PROSECUTION: INetGlobal Trying To Derail Probe By Hiring Attorney To Block Agents’ Access To ‘Potentially Adverse Witnesses’ Among Employee Ranks; Assertion That One Attorney Can Represent All Workers ‘Outlandish’

Federal prosecutors say they believe INetGlobal and its parent company — Inter-Mark Corp. — hired an attorney for employees to derail a criminal probe into the companies’ business practices by muting the voices of workers who could become witnesses in the case.

Prosecutors made the dramatic claim in response to INetGlobal’s request last week for a court order that would prevent the U.S. Secret Service and other law-enforcement agencies “from contacting these represented individuals and requesting interviews.”

No attorney-client relationship exists between the workers and attorney Paul Engh, prosecutors argued.

“Mr. Engh indicates that he ‘was hired’ to represent these employees, but refrains from indicating who it was who hired him,” prosecutors said. They added that “many of [Engh’s] purported clients seem to have never spoken with him.”

Engh argued last week that government agents were approaching employees “on a cold-call basis, at [employees’] homes, at night or in the early morning hours, and all without notice to counsel.” He added that the government appeared to be ignoring his duty as counsel to INetGlobal employees “on some federalist notion of superiority or entitled sense of un-accountability.”

Nonsense, the government said.

“The United States opposes these outlandish claims of sweeping representation, and respectfully asks the Court to deny the pending motion for a protective order,” prosecutors said. “On May 4, 2010, the corporate targets made clear what lies behind Mr. Engh’s motion. The companies joined in the motion for a protective order . . . and quite candidly admitted that they have done so because ‘statements taken by the government could be used against IMC (InterMark Corporation) in subsequent proceedings.

“This, of course, crystallizes the motive behind the motion for a protective order,” prosecutors asserted.

Minnesota-Based Case Takes California Swing

The prosecution’s move occurred against the backdrop of a revelation Tuesday by the defense that the government had filed a forfeiture complaint March 15 against a San Diego property allegedly acquired for $595,000 by Inter-Mark in August 2009 with criminal proceeds from a Ponzi, wire-fraud and money-laundering scheme.

Inter-Mark lists Las Vegas as its home; INetGlobal and other related companies operate from Minneapolis.

A Secret Service agent alleged that the San Diego property was acquired with funds from INetGlobal advertisers in a multistep transaction in which credit-card payments from customers were funneled through at least three Inter-Mark bank accounts to pay for the building, which is situated near a beachfront and bay.

Court records suggest that INetGlobal has known about the forfeiture action since at least April 19, leading to questions about whether the firm withheld the news about the action from the membership at large for at least 15 days in a bid to prevent its support base from eroding. The forfeiture case is proceeding on a litigation track separate from the probe into INetGlobal operator Steve Renner’s business practices.

In February, the Secret Service said it believed Renner was operating an international Ponzi scheme through his affiliated companies that largely targeted Chinese members, including members from Mainland China. No criminal charges have been filed, but the government has seized about $26 million in the case, alleging wire fraud and money-laundering.

Prosecutors said Thursday that the probe into Renner’s business practices was continuing and that the government was “carrying out its constitutional obligation to ‘take care that the laws be faithfully executed’ . . . by investigating credible allegations of serious criminal conduct.”

Whether INetGlobal members at large knew about the building in San Diego remains unclear. At least one prominent supporter of the firm said she did not. She added that she did not believe it was a crime to expand a business and open a branch in California, but the government never alleged that opening a legal business was a crime.

The allegation against Inter-Mark in the forfeiture case was that it used criminal proceeds to purchase the building and that the building itself was the proceeds of a crime.

On Thursday — in a filing peppered with the words clients and client encased in quotation marks in what might have been a bid to highlight an emerging theory that the other side was trying to pull the wool over the eyes of both INetGlobal employees and the court, prosecutors said the legal approach chosen by the Renner companies could backfire because the employees Engh says he represents could have competing legal interests. (Emphasis added.)

“The potential for conflicts of interest also does not seem to have been considered in any depth by the corporation,” prosecutors said. “The motion filed by Mr. Engh is silent as to what course of action he will follow should one of his ‘clients’ implicate another ‘client’ in wrongdoing, or what he will do when one ‘client’ directs him to negotiate favorable terms with the government under which the first client may impart information that may incriminate other ‘clients.’

“The lack of planning for these eventualities is itself circumstantial evidence that this blanket assertion of representation is more strategic than real,” prosecutors argued.

The legal situation confronted by INetGlobal’s 70 employees perhaps is analogous to a hypothetical case in which a corporation believed to have stolen money arranged blanket counsel for employees whose ranks could include workers who had knowledge about the theft and workers who did not.

If the same lawyer is representing each of the employees — and if the employees have competing legal interests — serious doubts about a client’s right to receive thorough representation could arise.

Prosecutors said they would “scrupulously observe the limitations that the law places on investigative activities,” but added that they would not submit to defense maneuverings designed to derail the investigation.

“[W]e need not, and shall not, voluntarily accede to sweeping assertions that entire categories of potential witnesses are out-of-bounds because the investigative target has retained counsel and declared that attorney to be the legal representative of those witnesses,” prosecutors said.

“If a person from whom agents request an interview declines the request, the agents will depart; if the person states that they wish the interview request to go through their lawyer (whoever that lawyer may be) that request will be honored.

“Otherwise, we plan to proceed with our investigation, and to make use of all the investigative tools at our disposal, to the fullest extent allowed by law, including contact and interviews with witnesses,” prosecutors concluded.