Ex-Bankrate CFO fights to toss guilty plea in $25m fraud scheme

(CN) — Bad legal advice caused the former chief financial officer of consumer financial services company Bankrate to plead guilty to charges of conspiracy and making false statements to the Securities and Exchange Commission, an attorney for the ex-executive told an 11th Circuit panel on Friday.

Arguing on behalf of Edward J. DiMaria, Miami-based attorney Richard Klugh asked the three-judge appellate panel to overturn a Florida federal judge’s refusal to grant his client a new hearing on whether his 10-year prison sentence should be tossed due to ineffective assistance of counsel.

DiMaria pleaded guilty in 2018 to making materially false statements to the Securities and Exchange Commission, as well as conspiracy to make false statements to a public company’s accountants, in order to falsify the public company’s books and records and to commit securities fraud.

Klugh said his client would have chosen to stand trial if not for his previous counsel’s failure to adequately investigate his case or fully advise him on how the $25 million financial loss to Bankrate shareholders was calculated by the government.

An attorney for the government rebuffed claims that DiMaria did not understand the facts and law surrounding his case.

Justice Department attorney Andrew Laing said there is a “lack of analytical connection between the alleged mis-advice and [DiMaria’s] decision to plead guilty.”

The charges against DiMaria arose from a “cookie jar” or “cushion” accounting- and securities-fraud scheme. As part of his guilty plea, DiMaria admitted that he and his co-conspirators manipulated Bankrate’s reported earnings between 2010 and 2014 by leaving millions of dollars in unsupported expense accruals on the company’s books so they could selectively reverse them later.

DiMaria also admitted to conspiring to misrepresent some company expenses to artificially boost adjusted earnings metrics. He was ordered by a Florida federal judge to pay $21.2 million in restitution for his actions.

Bankrate agreed in 2015 to pay a $15 million fine to the SEC to settle civil accounting fraud charges.

Klugh argued on Friday that DiMaria’s trial counsel failed to challenge the government’s $25 million investor loss calculation, telling the panel the actual loss amount was between zero and $40,000.

“There really was no loss here,” Klugh said, pointing to reports created in 2012 by Bankrate’s independent auditors which found no evidence of material misstatements. The attorney said DiMaria’s trial counsel had access to the reports and could have used them to show no fraud had been committed.

Klugh’s arguments were met with a frosty reception by Friday’s panel.

U.S. Circuit Judge Adalberto Jordan, a Barack Obama appointee, noted that DiMaria and his counsel were aware of the internal reports “well before the indictment and certainly well before the plea” but chose to go forward with the plea anyway.

U.S. District Judge Virginia Covington, a George W. Bush appointee sitting in from the Middle District of Florida, also poked holes in the argument, asking: “Didn’t your client admit making misstatements to [internal] auditors? Doesn’t that diminish the value of that?”

DiMaria admitted in the plea agreement to making false statements to the auditors to conceal improper accounting entries.

Laing told the panel Klugh was “overstating the exculpatory quality” of the reports prepared while DiMaria was “lying” to the auditors.

“He was the CFO of Bankrate when those investigations took place. He knew what was going on,” Laing said. “He knew the information that was being provided and withheld from [the auditors]. He understood the significance of those reports … This court has held counsel doesn’t need to go searching for information a client already possesses.”

Klugh said his client’s misstatements were immaterial, arguing counsel failed to tell DiMaria he was “not liable simply because [he] made misstatements.”

“As remarkable as it may seem, the lawyers simply did not explain to the defendant that these [auditors’] opinions — if they were to hold up and if these witnesses were to be interviewed and it were to hold up — that there would be no materiality and it would be a case-killer for the government,” Klugh said.

Jordan and U.S. Circuit Judge Andrew Brasher, a Donald Trump appointee, also repeatedly questioned whether an attorney’s failure to identify some defenses that could have been raised at a hypothetical trial was enough to show the attorney’s performance was deficient under the law.

“How sophisticated does the advice have to be to not be ineffective assistance?” Brasher asked. “It seems there are always defenses that could be brought to something.”

Laing admitted “it’s hard to draw a clear line between deficient performance and reasonable but not maximal performance” but said any deficient performance by DiMaria’s counsel did not prejudice him.

The panel did not indicate when it would issue a decision.

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