(Reuters) - The former chief executive of Eaze Technologies Inc told a Manhattan federal jury how he and others at the online cannabis marketplace worked with consultants to "conceal the true nature" of credit card payments on its site from banks and payment processors.

James Patterson, 41, who took the stand on Friday, is the star witness in federal prosecutors' case against Hamid (Ray) Akhavan, 42, and Ruben Weigand, 38, former consultants to the San Francisco-based marijuana delivery site. He told jurors he and the two men took part in a scheme to fool banks into handling card payments for the company.

Patterson, who led Eaze between 2016 to 2019, has pleaded guilty to one count of bank fraud conspiracy as part of a cooperation deal. He said on Friday that in addition to himself and the two defendants, unnamed Eaze executive staff, board members and marijuana dispensaries that sold through the site were among those in on the scheme.

Eaze senior vice president David Mack said on Friday that the company is aware of the matter and "fully cooperating with the relevant authorities." He added that the company transitioned to supporting new payment systems over a year ago.

Akhavan and Weigand are accused of conspiring to defraud banks between 2016 and 2019 by disguising online marijuana transactions as purchases at fake merchants such as happypuppybox.com. The pair have pleaded not guilty and have sought to show banks wanted "plausible deniability" that they were handling marijuana payments rather than to avoid them entirely.

Marijuana is legal under several states' laws, including in California and Oregon where the sales at issue allegedly took place. But because the substance is prohibited under federal law, major banks and payment networks such as Visa and Mastercard consider marijuana transactions illegal and avoid handling them.

On Friday, Patterson told jurors that Akhavan helped set up a card payment workaround for Eaze in 2016 that would not show up in payment records as tied to the company. Patterson walked the jury through emails where Akhavan explained the need to monitor chargebacks, or refunds resulting from a customer dispute caused by confusion over the merchant name. The concern was that customers could tell banks they had been using their card to buy marijuana, he said.

"That would tip off the bank and they would potentially reach out to Visa and MC," Patterson said, who could remove the merchant from the network.

Patterson also described being intimidated when he first met Akhavan in his Calabasas, California office in 2016. Akhavan dominated the agenda and chainsmoked as he spoke with Patterson and Keith McCarty, a former Eaze board member who preceded Patterson as CEO, he said.

"I left that meeting with the feeling that this whole thing wasn't as legitimate as people had been telling me," Patterson said, drawing an objection from the defense.

The trial before U.S. District Judge Jed Rakoff is one of the first to be conducted in Manhattan federal court after a pause of in-person hearings prompted by a surge in coronavirus cases.

Rakoff praised jurors for their attentiveness to the trial before releasing them for the weekend.

"Particularly given the events of the last year, you are proving that the U.S. Constitution and its guarantee of a jury trial is still a reality in New York at this time" he said.

The case is U.S. v. Weigand et al., No. 1:20-cr-00188, U.S. District Court, Southern District of New York.

For the government: Nicholas Folly, Tara La Morte and Emily Deininger of the U.S Attorney's Office for the Southern District of New York

For Akhavan: William Burck, Christopher Tayback and Sara Clark of Quinn Emanuel Urquhart & Sullivan

For Weigand: Michael Gilbert, Michael Artan and Shriram Harid of Dechert