously
16 But nevertheless, the issue is what is
17 relevant to a possible motive in 2003, specifically
18 between January and March. Nothing after that date
19 would have any relevance to what they claim they’re
20 trying to prove.
21 MR. AUCHINCLOSS: Our point is that these
22 letters tell what happened in 2003, tell what was
23 going on at that time. Our --
24 THE COURT: I must have misread them. Do you
25 want to give them back to me? I thought they were
26 talking about right now.
27 MR. AUCHINCLOSS: Well, they’re talking
28 about how the debt has accumulated. 8598
1 THE COURT: They’re talking about right now,
2 aren’t they?
3 MR. AUCHINCLOSS: Yes, they are.
4 THE COURT: All right. Give them back to
6 MR. AUCHINCLOSS: But it’s the genesis of
7 those problems that exist in 2003.
8 THE COURT: Do you understand what I’m
9 saying, Counsel?
10 MR. AUCHINCLOSS: I do. I do.
11 THE COURT: Do you understand the limitations
12 that I gave you on the financial material?
13 MR. AUCHINCLOSS: That it was to be concise --
14 THE COURT: I think now the limitation is
15 this: That I don’t want you asking him any more
16 quotes from any of his advisors. You are apparently
17 not going to do that.
18 MR. AUCHINCLOSS: All right.
19 THE COURT: And I don’t think it’s -- and I
20 will rule that an opinion as to his present
21 financial status would be improper.
22 MR. AUCHINCLOSS: Very good. I’ll just
23 finish up with his opinions about the defendant’s
24 financial status in 2003.
25 THE COURT: At that time. All right.
26 MR. AUCHINCLOSS: All right. Thank you.
27 THE COURT: Thank you.
28 You can bring in the jury. 8599
1 (The following proceedings were held in
2 open court in the presence and hearing of the
5 THE COURT: Counsel?
6 MR. AUCHINCLOSS: Thank you, Your Honor.
7 Q. Mr. O’Bryan, where we left off, I was
8 drawing your attention back to the summary of your
9 opinions, and I’m going to ask you at this time,
10 based upon your review of all the records in this
11 case, including the records you’ve testified about,
12 can you walk us through your opinions about Mr.
13 Jackson’s financial condition as of the
14 February-March period of 2003? What are your
15 opinions, sir?
16 A. Again, they are that Mr. Jackson’s financial
17 condition has deteriorated, up and leading to that
18 point of time, February of 2003. The expenditures
19 have exceeded income. The liabilities have
20 increased. And there is a liquidity crisis or a
21 cash crisis which looms and has been ongoing. And I
22 believe those conditions were known as of February
24 MR. AUCHINCLOSS: All right. Thank you very
25 much, Mr. O’Bryan.
26 THE COURT: Cross-examine?
27 MR. MESEREAU: Yes, please, Your Honor.
28 // 8600
2 BY MR. MESEREAU:
3 Q. Good afternoon.
4 A. That it is. Good afternoon.
5 Q. My name is Thomas Mesereau and I speak for
6 Mr. Jackson.
7 When you began your examination by the
8 prosecutor for the government, you indicated there
9 was some documents that you had wanted to see if you
10 could, but they were not available to you, right?
11 A. That is correct.
12 Q. And what documents were they?
13 A. Those would be -- well, we’d like to see
14 financial statements for 2000 -- for 1999, 2000,
15 2001, 2002, and all the way through February of
16 2003. In addition to that, general ledgers, which
17 are the summation of transactions, which become
18 financial statements. We asked for bank statements.
19 Those types of detailed supporting documentation
20 would be things that we would typically ask for, and
21 we did. They were just simply not made available to
23 Q. Okay. They were not made available to you
24 by the prosecutor who hired you, correct?
25 MR. AUCHINCLOSS: Objection; misstates the
27 THE COURT: Overruled.
28 You may answer. 8601
1 THE WITNESS: I was simply told that that
2 information was not available to me.
3 Q. BY MR. MESEREAU: Well, you’ve never spoken
4 to anyone on the defense side, correct?
5 A. I have not, no.
6 Q. The only people you spoke to about your
7 opinions today are the prosecutors for the
8 government, correct?
9 A. That’s correct.
10 Q. And when did you first talk to any
11 prosecutor for the government?
12 A. Oh, I think the first call came to me
13 probably back in October-November.
14 Q. Okay. And who called you?
15 A. Oh, it was Mr. Auchincloss.
16 Q. Okay. And have you worked with Prosecutor
17 Auchincloss ever since?
18 A. I have not, no.
19 Q. Okay. Who have you worked with to -- in the
20 process of preparing to testify in this trial?
21 A. We’ve met with Mr. Auchincloss, and also a
22 Ms. Linz, as I recall her name, Chris Linz. I met
23 Mr. Sneddon, but we really didn’t talk about my
24 testimony, per se.
25 Q. Okay. Now, you’ve indicated you wished you
26 could have looked at financial statements for 1999,
27 2000, 2001 and 2002; is that correct?
28 A. All the way up through February of 2003, 8602
2 Q. Okay. So in the process of forming your
3 opinions, and I’m speaking about the opinions you’ve
4 testified to today, you haven’t looked at one
5 certified financial statement of Mr. Jackson, true?
6 A. Well, we saw the June 30 -- there’s a 1999
7 financial statement, and there’s a June 30, 2002,
8 financial statement.
9 Q. Okay. And who prepared those?
10 A. Prepared by Holthouse, as I recall.
11 Q. Okay. And are they certified, to your
13 A. Yes, they are.
14 Q. Okay. And did you talk to anyone at
15 Holthouse about what they used to prepare those
17 A. No. You can see what they used to prepare
18 the statements.
19 Q. Well, let me just -- you can see what they
20 used to prepare those statements?
21 A. Yes.
22 Q. You can see every document they reviewed?
23 A. No, but you know, based on the opinion that
24 they gave and the types of financial statements that
25 they are.
26 Q. Okay. Okay. You didn’t look at general
27 ledgers, because they were not available, correct?
28 A. That’s correct. 8603
1 Q. And please tell the jury what general
2 ledgers would have -- well, first of all, before I
3 get into that. The financial statements you did not
4 look at, why would you like to have looked at those
5 financial statements?
6 A. Because, as I mentioned in my direct, in
7 doing a forensic accounting investigation, you want
8 to see as much information as you possibly can. So
9 that may lend additional information, it may not,
10 but you certainly want to see as much as you
11 possible can.
12 Q. And you said you would like to have looked
13 at general ledgers, but could not, right?
14 A. That’s correct.
15 Q. And why would you have preferred to have
16 looked at general ledgers?
17 A. It’s just more information. Understand that
18 the general ledgers are nothing more than a process
19 of accumulating a bunch of different transactions
20 that then come to an end number that then become
21 part of the balance sheet. So it just tells you the
22 detail that makes up the final number. It’s just
23 more information.
24 Q. You didn’t look at bank statements, correct?
25 A. We did not see any bank statements, no.
26 Q. And had you had any bank statements
27 available, what benefit would you have had?
28 A. Well, it would tell you cash balances. It 8604
1 would tell you the expenditures, at least on a cash
2 basis. You wouldn’t know the detail. It would just
3 be like looking at your normal bank statement, just
4 shows the check and the account. So it would show
5 you cash balances on an ongoing basis.
6 Q. And are you saying the documents you looked
7 at did not identify for you exactly what the nature
8 of the expenditures were?
9 A. No, there are documents within some of the
10 Holthouse memos and some of the financial
11 consultants that talk about individual expenditures
12 and individual expenditure levels.
13 Q. Okay. You didn’t look at any tax returns,
15 A. No, we actually did, I think, see tax
17 Q. Which ones; do you know?
18 A. I don’t recall the years. Seems to me they
19 were later years.
20 Q. Okay. You didn’t see any during the period
21 you’re giving an opinion on, did you?
22 A. I think we may have seen ‘02, maybe ‘03.
23 Q. Okay. And are you sure about that?
24 A. I don’t recall. There’s not a lot of
25 information that’s pertinent to this analysis in a
26 tax return.
27 Q. Okay. Were they corporate returns or
28 personal; do you know? 8605
1 A. I believe they were personal.
2 Q. Okay. Now, you’ve indicated that you are
3 with a financial consulting firm, correct?
4 A. That is correct.
5 Q. And would one of the areas of expertise in
6 your firm be looking at someone’s bare financial
7 condition and giving them advice how to change their
8 condition and improve it?
9 A. I’m not sure what you mean by “bare.”
10 Q. Well, you’ve given the jury your opinions
11 about Mr. Jackson’s expenditures, liabilities and
12 liquidity, correct?
13 A. That’s correct.
14 Q. You were not here to tell the jury what all
15 of his assets were worth during that particular time
16 period, correct?
17 A. And we don’t know exactly what they were
18 worth during that particular time frame.
19 Q. Have you looked at any information in
20 response to the prosecutor’s questions that would
21 have given you any indication what any of Mr.
22 Jackson’s assets were worth?
23 A. There were a number of different documents
24 in those which we saw that talked about value over
25 periods of time. For example, I think there was a
26 value given for Neverland Ranch at some point in
27 time. There was also an appraisal done on the MIJAC
28 catalog at some point in time. And there was an 8606
1 appraisal done on the entire Sony/ATV catalog at
2 some point in time. Those would be the major
3 assets. And we did see valuation -- two valuations
4 done by an appraiser, and then one I think was just
5 a representation maybe made by IBM, as I recall.
6 Q. Now, the prosecutor talked to you about a
7 letter from a company called International Business
8 Management. Do you remember that?
9 A. I do, yes.
10 Q. That was in February of 2003, correct?
11 A. That’s correct.
12 Q. And do you recall that in that letter from
13 that firm the Sony/ATV catalog was estimated to be
14 worth approximately one billion dollars?
15 A. I do, yes. That’s the catalog in total,
17 Q. And clearly if you were going to try and
18 advise someone like Mr. Jackson, based on the
19 information you’ve given the jury today, about how
20 to restructure his affairs to not have the debt he
21 had or to be more liquid, you would consider the
22 possibility of selling assets, true?
23 A. I think that’s a real possibility here, yes.
24 Q. And if, in fact, the value of one billion
25 dollars that is found in the letter you refer to is
26 true, clearly if you were advising Mr. Jackson how
27 to solve any cash crisis, you would consider the
28 possibility of liquidating that asset, true? 8607
1 A. No, because the value of the catalog is one
2 billion dollars. Mr. Jackson’s interest is not half
3 of that billion dollars.
4 Q. Well, sir, he has an interest in that
5 catalog, correct?
6 A. Yes. But it is not worth half of one
7 billion dollars.
8 Q. He purchased the catalog in approximately
9 1986 for about $47 million, right?
10 A. I think that’s right.
11 Q. He sold half of that interest in the catalog
12 in approximately 1995 for 90 million, true?
13 A. I believe that’s correct.
14 Q. And in 1999 -- excuse me, in 2003, you see
15 an estimated value in this particular letter of one
16 billion dollars, right?
17 A. That’s correct.
18 Q. And that catalog contains ownership
19 interests in all of The Beatles’ music, true?
20 A. I don’t know that it’s all of The Beatles’
21 music. I think it’s some of The Beatles’ music.
22 Q. Do you know whether or not it’s all of it or
24 A. I don’t know.
25 Q. Do you know any other recording artists
26 whose copyrighted music is contained within that
28 A. Yeah, I saw a memo on that. I don’t recall 8608
1 the specifics, but I saw there were others involved.
2 I think there were -- Sony’s copyrighted music was
3 in there, which I think it initially was
4 country-western. But I think there were other
5 artists in there as well as The Beatles.
6 Q. Okay. Now, that catalog today has been
7 estimated to be worth a couple of billion dollars by
8 some, and even four to five by others. Are you
9 aware of that?
10 MR. AUCHINCLOSS: Objection; assumes facts.
11 THE WITNESS: I’m not aware of that, but
12 again --
13 THE COURT: That’s overruled. The answer is
14 he’s not aware of it. Next question.
15 Q. BY MR. MESEREAU: Your job was not to
16 appraise the value of the Sony/ATV catalog, correct?
17 A. No. We certainly considered the value in
18 coming to our opinions.
19 Q. Did you hire an appraiser to give you an
20 appraisal of the value of that catalog in the year
22 A. No.
23 Q. You never hired any appraiser to put a value
24 on that catalog at any time while you were working
25 for the government, correct?
26 A. No. I don’t see the need to.
27 MR. AUCHINCLOSS: I’m going to object as
28 relevancy as to the entire catalog. What’s relevant 8609
1 is only the defendant’s portion of it.
2 BAILIFF CORTEZ: Your microphone, sir, is
4 THE COURT: The objection is overruled. The
5 answer is in. Next question.
6 Q. BY MR. MESEREAU: Did you look at the
7 transactional documents that were drafted in the
8 mid-’90s, approximately 1995, whereby Mr. Jackson
9 sold a half interest in that catalog to Sony?
10 A. I see the Sony/ATV agreement. Is that the
11 document you’re referring to?
12 Q. That and other documents that refer to that
14 A. I see -- the Sony/ATV agreement is what I
16 Q. Okay. Your job was not to obtain all of the
17 documentation that pertained to Mr. Jackson’s sale
18 of a half of his catalog to Sony, right?
19 A. Well, again, I would ask for any document
20 that’s available. And I got the documents I got,
21 which was the Sony/ATV catalog document.
22 Q. Okay. And you’re not aware of efforts,
23 through the last four or five years, by anybody to
24 try and purchase his interest, correct?
25 A. In the Sony/ATV?
26 Q. Yes.
27 A. Well, Mr. Jackson, I don’t believe, is
28 allowed to sell any interest until 2005. 8610
1 Q. But there are efforts to purchase it. If
2 you can get all parties to agree, you can sell your
3 interest, can’t you?
4 A. That’s true. If he gets Sony’s approval, he
5 could sell his interest, based on the agreement.
6 Q. So are you aware of any efforts during the
7 last four or five years by third parties to try and
8 get Sony and Mr. Jackson together and purchase that
10 MR. AUCHINCLOSS: I’ll object as to
11 relevancy beyond 2003.
12 THE COURT: Sustained.
13 MR. AUCHINCLOSS: March.
14 Q. BY MR. MESEREAU: Let me rephrase.
15 Are you aware of any efforts by third
16 parties, between 1999 and the end of 2003, to get
17 Sony and Mr. Jackson together and work out an
18 arrangement where Mr. Jackson’s interest is sold?
19 MR. AUCHINCLOSS: Same objection. End of
21 THE COURT: Sustained.
22 MR. MESEREAU: I’ll rephrase it again.
23 Q. Are you aware of any efforts between the
24 years 1999 and March of 2003 by any third party to
25 get Mr. Jackson and Sony together so they could
26 purchase Mr. Jackson’s interest in that catalog?
27 A. No, I have not seen any document like that.
28 Q. Okay. Now, among the documents that you 8611
1 were handed by Prosecutor Auchincloss, was the only
2 reference to a value of the Sony/ATV catalog the one
3 billion dollars you just referred to?
4 A. No, there was two. The IBM memo said, I
5 think, one billion dollars, and it’s June -- excuse
6 me, a February 13th, ‘03 memo. But again, that’s
7 the value of the catalog, not Mr. Jackson’s
9 And there was a second document that was
10 actually an appraisal done by an appraisal firm in,
11 I think it was 1999, for $991 million, I believe.
12 Q. Okay.
13 A. So there’s two documents that I saw.
14 Q. Now, Prosecutor Auchincloss showed you
15 documents from March of 2003 that were written to
16 Mr. Jackson by an attorney named David LeGrand,
18 MR. AUCHINCLOSS: Objection; misstates the
19 evidence as to the date of the documents.
20 THE WITNESS: You’d have to refer me to that
21 document. I’m sorry.
22 THE COURT: Just a moment.
23 THE WITNESS: I’m sorry.
24 THE COURT: Well, I guess the District
25 Attorney is saying that’s not the correct date. Do
26 you have a document that’s dated March of 2003?
27 MR. MESEREAU: Yes, I do.
28 Q. Did the prosecutor in the course of your 8612
1 work for him show you a document dated March 18th,
2 2003, to Mr. Jackson from a lawyer named David
4 A. I don’t recall seeing that document.
5 Q. Okay. Might it refresh your recollection if
6 I just show you the one I have?
7 A. Please.
8 MR. MESEREAU: May I approach, Your Honor?
9 THE COURT: Yes.
10 MR. AUCHINCLOSS: May I see what you’ve got?
11 THE WITNESS: I don’t recall seeing this memo
13 Q. BY MR. MESEREAU: So you’re saying the
14 prosecutor didn’t give you this document when he was
15 preparing you?
16 A. No, I’m not suggesting that. It’s just I
17 have not seen that document.
18 Q. Okay. Well, how many documents did you look
19 at in preparing to testify?
20 A. As I mentioned earlier, there was about six
21 boxes, something like that, of documents.
22 Q. Okay. Do you recall seeing the name David
23 LeGrand in the documents?
24 A. I do, yes. There’s documents from IBM to
25 David LeGrand.
26 Q. Do you recall that he was giving Mr. Jackson
27 advice about how to handle his financial situation?
28 A. I do recall that, yes. 8613
1 Q. Do you recall him suggesting that if Mr.
2 Jackson --
3 MR. AUCHINCLOSS: I’m going to object to
4 counsel reading --
5 Q. BY MR. MESEREAU: -- sold his --
6 Your Honor, can I --
7 MR. AUCHINCLOSS: -- reading from the
8 letter --
9 MR. MESEREAU: -- complete the question?
10 MR. AUCHINCLOSS: -- that he says he doesn’t
11 know about.
12 THE COURT: Sustained.
13 Q. BY MR. MESEREAU: If Mr. Jackson sold his
14 interest in March of 1993 -- excuse me, March of
15 2003 in the Sony/ATV joint venture, okay?
16 A. Yes, I gotcha.
17 Q. That’s assuming the parties got together and
18 all agreed Mr. Jackson can sell his interest, all
20 A. That’s what I believe would have to happen,
22 Q. Yes. He could have paid off the Bank of
23 America loan, he could have ended up worth $200
24 million after taxes, excluding royalty income, true?
25 A. I’ve never seen that document, so I can’t
26 tell you that’s true or not.
27 Q. Okay. But you were given some documents by
28 the prosecutor that Mr. Jackson had gotten from his 8614
1 lawyer, Mr. LeGrand, true?
2 A. Yes, we were.
3 Q. And you saw some documents that said “Hale
4 Lane” on them, correct, the law firm the lawyer
5 belonged to, right?
6 A. We’ve seen those documents, yes.
7 Q. Okay. And you don’t recall a document dated
8 March 18th where Mr. LeGrand told him how to solve
9 his liquidity problem and be worth $200 million
10 before he got a royalty?
11 MR. AUCHINCLOSS: Objection. Assumes facts;
13 THE COURT: The objection is sustained.
14 Q. BY MR. MESEREAU: Did you ever ask
15 Prosecutor Auchincloss if he had any documents
16 available to him where any of Mr. Jackson’s advisors
17 gave him advice on how to solve his liquidity
19 A. Well, we asked for any and all documents
20 relevant, so if I didn’t know that document exists,
21 whatever that document is, I wouldn’t have known to
22 ask for it. So we simply asked for any and all
23 documents relevant to financial condition issues
24 through February of 2003.
25 Q. Okay. Did you ask for documents through
26 March of 2003 from Prosecutor Auchincloss?
27 A. We asked for documents all the way through
28 today -- 8615
1 Q. Okay.
2 A. -- with respect to bank statements and the
4 Q. But you have never seen any document that
5 suggested Mr. Jackson sell that asset and analyzes
6 what he’ll be worth if he sells his interest, right?
7 A. No. I’ve never seen that document, no.
8 Q. Okay. Now, none of your calculations
9 consider any opportunities Mr. Jackson had in the
10 entertainment industry during those years, correct?
11 A. That’s -- well, I mean, it doesn’t consider
12 from an income perspective.
13 Actually, that’s not true. It does
14 consider, because the financial consultants -- the
15 letters that the financial consultants wrote that I
16 have looked at and relied on would assumingly take
17 that into account. They’re his business advisors
18 and they’re talking about the excess expenditures.
19 So my guess is -- not a guess. I would assume they
20 would include all items of revenue with respect to a
22 Q. Mr. O’Bryan, an entertainer like Mr. Jackson
23 doesn’t just go to his CPA every time someone offers
24 him an opportunity around the world, right?
25 A. I don’t know what his relationship with his
26 business manager was.
27 Q. Well, did you know that he was offered $100
28 million to do a national tour in 2002? 8616
1 MR. AUCHINCLOSS: Objection; assumes facts.
2 THE COURT: Sustained.
3 Q. BY MR. MESEREAU: Are you an expert on the
4 music industry?
5 A. No, I’m not.
6 Q. Have you done any kind of an analysis on
7 what opportunities in the entertainment industry Mr.
8 Jackson had between the years 1999 and March of
10 A. I did not, no. I relied on the financial
11 consultants’ information.
12 Q. Now, based on what you have seen to date,
13 Mr. Jackson has never gone bankrupt ever, has he?
14 A. Not to my knowledge.
15 Q. Do you have any knowledge of what Mr.
16 Jackson was offered to do either national or
17 international music tours between the years 1999 and
18 March of 2003?
19 A. No.
20 Q. Did the prosecutor give you any documents
21 about licensing opportunities for various
22 Michael-Jackson-related products that he was offered
23 between the years 1999 and March of 2003?
24 A. I don’t recall seeing any of those. There
25 could be some in there, but I don’t know that would
26 be relevant to my calculations.
27 Q. If you were trying to solve a liquidity
28 crisis like you’ve identified here, wouldn’t it be 8617
1 relevant if you knew that Mr. Jackson could accept
2 one opportunity and solve it in a day?
3 A. Well, it could be relevant, but it isn’t in
4 this calculation, because that liquidity crisis was
5 real. There were documents -- there are documents
6 throughout that we reviewed that there was a serious
7 cash crisis. And if it could have been solved, why
8 wasn’t it? I mean, there were documents that
9 there’s $10 million being unpaid. There’s documents
10 where vendors are threatening lawsuits. If it’s
11 that easy to fix, why don’t you fix it?
12 Q. If it was as bad as you said it was, why
13 didn’t he go bankrupt?
14 A. Because I think he’s been able to continue
15 to borrow.
16 Q. Do you know that for a fact?
17 A. Yes. The debt’s gone up.
18 Q. Do you know what opportunities he had to
19 market Michael Jackson video games, market Michael
20 Jackson fragrances, Michael Jackson music, Michael
21 Jackson concerts, Michael Jackson tours during that
22 period? Do you know what cash opportunities were
23 available to him if he wanted them?
24 A. I have no doubt that there were substantial
25 opportunities. The issue becomes why weren’t they
26 availed themselves? Why didn’t they do that? There
27 was a serious cash crisis. There’s no doubt about
28 that, based on the documents I’ve seen. And in 8618
1 fact, if it was so easy to do, why wasn’t it done?
2 Q. Maybe it wasn’t as serious as you’ve
4 MR. AUCHINCLOSS: Objection; argumentative.
5 THE COURT: Sustained.
6 The jury’s admonished to disregard Mr.
7 Mesereau’s remark.
8 Q. BY MR. MESEREAU: Did your firm ever do any
9 independent due diligence investigation of Mr.
10 Jackson’s finances during that period?
11 A. No. No. Like, for example, searching the
12 Internet or something like that? I mean, we asked
13 for documents.
14 Q. Yes.
15 A. And we got the documents we got. I’m not
16 sure -- independent investigation. Do you mean by
17 going to the Internet or something like that?
18 Q. If your firm had been theoretically retained
19 by Mr. Jackson to do an analysis of his assets and
20 liabilities, to analyze any cash liquidity problem
21 and to make recommendations how to solve it, what
22 would you have wanted to look at?
23 A. We would have wanted to look at the
24 documents we requested, which were all the bank
25 statements, all the general ledgers, all of the
26 income statements and balance sheets and financial
27 statements for the individual years, plus the
28 documents that we’ve seen, which is the opinions 8619
1 and/or the correspondence from all of his advisors
2 as they progressed through serving him and helping
3 him with his cash crisis.
4 Q. Okay. And I think it goes without saying,
5 you didn’t get all those documents to look at,
7 A. As I mentioned, we didn’t get all the
8 financial statements and all the documents that we
9 talked about, no.
10 Q. Now, you asked for documents up to the
11 present; is that correct?
12 A. As I recall, we did, yes.
13 Q. Did Prosecutor Auchincloss give you
14 documents that concerned March of 2003?
15 A. We -- we didn’t -- apparently we didn’t see
16 some documents. In fact, I’m sure we didn’t see all
17 the documents, but we got what we got and those
18 documents appeared to go through mostly 2003.
19 Q. Okay. Now, did you see current appraisals
20 of all assets you believe Mr. Jackson owned when you
21 did your analysis?
22 A. No. No, the -- as I said, the only two
23 appraisal documents we saw was an official one in
24 1999, and then the IBM document, which was again a
25 valuation of the venture, not just Mr. Jackson’s
27 Q. Now, based on what documents you saw,
28 clearly the Sony/ATV music catalog was an 8620
1 appreciating asset, right?
2 A. It was an appreciating asset for the
3 catalog. I’m not sure it was an appreciating asset
4 for Mr. Jackson’s interest because of the way it was
6 Q. Okay. But, sir, again, if three parties,
7 Sony, Mr. Jackson and a potential purchaser, get
8 together, and there is an effort to buy that catalog
9 from Sony and Mr. Jackson, terms are negotiated, and
10 almost anything can be liquid at that point, true?
11 A. I’m sorry, “anything can be liquid.” Do you
12 mean --
13 Q. Sony and Mr. Jackson were certainly, based
14 on what you know, capable of getting together and
15 jointly selling their interests in that catalog to a
16 third party, right?
17 A. That’s my understanding; that either party
18 could sell with the approval of the other.
19 Q. Okay.
20 A. Up until December 2005.
21 Q. And you knew that that catalog had
22 originally been completely owned by Mr. Jackson,
24 A. That’s correct. Well, he owned a portion of
25 it. The catalog became total once Sony put their
26 interests in as well.
27 Q. Well, when Mr. Jackson initially obtained an
28 interest in the catalog, he had a complete interest, 8621
1 did he not?
2 A. He had the interest in his copyrighted
3 assets. Sony had their interest in their
4 copyrighted assets.
5 Q. I’m talking about in 1986 when he purchased
7 A. He had apparently 100 percent interest.
8 Q. Okay. And you knew he had paid
9 approximately 47 million for his interest, right?
10 A. I think that’s right.
11 Q. He had sold half of that interest
12 approximately ten years later for 90 million, right?
13 MR. AUCHINCLOSS: Objection; asked and
15 THE COURT: Sustained.
16 Q. BY MR. MESEREAU: And in 2003, it was your
17 understanding that the entire catalog was worth --
18 at least the only estimate you saw was a billion,
20 MR. AUCHINCLOSS: Objection; asked and
22 THE COURT: Sustained.
23 Q. BY MR. MESEREAU: Now, let me ask you this,
24 because you do advise businesses on how to
25 restructure --
26 A. I do.
27 Q. -- and improve liquidity, correct?
28 A. We do, yes. 8622
1 Q. Okay. Given the rate of appreciation of
2 that asset, based on what you know, between 1986 and
3 2003, can you envision a situation where Mr. Jackson
4 says to himself, “I’ll deal with the liquidity
5 crisis each year, because it’s a price worth paying
6 to hang on to this asset the way it’s increasing in
8 A. I don’t know what Mr. Jackson may have said
9 to himself. But from a financial perspective, I
10 would simply disagree with you that his interest is
11 necessarily increasing each year given the financial
12 structure of the arrangement.
13 Q. But the asset could be appreciating in terms
14 of inherent value, true?
15 A. Depends on what royalties, in fact, it’s
17 Q. Do you know?
18 A. Actually, yes, the royalties were
19 increasing. But again, that’s the catalog in total.
20 That’s not necessarily Mr. Jackson’s interest in
21 that catalog.
22 Q. Well, let me ask you this: Had you seen the
23 letter of March 18th -- excuse me, March 19th that I
24 just showed you from Mr. LeGrand - okay? - where his
25 lawyer advises him, “You can sell your interest, and
26 you can end up worth $200 million after taxes” --
27 MR. AUCHINCLOSS: Objection. This was --
28 this was -- the objection was sustained previously. 8623
2 MR. MESEREAU: I haven’t finished the
3 question, Your Honor.
4 THE COURT: I’ll sustain the objection,
5 though. I know it is the same question.
6 MR. AUCHINCLOSS: Motion to strike.
7 Q. BY MR. MESEREAU: If you’d known that asset
8 could be sold in March of 2003 - okay? - if you knew
9 that Mr. Jackson could have been worth 200 million
10 after taxes by doing it, excluding royalty income,
11 let’s assume those facts just for the sake of
12 argument, all right?
13 A. Okay.
14 Q. If you knew that, you wouldn’t consider this
15 liquidity crisis to be as serious as you’ve made it,
17 A. Well, the liquidity crisis was ongoing.
18 There’s -- in my mind, there’s no doubt about it, in
19 1999, 2000, 2001, 2002, and as of February 13th,
20 2003. In my mind there’s no question about that.
21 If, hypothetically, Mr. Jackson could have
22 sold his interest, Sony would have agreed, and it
23 would have created a net cash to him of $200
24 million, of course liquidity issues would change
25 subsequent to February 13th, 2003.
26 Q. Okay. I’m not talking about net cash. I’m
27 talking about when all the dust settles and all the
28 loans are paid, and Bank of America is out of the 8624
1 equation, he ends up worth $200 million free of all
2 debt. If you knew he could have achieved that in
3 March of 2003, would that change your opinion about
4 the seriousness of this liquidity crisis?
5 A. As I was saying --
6 MR. AUCHINCLOSS: I’ll object as to assumes
7 facts. Argumentative. And requires speculation.
8 MR. MESEREAU: It’s just using a
9 hypothetical, Your Honor.
10 THE COURT: I’ll allow the question as a
12 (To the jury) I’ve already given you some
13 instruction on hypothetical questions. Do you
14 remember that instruction? Vaguely. Okay. I’ll
15 give it to you after a while.
16 Go ahead. You may answer.
17 THE WITNESS: As I mentioned, it would not
18 change my opinion about his liquidity of the cash
19 crisis up through 2-13-03. However, if that was
20 known at that point in time, and at the end of the
21 day there would be $200 million of net worth in your
22 hypothetical, clearly that would change a liquidity
23 issue at that point in time.
24 Q. BY MR. MESEREAU: And certainly if Mr.
25 Jackson had received a letter from his attorney in
26 March of 2003 stating an assumption like that, that
27 would likely have changed Mr. Jackson’s view of his
28 financial situation, right? 8625
1 MR. AUCHINCLOSS: Objection. Improper
2 hypothetical; argumentative.
3 THE COURT: Sustained.
4 Q. BY MR. MESEREAU: Now, typically, if you
5 were going to advise Mr. Jackson on how to handle a
6 liquidity crisis, once you identified a liquidity
7 crisis like you have today, logically wouldn’t you
8 sit down with the client and say, “What
9 opportunities are available to you, sir, to raise
10 millions of dollars and help solve your short-term
11 needs?” That would be one of the questions you’d
12 ask, right?
13 A. Certainly.
14 Q. And given what you know about Mr. Jackson
15 and the success he’s had in the music business and
16 his reputation he’s had around the world, logically
17 wouldn’t one of the first questions be, “Mr.
18 Jackson, what are the opportunities available for
19 you around the world right now to raise millions of
20 dollars and help solve the crisis?”
21 A. Would that be a question an advisor would
22 ask? Is that your --
23 Q. Wouldn’t that be a logical question if you
24 were consulting -- or someone like Mr. Jackson was
25 consulting you?
26 A. Certainly. Clearly cash needed to be
27 raised, and that would be a question one would ask.
28 Q. Okay. Now, have you, in your work, advised 8626
1 people in the entertainment industry --
2 A. No.
3 Q. -- of how to restructure their affairs?
4 A. No, I have not.
5 Q. You’ve never done it once?
6 A. Never once.
7 Q. Well, certainly in the course of your
8 career, you’ve heard from time to time about various
9 celebrities in the entertainment industry who, for
10 whatever reason, end up with a cash crisis, true?
11 A. Yes.
12 Q. One of the reasons is sometimes work is
13 sporadic depending on what work you do, correct?
14 MR. AUCHINCLOSS: Objection. Argumentative;
16 THE COURT: Sustained.
17 Q. BY MR. MESEREAU: Do you recall generally
18 what documents you looked at when you were preparing
19 your conclusions in this case?
20 A. Yes. As I mentioned, we saw -- it was five
21 to six boxes. There was a couple of boxes of UCC
22 filing statements. There was also a couple of boxes
23 of Warner-Schappel royalty statements. And I think
24 the remaining two boxes were miscellaneous financial
25 documents, including correspondence from Mr.
26 Jackson’s financial advisors. And the balance sheet
27 that I mentioned to you, as well, for 1999 and 2002.
28 Q. With respect to the expenditures that you’ve 8627
1 identified as exceeding income during those years -
2 okay? --
3 A. Yes.
4 Q. -- am I correct in assuming that you saw
5 some general information about how much was being
7 A. Yes.
8 Q. As opposed to what the individual
9 expenditures were for; is that correct?
10 A. We saw some specifics.
11 Q. Okay.
12 A. And some summaries that the consultants
14 Q. Okay. Okay. Did you see any year-by-year
15 breakdowns about what Mr. Jackson was supposedly
16 spending this money on?
17 A. Well, we showed you 1999, which summarized
18 it by four or five different categories. There was
19 some information in 2000. There was not -- I don’t
20 recall any information in ‘01 or ‘02.
21 So we saw some details, but principally we
22 saw the summarized memos of his financial
24 Q. Okay. Now, you mentioned the
25 one-billion-dollar figure you saw attributed to the
26 Sony/ATV catalog, correct?
27 A. That’s correct, in the IBM memo.
28 Q. And there was a second catalog as well that 8628
1 you became aware of, correct?
2 A. That’s correct, the MIJAC catalog.
3 Q. And that was a catalog devoted to Mr.
4 Jackson’s own music, right?
5 A. That is correct.
6 Q. Did you see any appraisals on what the value
7 of that catalog was?
8 A. Yes. There was one done in 1999.
9 Q. And what was the value placed on that
10 catalog based on the appraisal you looked at?
11 A. $128 million.
12 Q. And do you recall who did that appraisal?
13 A. It was the same firm that did the Sony/ATV
14 catalog appraisal. I don’t remember the name of the
15 firm. It was a Los-Angeles-based firm.
16 Q. And I believe you testified that as part of
17 your analysis, you considered what the Michael
18 Jackson catalog was generating each year in terms of
19 revenue, right?
20 A. Absolutely, yes.
21 Q. Just like you took into consideration what
22 the Sony/ATV catalog was generating in terms of
23 revenue, right?
24 A. Right.
25 Q. You didn’t do any analysis of whether or
26 not, between the years 1999 and March of 2003, the
27 Michael Jackson catalog could have been sold,
28 correct? 8629
1 A. Well, I think that the Michael Jackson
2 catalog could have been sold at any point in time.
3 I’m not aware of any restrictions similar to the
4 ones on the Sony/ATV catalogs. My assumption is
5 that could be sold at any time.
6 Q. Okay. And if it had been sold in 1999,
7 based upon the document you looked at, the best
8 value you could ever come up with would be 128
9 million right?
10 A. 128 million would be the value of the
11 catalog, less, of course, any debt, taxes, et
13 Q. Right. Now, in 1999 -- actually, excuse me.
14 Let me just rephrase that.
15 You’re not aware of any efforts to sell the
16 Michael Jackson catalog, correct?
17 A. I’ve never seen any documentation like that,
19 Q. Okay. And I believe you testified that,
20 from what you could see, the three main hard assets
21 were the two catalogs and Neverland, right?
22 A. Those are the three main assets, yes.
23 Q. Okay. And clearly, you didn’t consider any
24 analysis of what entertainment opportunities were
25 ever available for Mr. Jackson during 1999 to March
26 of 2003, right?
27 A. No, I did consider those, in that it doesn’t
28 matter if those opportunities were available. There 8630
1 was a serious cash crisis. That’s a fact. That’s
2 what the documents support. Also, whether or not
3 that could have happened, it didn’t, and therefore
4 there was a cash crisis. That’s what the documents
6 Q. And if you knew you could solve your cash
7 crisis tomorrow by selling a portion of an asset and
8 accepting an opportunity to tour around the world,
9 that would make a difference in terms of the
10 severity of that crisis, correct?
11 MR. AUCHINCLOSS: Objection. Requires
12 speculation, assumes facts, and asked and answered.
13 THE COURT: Sustained. Assumes facts.
14 Q. BY MR. MESEREAU: As you sit here today, you
15 know that he’s never gone bankrupt and he’s
16 continued to live at Neverland, correct?
17 MR. AUCHINCLOSS: Objection; asked and
19 THE COURT: Sustained.
20 Q. BY MR. MESEREAU: Now, let me ask you the
21 following: Let’s assume that your conclusions are
22 correct. In February of 2003, let’s assume that
23 your conclusions about Mr. Jackson’s financial
24 crisis are true. Okay?
25 A. Okay.
26 Q. As of February of 2003, how much was he in
28 A. Well, the -- the Sony B of A loan had a 8631
1 balance of $200 million. The MIJAC loan had a
2 balance of $24 million. There was apparently an
3 additional ten and a half million dollars owing to
4 vendors that had not been paid.
5 Q. Okay. Now --
6 A. Those are the large liabilities that I can
7 think of as I sit here right now.
8 Q. Let’s assume that’s all correct, all right?
9 And let’s assume he doesn’t want to sell his
10 interest in the Sony/ATV catalog. Let’s assume he
11 doesn’t want to sell his own catalog, which was
12 estimated to be worth $128 million in 1999, okay?
13 Let’s assume he decides to sit there and
14 just keep living with this, these obligations that
15 you’ve identified, all right?
16 A. Okay.
17 Q. Now, let’s assume he has an opportunity to
18 make a documentary for television that can generate
19 about $7 million, all right?
20 A. Okay.
21 Q. Let’s assume FOX is doing what is called a
22 rebuttal documentary, okay? That $7 million isn’t
23 going to make much of a difference, is it?
24 A. No, it’s not.
25 Q. Wouldn’t be worth committing a crime over
26 $7 million in that situation, would it?
27 MR. AUCHINCLOSS: Objection; argumentative.
28 THE COURT: Sustained. 8632
1 Q. BY MR. MESEREAU: Now, I believe you
2 testified that on June 30th, 2002, he was not
3 bankrupt, right?
4 A. June 30th, 2002?
5 Q. Yes. I wrote down some notes, and if I
6 misstated that, let me know. But did you say that?
7 A. Oh, I’m sorry. Based on the financial
8 statements --
9 Q. Yes.
10 A. -- I think Mr. Auchincloss asked, by
11 definition of a negative net worth, does that mean
12 he’s bankrupt, and I said no.
13 Q. Okay. And could you please explain why you
14 felt a negative net worth did not mean you’re
16 A. As I mentioned, that financial statement,
17 those assets were listed in what they call a tax
18 basis, or cash basis, which means it’s the cost. So
19 that’s the cost of acquiring those assets whenever
20 they were acquired. And liabilities are, in fact,
21 the stated amount of the liability.
22 We all know, for example, if you buy a house
23 for 100,000, two years later it might be worth
24 150,000. So if that’s, in fact, the case, the
25 100,000 asset is lower on the balance sheet than it
26 is the fair market value. And that’s the reason
27 that you cannot draw that inference from that
28 information, because that’s stated at cost, not 8633
1 necessarily fair market value.
2 Q. You were referring, in response to the
3 prosecutor’s questions, to a document dealing
4 with -- I gather it was a financial statement from
5 June 30th, 2002; is that correct?
6 A. That is correct.
7 Q. Okay. Now, if you were trying to determine
8 fair market value of Mr. Jackson’s assets based on
9 that document, what would you have to do?
10 A. You’d have to go through each one of the
11 assets and figure out what the fair market value
13 Q. And how would you do that?
14 A. You’d have to perform an appraisal on the
15 largest of the assets; namely, the catalogs, and
16 Neverland Ranch and all of the furnishings and
17 fixtures and artwork within Neverland Ranch. And
18 then you’d have to go through the liabilities’ side
19 and understand what the total liabilities were,
20 adjusted for taxes, because assuming you have to
21 sell all those assets, there’s going to be taxes
22 related to that. So that’s how you go about it.
23 Q. Did Prosecutor Auchincloss ever ask you to
24 get an appraisal done of anything?
25 A. No.
26 Q. Did Prosecutor Auchincloss ever ask you to
27 do a fair market value analysis of anything owned by
28 Mr. Jackson? 8634
1 A. No. But as part of the work that we were
2 performing, we did look at and consider the value of
3 the MIJAC catalog and the Sony/ATV, Mr. Jackson’s
4 interest in that.
5 Q. But you didn’t actually have it appraised by
6 someone capable of appraising its value, true?
7 A. There was no appraisal done, no.
8 Q. Okay. And you would agree that to put a
9 value on something like the Sony/ATV catalog would
10 require fairly unique expertise, would it not?
11 A. Not necessarily, no. I mean, it’s --
12 valuations -- both these valuations are simply based
13 on cash flows. And the cash flows of that entity
14 are then projected out into the future, and then
15 they’re discounted back. That’s a common valuation
16 technique. I’ve done it dozens of times.
17 Q. But they’re also based on whether or not you
18 think the hard asset is appreciating, correct?
19 A. No, it’s not appreciating, because the
20 appraisal tells you whether or not it’s
21 appreciating. It’s simply based on assumptions with
22 respect to the cash flow stream.
23 The value of those copyrights are nothing
24 more than the cash flow going forward. That’s what
25 someone would pay for them. And so you have to make
26 an assumption about how they’ll grow, but then they
27 simply apply a multiplier and they discount it back
28 to today’s dollars using a discount rate. 8635
1 And so it’s a rather -- I’m not going to say
2 it’s simple, but it’s a rather common valuation
3 technique that we use in our business.
4 Q. And if it’s so common to do, why wasn’t it
5 done in your analysis?
6 A. Well, as I said, I did consider the MIJAC
7 valuation as of 2003 and the Sony/ATV valuation of
8 2003. I did consider that.
9 Q. You did no analysis regarding what the
10 marketability of his interests were in either of
11 those assets during that point in time, and if he
12 were to market those assets, what his condition
13 would have been afterwards, correct?
14 A. No, that’s not true. No, I did. I
15 considered that.
16 Q. Well, I just showed you a letter from March
17 2003 where his lawyer actually does that, and you
18 said you didn’t do any analysis like that, right?
19 A. No, I said I didn’t see the letter, and I
20 didn’t do a formal appraisal.
21 Q. Okay.
22 A. But I certainly took a look at what I
23 believed the values to be of those assets. Not the
24 whole catalog, because you can’t value the whole
25 catalog. It’s just Mr. Jackson’s interest. But I
26 certainly considered the value of the MIJAC catalog
27 and the Sony/ATV catalog as of February of 2003.
28 Q. But correct me if I’m wrong, you said you 8636
1 don’t know how marketable that interest was, either
2 individually or jointly with Sony at that time,
4 A. No, I think what I said was Sony would have
5 to approve any sale. How marketable it is, I don’t
7 Q. Okay. Did you ever do any analysis as to
8 whether or not Mr. Jackson’s assets were
9 appreciating in value between 1999 and February of
11 A. I believe that the catalogs were actually --
12 that Mr. Jackson’s interest in both MIJAC and
13 Sony/ATV were depreciating. The Neverland Ranch
14 I’ve just always assumed at the value that was put
15 in, I think in 1999, by one of his advisors.
16 Q. Sir, if Mr. Jackson’s interest in the
17 Sony/ATV catalog went from 47 million in 1986 to
18 selling half of it for 90 million in 1995, and then
19 was estimated -- the entire catalog was estimated at
20 a billion in 2003, based on the document you saw,
21 how can you say it’s diminishing in value?
22 A. Because when you look at the way the money
23 gets disbursed to the partners on the sale, and you
24 look at how much money has been advanced to Mr.
25 Jackson over the years, he gets six and a half
26 million dollars guaranteed every year on that.
27 While that’s going on, Sony should be getting six
28 and a half million, and they’re not. So that means 8637
1 that they are, in fact, accruing a liability on an
2 annual basis.
3 In addition to that, Sony is making
4 substantial investments in additional copyrights
5 expenses which Mr. Jackson is not contributing to,
6 so that liability increases.
7 So I literally cash-flowed a model out and
8 looked at when anybody could expect to get cash out
9 of the Sony/ATV catalog, and it’s like out into 2015
10 that someone would get that value, cash flows. When
11 you discount that back to today’s dollars, it’s not
12 as much as you think.
13 Q. Does anything happen in the year 2006
14 regarding liquidity of that catalog, to your
16 A. Well, there’s a “put” option that happens in
17 December of 2005, which Mr. Jackson could sell for
18 $200 million to Sony.
19 Q. What else is available?
20 A. I don’t recall. I think at some point in
21 time it can be sold. But again, the interest is --
22 what the cash flow values are, and when you look at
23 the actual cash flows that will result off that
24 interest, there’s been a substantial amount of
25 pre-drawing, if you will, of disbursements.
26 Q. But you saw documents that indicated what
27 Sony’s making on the catalog.
28 A. Well, you see a financial statement that 8638
1 shows what the entire partnership is making.
2 Q. Okay. So what you’re saying is, based upon
3 the obligations Mr. Jackson’s assumed, you think
4 value has been lost with each year; is that correct?
5 A. I do, yes.
6 Q. Okay. But you’re not taking into account
7 the value of the music around the world and what
8 markets might be available for that music, true?
9 A. No, I am. I’m taking into account the cash
10 flows that the partnership’s generating.
11 Q. Okay. All right. Now, you indicated -- by
12 the way, did you look to see whether Neverland has
13 increased in value?
14 A. I didn’t, no. I think at some point in time
15 there was a value, and I just assumed that value.
16 Q. And what year did the -- excuse me, what
17 year was there a value that you assumed?
18 A. I thought there was a number in there. I
19 think it was sometime in the 2000 range. About $50
21 MR. MESEREAU: Okay. If I may take just one
22 second, Your Honor.
23 THE COURT: You may.
24 MR. MESEREAU: Thank you.
25 Q. As far as his expenditures go, you don’t
26 know, generally speaking, who he’s spending money
27 on, do you?
28 A. No. There is some detail in the records, 8639
2 Q. How much detail would you say?
3 A. As I mentioned, in the 1999 memo it shows
4 the expenditures for the Neverland Ranch and
5 security, it shows for professional and legal, it
6 shows for personal, it shows for other, so there are
7 details in there. There’s a listing of all the
8 employees that work at Neverland Ranch. There is
9 detail at times.
10 Q. Do you think that detail accounts for all of
11 the expenditures you’ve identified today?
12 A. Well, I think -- I think that the work done
13 by Mr. Jackson’s financial consultants would take
14 into account all the expenditures. I don’t know why
15 they would have a reason to misstate those
17 Q. No, I don’t mean the amount. I mean the
18 actual whatever -- whatever the money was actually
19 spent on. Did you get detail to that effect?
20 A. As I mentioned, for 1999 we have detail.
21 Q. Okay.
22 A. And there are -- there is other detail. But
23 Holthouse was the ones writing the checks. They
24 would know where all the money went.
25 Q. Excuse me?
26 A. Holthouse was writing the checks. They
27 would know where that money went.
28 Q. Did you see a detailed accounting of where 8640
1 every dollar was spent?
2 A. No.
3 MR. MESEREAU: Okay. No further questions.
4 THE COURT: Counsel?
6 REDIRECT EXAMINATION
7 BY MR. AUCHINCLOSS:
8 Q. Mr. O’Bryan, you mentioned that you did an
9 analysis of Mr. Jackson’s interest in the Sony/ATV
10 catalog, as well as an analysis of the value of the
11 MIJAC catalog in coming to the conclusions that
12 you’ve stated to the jury today; is that correct?
13 A. I did consider those values, yes.
14 Q. And you’ve also stated that you arrived at
15 those values based on a cash flow analysis?
16 A. That’s correct. That’s how you value that
18 Q. What do you mean by a cash flow analysis?
19 A. The cash that actually is paid to someone
20 over a period of time. That’s the cash flow.
21 Q. Okay.
22 A. How that cash flows to you and what you’re
23 willing to pay for that investment is how much cash
24 you will get in the cash flow that you get out of
25 it. That’s a common valuation methodology.
26 Q. So those catalogs are only worth their --
27 you arrive at your value based on what kind of
28 income streams they produce? 8641
1 A. Right.
2 Q. Okay. So tell us about your analysis of the
3 MIJAC catalog. What were your findings or what were
4 your conclusions about the value of the MIJAC
5 catalog based upon your cash flow analysis in this
7 A. Well, the MIJAC catalog, I believe, has gone
8 down in value from 1999. The revenues, the
9 royalties stream has gone down by almost 30 percent
10 from the 1997, ‘98, ‘99 time frame, into ‘00, ‘01,
11 ‘02, ‘03. And by virtue of the fact that the cash
12 flow stream goes down, the value goes down. That’s
13 just the way -- it’s the way the model works. You
14 simply multiply the revenue stream times the
15 multiplier. So if, in fact, the revenue stream goes
16 down, the value goes down, and that makes sense.
17 So that’s gone down.
18 Q. Okay.
19 A. And on the Sony/ATV, it was exactly as I
20 described, and that is that the amount of money
21 which Mr. Jackson and/or his entities have been
22 taking out on an annual basis and/or not paying into
23 the partnership on an annual basis has created a
24 growing liability.
25 And by the time you pay back that growing
26 liability, there is a substantial amount of time
27 that will pass before you see cash flows out of
28 that. There’s a guaranteed amount of six and a half 8642
1 million, I think, through 2005. And that goes down
2 to two million. And then after that, it’s just the
3 actual amounts. But when those actual amounts are
4 paid, you have to first repay the amounts that Sony
5 hasn’t been paid, and/or the investments that
6 they’ve made that in fact they have not been paid
7 back for, including interest.
8 And I looked at that and it’s a long while,
9 once you get through this guaranteed portion, before
10 you’ll see a cash flow on that investment.
11 Q. So based on everything that you’ve
12 considered, I believe you said that Sony is putting
13 more royalties -- more copyrights into that catalog
14 as time goes on?
15 A. They continue to invest.
16 Q. Mr. Jackson is taking more than his share
17 out in terms of cash on an annualized basis?
18 MR. MESEREAU: Objection; misstates the
20 THE WITNESS: I wouldn’t say he’s taking
21 more than his share, but --
22 THE COURT: Just a moment.
23 THE WITNESS: I’m sorry.
24 MR. AUCHINCLOSS: Okay.
25 THE COURT: Well, I’ll allow the answer.
26 You may --
27 THE WITNESS: I wouldn’t say he’s taking
28 more than his share. I would say that Sony isn’t 8643
1 getting their share.
2 Q. BY MR. AUCHINCLOSS: So is the catalog
3 producing what was anticipated when this agreement
4 was originally reached?
5 A. I don’t know when it was anticipated, or
6 when it was reached. I don’t know.
7 Q. So tell us about this -- the structure of
8 Mr. Jackson’s interest in the ATV catalog.
9 MR. MESEREAU: Objection; foundation.
10 THE COURT: Overruled.
11 You may answer.
12 Q. BY MR. AUCHINCLOSS: You mentioned he
13 doesn’t own half of that catalog today on an asset
14 basis. In other words, if it’s worth a billion
15 dollars, he doesn’t own half a billion dollars,
16 doesn’t have a half-a-billion-dollar interest in
17 that catalog; is that correct?
18 A. Well, he owns half of the catalog.
19 Q. Yes.
20 A. But his interest in the catalog is not worth
21 half of the catalog value --
22 Q. All right. So --
23 A. -- because of the front-end loading of the
24 cash flow stream that has gone to him and not gone
25 to Sony.
26 Q. So if the catalog gets sold, then Sony walks
27 away with more money than Mr. Jackson?
28 A. Yes, because he has to repay all of the 8644
1 advances on all of the investments that Sony has
2 made. Absolutely.
3 Q. And you stated that Mr. Jackson has a right
4 to sell his interest in that catalog for $200
5 million; is that correct?
6 A. There is a “put” option. That means I
7 can -- it’s a technical term in financial -- it
8 means I can put this opportunity to you, and that
9 “put” option is worth 200 million. Starting on
10 December 2005, Mr. Jackson can force Sony to pay him
11 $200 million for that investment for his share.
12 Q. And I think you previously testified that in
13 February of 2003, that asset, his Sony/ATV catalog,
14 was mortgaged to the tune of $200 million; is that
16 A. That’s right. But remember, you also have
17 to consider the taxes on that. If you sell that,
18 you’re going to pay taxes.
19 Q. Good point. Tell me what happens, from a
20 tax basis, if Mr. Jackson has to sell his Sony/ATV
21 interest for $200 million to pay off that $200
22 million loan.
23 A. His basis is somewhere around $40 million,
24 meaning his cost basis. So you’d subtract the 200
25 from the 40, and you get a gain of about 160
26 million, and you’d basically calculate it in what’s
27 called capital gains rates, which federal and state
28 would be about 25 percent, so you’d pay about $40 8645