SAN FRANCISCO — Federal prosecutors have recommended a stiffer sentence for confessed East Wenatchee securities swindler Jasper “Jay” Knabb, saying he’s “been evasive about the fluidity between his and his current wife Laura Valaas’s finances.”
Since striking his plea agreement, in which prosecutors agreed to recommend a sentence of 78 months in prison, Knabb’s been accused of dodging payment for electrical work performed for his wife’s ski-accessories business, and of auctioning high-dollar material goods through an eBay under Valaas’s name.
The behavior demonstrates a lack of candor and a failure to accept responsibility on Knabb’s part, Assistant U.S. Attorney Jonathan Schmidt wrote in a May 17 court memo. Because of this, Schmidt said he would revise his sentencing recommendation upward, to 87 months.
A federal probation officer’s revised report to the court April 5 recommended 17 1/2 years, well up from the 63 months suggested in February.
Knabb, 45, pleaded guilty last year in U.S. District Court to securities fraud, conspiracy to commit securities fraud and maintaining false books and records, carried out when he headed the failing tech firm Pegasus Wireless from 2005 to 2008. He and partner Stephen Durland bilked Pegasus investors of about $30 million by pumping up their stock price and secretly issuing almost 500 million shares to themselves, then selling them at peak valuation.
Knabb has been married since October 2010 to Wenatchee native Valaas, a former competitive cross country skier. They have a son, born last August.
Valaas’s manufacturing business, Skadi Nordic, was incorporated in Montana in 2009 under the holding company The Magic Bus LLC, with Valaas as the Washington licenseholder. In a February letter to U.S. District Court Judge Jeffrey S. White seeking leniency for Knabb, Valaas wrote that Knabb has no financial or legal interest in Skadi Nordic. She characterized him as an engineer who oversees the company’s equipment and maintenance.
In federal court papers filed by the prosecution, Dorsey Electric of East Wenatchee claims it performed about $20,000 worth of work in summer 2011 to power Skadi Nordic’s manufacturing operation, then based at the couple’s East Wenatchee home.
Bills for the service went unpaid, and Dorsey turned the matter over to a collections agency in March. The federal filing includes emails that show when the agency contacted Valaas, she referred them to Knabb, who said he would pay the bills if they were converted to his name. Despite this, the debt still had not been paid as of mid-May, Schmidt wrote.
“Neither Mr. Knabb nor Ms. Valaas explained to the collection agency that they were married, that Skadi Nordic operated out of their shared garage and that the electrical work was for Skadi Nordic equipment,” the prosecution memo reads. “… It is unclear why Mr. Knabb wanted the bills changed to his name and why he would want to assume Skadi Nordic’s debt.”
Aside from his potential prison term, Knabb has been ordered to pay $40 million in stolen funds plus penalties. He has claimed to be unable to pay that amount.
In a defense memo, Knabb’s attorney Kirk W. Elliott wrote that the collection agency submitted fraudulent billing, harassed Valaas’s extended family and threatened to turn the matter over to Knabb’s probation officer. Elliott argued the matter shouldn’t weigh against Knabb at sentencing.
Valaas has also been listed since January as the contact person on Knabb’s four-year-old eBay account, Schmidt’s filing claims. The account has been registered to five different names and multiple mailing addresses in its lifetime, but only two IP addresses. Between March and June 2010, the account was registered to “Jay Valaas.”
About $242,000 worth of goods were sold through the account over the last four years, and nearly $64,000 in goods purchased. Items sold include a $40,000 Ford F-350 pickup, two $17,000 Rolex watches and a $5,000 custom Gibson guitar. Buyer feedback entries appear to indicate about $16,000 in sales went through the eBay account while under Laura Valaas’s name, including a $1,400 chandelier, a $2,900 Fender Stratocaster and a $4,000 Canon camera.
However, the bulk of those sales were HO-scale model trains and equipment, sold under the business name Lulu’s Trains, for which Valaas holds a license.
Knabb’s attorney Kirk W. Elliott wrote in a defense memo that “none of the items that have been purchased or sold were either owned by Mr. Knabb nor were any proceeds provided to him. This is evidenced by the fact that Mr. Knabb’s wife wrote on eBay that she was ‘selling my collection’ — hers, not Mr. Knabb’s.
“Further this separate business of Mr. Knabb wife’s is controlled by pre-nuptial agreement entered into by Mr. Knabb and his wife prior to their marriage.”
The handling of the electrician’s bill and the eBay account is not criminal, Schmidt wrote, but it’s similar to the conduct for which Knaab was prosecuted, “in that Mr. Knabb used multiple redundant transactions, and various aliases and nominees, all of which made the financial transactions opaque and difficult to trace.”
Judge White ordered the revised probation report and sentencing recommendation March 8, after questioning whether 78 months was appropriate.
In that hearing, White referred to the eBay sales and asked investigators to “run to ground what’s going on with these assets. Because it’s going to inform my decision about whether I impose a fine or penalty. … And it may inform the government’s decision about who, if anybody else, to prosecute in this case, for obstruction or conspiracy.”
Knabb is scheduled for sentencing June 7 in a San Francisco federal courtroom.
Jefferson Robbins: 664-7123