The following examples of Bankruptcy Fraud investigations are excerpts from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Maryland Woman Sentenced for Mortgage Fraud, Bankruptcy Fraud and Tax Fraud; Fraudulently Obtained over $1.1 Million in Loans
On August 27, 2010, in Baltimore, Md., Olusola Idowu, of Hagerstown, was sentenced to 46 months in prison, three years of supervised release, and ordered to pay $425,000 in restitution. Idowu was the owner and president of SSS Nutrition & Dietetic Care Services (SSS Nutrition). According to testimony at her trial, between November 2003 and December 2008, Idowu made false representations to financial companies in order to obtain mortgages and loans; and lied to, and concealed information from, the U.S. Bankruptcy Court relative to her Chapter 13 bankruptcy petition. Trial evidence showed that on November 7, 2003, Idowu filed a voluntary Chapter 13 Bankruptcy Petition in U.S. Bankruptcy Court in Maryland. Then on May 17, 2004, Idowu requested the dismissal of her bankruptcy petition, which was granted. On September 30, 2004, Idowu falsely testified in U.S. Bankruptcy Court for the District of Maryland that she filed tax returns on behalf of her business for tax years 2001 through 2003 with the Internal Revenue Service (IRS), when in fact, she had not filed corporate tax returns for those years. On June 17, 2004, Idowu received a $400,000 loan from Option One Mortgage for the purchase of a residence in Hagerstown, which falsely represented that her son was employed as a nutritionist at SSS Nutrition, earned $10,000 per month, and had $100,000 in a bank account. On that same date, Idowu obtained two bridge loans from Hyattsville Properties, LLC; in the amount of $85,000 and $50,000. On several other occasions, Idowu obtained loans on false representations. In addition, on June 14, 2006, Idowu filed her 2005 federal individual income tax return, falsely claiming her son as her dependent and reporting a total income of $19,000, when in fact, evidence showed that her income was substantially more.
Former CEO of New York Company Sentenced to 36 Months; Ordered to Pay Over $4 Million in Restitution
On July 14, 2010, in Albany, N.Y., Steven F. Shaw was sentenced to 36 months, followed by five years of supervised release, and ordered to pay $4,653,530 in restitution. The restitution amount was comprised of $4,500,000 to Berkshire Bank, $122,530 to the Internal Revenue Service (IRS), and $31,000 to the Capital District Physicians’ Health Plan for Tougher Industries, Inc. According to court documents, Shaw was the President and Chief Executive Officer (CEO) of Tougher Industries, Inc., a heating and air conditioning contractor based in Albany, New York. In 2006, Shaw caused Tougher Industries to apply for loans in the total amount of approximately $6 million from Berkshire Bank. Because Tougher Industries’ financial statements were not strong, the bank required Shaw to guarantee the loan personally. To satisfy this requirement, Shaw submitted personal financial statements, tax returns, and a personal biography in support of the loan application. The bank also required that Shaw provide supporting documentation for financial accounts that he had listed on his personal financial statements. The account statements, documents, and information provided by Shaw were false. He inflated his financial statement, falsely represented that it had been prepared and reviewed by a senior vice-president at a major financial services firm. He also falsely claimed to have accounts at several major financial institutions. Shaw submitted false federal income tax returns for the years 2003 and 2004 that were never filed and falsely reflected that they were prepared by a firm that Shaw made up. The loans to Tougher were approved and disbursed in June 2006. On November 3, 2006, Shaw filed a voluntary petition seeking the reorganization of Tougher under Chapter 11 of the United States Code in the United States Bankruptcy Court for the Northern District of New York. Shaw failed to file federal income tax returns for calendar years 2004 through 2006, despite having over $600,000 in taxable income for those years. Shaw engaged in other affirmative acts of evasion, including attempting to conceal his income by using an incorrect social security number. Shaw also embezzled about $31,000 from the Capital District Physicians’ Health Plan for Tougher Industries, even though the employees’ health care premiums were not being paid at the time.
California Attorney Sentenced for Bankruptcy Fraud and Tax Evasion
On May 14, 2010, in San Diego, Calif., Donald Yates, a California attorney who
practiced law in San Diego, was sentenced to serve 30 months in prison and three years of supervised release based on his previous conviction for bankruptcy fraud and filing a false tax return. Yates was also ordered to pay more than $192,000 in restitution to the victims of the bankruptcy fraud, which Yates paid prior to his sentencing hearing. According to court records, Yates pleaded guilty on November 6, 2009, to charges of bankruptcy fraud and filing a false tax return. In his plea agreement, Yates admitted that from June 2004 through August 2009, he fraudulently concealed from the bankruptcy trustee and Internal Revenue Service more than $190,000 in law practice receipts, settlement checks from personal law suits, and other funds by diverting them to his undisclosed offshore bank accounts in Switzerland and China. Yates further admitted that he opened a Swiss bank account in1974 and deposited approximately $96,000 into the account, more than $71,000 of which he secretly deposited after filing bankruptcy. He endorsed one of his deposited legal fee checks with the name of his Panamanian corporation, which he formed without the Trustee’s knowledge by traveling to Panama. He further admitted that in June 2003, one year before filing bankruptcy, he, and friends at his direction, wire transferred approximately $36,000 of his funds to his former girlfriend’s bank account in China. The combined value of Yates’ undisclosed Swiss and Chinese bank accounts exceeded $190,000. In pleading guilty, Yates admitted that during the protracted bankruptcy proceedings, he testified falsely under oath and submitted false declarations and documents that concealed the existence and diversion of his income and assets, including his offshore bank accounts. As part of the plea agreement, Yates repatriated from Switzerland and China and transferred to the Trustee, more than $192,000. In addition, Yates admitted that he filed fraudulent individual tax returns for the tax years, 2003, 2004, and 2006, by failing to report his ownership and control over his bank accounts in Switzerland and China. In his plea agreement, Yates agreed to cooperate with the Internal Revenue Service in its assessment and collection of all taxes, penalties, interest that he owes for the tax years 2003 through 2008.
California Man Sentenced for His Participation in Mortgage Fraud Scheme
On April 5, 2010, in Los Angeles, Calif., Lorenzo Espinoza, a Newport Coast man, was sentenced to 60 months in prison for defrauding the Department of Housing and Urban Development (HUD) by fraudulently obtaining mortgage loans that went into default. Espinoza was ordered to pay more than $614,000 in restitution to HUD. In December 2006, Espinoza pleaded guilty to conspiracy to defraud HUD, bankruptcy fraud, money laundering, and willful failure to pay tax to the Internal Revenue Service (IRS). In pleading guilty, Espinoza admitted that he engaged in a scheme that ran from April 1995 until approximately May 2001 and caused HUD to suffer losses when he and his associates fraudulently purchased nearly 100 residential properties. The properties were sold at inflated market values to “straw buyers,” who were unable to make payments on the homes. Espinoza and his associates supplied the down payments for the straw buyers and in some cases obtained bogus tax forms and paycheck stubs that were submitted with the loan applications. The lenders relied on the false documents when they approved the loans, and HUD relied on the false documents in insuring the home loans. When the straw buyers defaulted on the home loans and the lenders foreclosed on the properties, HUD reimbursed the lenders for their costs and took possession of the properties. HUD ultimately suffered losses of more than $2 million when it sold the properties for far less than the fraudulent purchase prices of the homes. In addition to defrauding lenders and HUD, Espinoza committed bankruptcy fraud in 1999 when he filed for bankruptcy and failed to tell the United States Trustee that he owned a Rolex Daytona watch, two Ferraris and a Lamborghini. In late 2002, Espinoza laundered the proceeds of his bankruptcy fraud when he sold the Ferrari automobiles for $127,500. Espinoza also pleaded guilty to willfully failing to pay income tax, admitting that he did not pay $199,053 due for the 1996 tax year. In court papers filed in relation to the sentencing, prosecutors pointed out that Espinoza had not filed tax returns for well over 10 years and owes the Internal Revenue Service more than $5 million in taxes, interest and penalties.
Idaho Businessman Sentenced For Bankruptcy Fraud
On March 23, 2010, in Boise, Idaho, Reed J. Bowen, Jr., of Meridian, was sentenced to 12 months and one day in prison for bankruptcy fraud. The judge also ordered Bowen to serve three years of supervised release after he completes his prison term. The judge reserved ruling on restitution pending the reopened bankruptcy case. Bowen entered a guilty plea in November 2009. During his plea, Bowen admitted that in 2004 he committed a scheme to defraud his creditors and the bankruptcy trustee in order to discharge over $3 million in unsecured debt so he could finalize the purchase of a Meridian home. Bowen disclosed in bankruptcy that he had only a lease on his Meridian home and fraudulently failed to disclose a real estate agreement and contract for deed that granted him an exclusive right to purchase the home for a fixed price. Bowen purchased the home, pursuant to the contract, shortly after bankruptcy and immediately obtained substantial equity in the home. Bowen’s bankruptcy disclosures included an interest in a McCall cabin, but Bowen inflated a mortgage against the cabin and thus under-represented his equity in it. He sold the cabin while in bankruptcy and netted substantial equity from the sale.
Rhode Island Businessman Sentenced for Tax Evasion and Bankruptcy Fraud; Failed to Pay More Than $2 Million in Taxes
On February 24, 2010, in Providence, R.I., Steven Allard, of Scituate, Rhode Island, was sentenced to 30 months in prison, to be followed by three years of supervised release. Allard pleaded guilty in July 2009 to one count each of tax evasion and bankruptcy fraud. At the time of his guilty plea, Allard admitted that between March 2005 and July 2006, he failed to pay $2,139,739 in employment taxes to the Internal Revenue Service for two of his companies, Builders Resources Delaware (BRI-DE) and Quad. He also owned two other businesses: Builders Resources, Inc. Massachusetts (BRI-MA) and Eaglewood Realty, LLC. In addition, at the plea hearing, Allard admitted that in October and November 2005, he made false statements in a personal bankruptcy petition and during the bankruptcy creditor’s hearing where he failed to disclose his ownership of property in Warwick, Rhode Island. According to court documents, at the direction of Allard, income generated from BRI-MA was transferred to other companies controlled by Allard. The payroll for construction jobs was paid by BRI-DE and Quad. BRI-DE and Quad were required to pay employment taxes to the IRS on the amount of wages that they paid to their employees. In addition, these companies were required to report employment taxes on an Employer's Quarterly Federal Tax Return, Form 941. Records show Forms 941 were filed on behalf of BRI-DE reflecting $806,149 in employment taxes due and owed to the IRS for the last quarter of 2005 and the first two quarters of 2006. In addition, Forms 941 were filed on behalf of Quad reflecting $1,333,590 in employment taxes due and owed to the IRS for the four quarters of 2005. At the direction of Allard the taxes were not paid. Instead, the defendant used the funds from BRI-MA for the benefit of creditors of BRI-MA other than the IRS, and for the benefit of himself and his family. He diverted funds from BRI-MA to Eaglewood Realty for the purchase of luxury automobiles.
Iowa Man Sentenced on Tax and Bankruptcy Fraud Charges
On February 18, 2010, in Cedar Rapids, Iowa, Keith Chapman was sentenced to 46 months in prison, to be followed by three years of supervised release, and ordered to pay nearly $289,000 in restitution and fines. According to court documents, Chapman admitted he made false statements in bankruptcy pleadings he filed on behalf of Chapman Lumber of Hopkinton, Iowa when he denied making payments and transferring money from Chapman Lumber to his own use. Chapman also admitted that, between 1999 and 2005, he diverted more than $450,000 from Chapman Lumber to a bank account he held in Cedar Rapids. Those funds had been pledged as collateral for a bank loan to Chapman Lumber. Instead Chapman used the money to buy a membership in a country club, jewelry, golf equipment, clothing, and prostitutes. Chapman also admitted he did not report any of these funds as income on his tax returns.
Alabama Woman Sentenced on Bankruptcy and Tax Charges
On December 18, 2009, in Mobile, Ala., Sharon Jemison, of Grove Hill, Alabama, was sentenced to 24 months in prison for aiding and assisting in the filing of a false tax return and for bankruptcy fraud. Jemison was also sentenced to three years supervised release and ordered to pay $81,078 in restitution on the bankruptcy fraud charge, as well as sentenced to one year of supervised release and ordered to pay $62,845 in restitution on the tax charge. Jemison pleaded guilty on August 18, 2009 and admitted to having aided in the preparation of her own tax return which misstated the amount of her income from the Miracles of Prayer/World Life Christian Center and from Shekinahs Boutique, falsely claimed dependents, and falsely claimed Earned Income Credit. Jemison also admitted to a bankruptcy fraud charge in that, from on or about April 20, 2007 to March 19, 2009, she made false statement in relation to the bankruptcy case of Miracles of Prayer Non-Denominational Tabernacle, Inc. Jemison admitted that she falsely affirmed that Miracles of Prayer had complied with the Bankruptcy Court's Chapter 11 Operating Order. In fact, Miracles of Prayer had failed to close its pre-bankruptcy account at Capstone Bank, in violation of the requirements of that Order of the Bankruptcy Court. Jemison also admitted that she understated the disbursements of the church on monthly reports to the Bankruptcy Court as she listed only the disbursements made from its account at Merchants Bank. She did not report the amounts withdrawn from the church's undisclosed accounts at Capstone Bank.
Todd Horob Sentenced In U.S. District Court
On December 17, 2009, in Billings, Mont., Todd Horob, of Williston, North Dakota, was sentenced to 132 months in prison, five years of supervised release, and ordered to pay restitution of $6,028,731. Horob was sentenced after having been found guilty of bank fraud, wire fraud, bankruptcy fraud, money laundering, and aggravated identity theft. At trial, the government presented evidence that Horob defrauded Wells Fargo Bank out of over $5 million based on a false promises scheme where he claimed to have over 7,000 head of cattle in 2006. In reality, Wells Fargo was only able to find 60 head of cattle. In furtherance of his false promises scheme, Horob fabricated brand certificates that supposedly showed that he had millions of dollars in cattle on hand. Local brand inspectors testified that the brand certificates were falsified and they had no records of such large amounts of cattle belonging to Horob. Horob also showed bankers cattle that he did not own on land he did not lease – falsely representing that they were his. He also convinced several stock yard owners to lie to bankers by telling them that cattle in the yards were his when in reality they were not. Horob also defrauded Dakota West Credit Union out of almost $1 million by obtaining a loan based on a fabricated invoice representing ownership in 1,276 cows that never existed. Finally, Horob filed for bankruptcy on March 24, 2006. The day before filing, he transferred just over $235,000 out of his cattle hedging investor accounts and into his American State Bank account. The same day he filed bankruptcy, Horob wrote cashiers’ checks to numerous people, including himself, for over $244,000. Horob did not disclose his American State Bank account in his bankruptcy petitions and only added it when Wells Fargo discovered its existence.
Anchorage Man And Wife Sentenced for Conspiracy to Defraud the IRS
On October 16, 2009, in Anchorage, Alaska, Eugene and Lorna Warner, of Anchorage, were sentenced in federal court for their convictions of conspiracy to defraud the Internal Revenue Service (IRS). Eugene Warner was sentenced to 37 months in prison, three years of supervised release and fined $15,000. Lorna Warner was sentenced to five years probation, including ten months of home confinement, and fined $8,000. Both defendants were ordered to file accurate tax returns from 1991, through present, make a good faith attempt to pay all back taxes, interest, and penalties to IRS, and comply with the tax laws. According to information presented to the court, the defendants were charged in a 37-count indictment with conspiracy to defraud the IRS, obstruction of the IRS, filing false tax returns, mail fraud, and making false claims against the United States. Eugene Warner was also charged with bankruptcy fraud. On July 30, 2009, both defendants entered guilty pleas to the charge of conspiring to defraud the United States. Both defendants were previously convicted in 1997 of obstructing the IRS and sentenced to 18-month prison terms. According to the indictment, the defendants engaged in a course of conduct intended to evade the payment of lawful debts, conceal assets from creditors, and obstruct collection activities by those creditors. The defendants attempted to evade these debts by concealing assets in nominee entities, so that their names did not appear as the owners of the property. They then failed to disclose his ownership of the property in documents filed with the United States District Court, the United States Bankruptcy Court, and the IRS. They were also accused of mailing worthless “International Bills of Exchange” to the IRS and other creditors in an unsuccessful attempt to pay off their debts. In their plea agreement and in open court, the Warners admitted that, as a part of the conspiracy, they both made false statements to the IRS about his assets, omitting real property and bank accounts held in the name of bogus nominee “trusts.” They also admitted sending to the IRS a sworn “commercial affidavit” that falsely claimed that the IRS owed them $1.5 million. Eugene Warner further admitted that he testified falsely before the U.S. Bankruptcy Court about his assets in a 2003 hearing.
Former Investment Advisor Sentenced to Prison on Bankruptcy, Bank, and Tax Fraud Charges
On October 1, 2009, in Tallahassee, Fla., Don Reinhard was sentenced to 51 months in prison, five years of supervised release and ordered to pay nearly $680,000 in restitution for making a false loan application, bankruptcy fraud and filing false tax returns. According to court documents, Reinhard submitted a loan application for a 36-foot boat costing nearly $265,400, using a false tax return claiming an adjusted gross income of nearly $945,000 when his actual income was just under $390,000. He also filed for bankruptcy but failed to disclose to the bankruptcy court all personal property, bank accounts, assets, lease agreements, leased items and property, liabilities, creditors, and the transfer of any property or giving gifts worth more than $200 to anyone within a year of the filing of bankruptcy. Among the assets Reinhard failed to disclose a glass gondola sculpture that he had purchased for $40,000, and then sold for $24,000 and his ownership of a 2005 Harley Davidson motorcycle that he purchased for $22,000, and then resold for $12,900, while his bankruptcy was still pending. On his 2001 tax return, Reinhard falsely claimed that he had reimbursed his business partners for more than $554,000, a claim that resulted in his underpayment of $216,498 in taxes for 2001. On his 2002 tax return, which Reinhard filed in January 2007, he falsely claimed a net operating loss of $4.1 million, enabling him to avoid paying $280,112 in taxes.
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