Examples of Corporate Fraud Investigations - Fiscal Year 2012
The following examples of corporate fraud investigations are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Minnesota Real Estate Developer Sentenced on Charges of Conspiracy to Defraud the United States
On September 19, 2012, in Minneapolis, Minn., Jeffrey John Wirth, a local real estate developer, was sentenced to 54 months in prison and ordered to pay $6,457,500 in restitution to the IRS for underpaying his taxes from 2003 to 2005. Wirth pleaded guilty in May 2012 to one count of conspiracy to defraud the United States. In his plea agreement, Wirth admitted that from at least 2003 through October 2006, he conspired with his then-wife, Holly Claire Damiani, and their tax return preparer, Michael James Murry, to defraud the IRS by failing to pay their true tax obligations. Wirth is the sole owner and chief executive officer of The Wirth Companies (TWC), a commercial real estate development and management business. Wirth is also the former owner of the Grand Hotel in downtown Minneapolis, the Grand Rios Hotel & Waterpark in Brooklyn Park, and the Grand Lodge Hotel & Waterpark of America in Bloomington, as well as nearly 30 other businesses. In his plea, Wirth stated that he and Damiani used TWC and the other related businesses to fund their lavish lifestyle, including $2 million to purchase an island in St. Alban’s Bay in Lake Minnetonka. He also admitted they often recorded personal expenses as business expenses in an effort to understate the company’s income for tax purposes. Wirth agreed that he, Damiani, and Murry caused year-end adjustments to the tax returns for TWC and other related businesses by claiming bogus “management fees,” all in an effort to reduce the company’s overall taxable income to nearly zero. In addition, Wirth understated his own TWC salary to the IRS. From 2002 through 2005, while managing TWC and receiving substantial monetary distributions from it, he claimed a salary of only $12,000 annually on his Form W-2s. Moreover, from 2003 through 2006, Wirth failed to report on TWC’s tax returns substantial amounts of fee income earned by the company during the construction and development of the Grand Rios Hotel & Waterpark and the Grand Lodge Hotel & Waterpark of America. As a result, Wirth caused the amount of adjusted gross income, taxable income, and total tax shown on his individual income tax returns, which he filed jointly with Damiani until 2006, to be grossly understated. Wirth also admitted that the tax loss was between $2.5 and $7 million. On May 3, 2012, Damiani pleaded guilty to one count of filing a false federal individual income tax return. On May 14, 2012, Murry pleaded guilty to one count of preparing a false corporate tax return. They both are awaiting sentencing.
Co-Owners of US Fidelis Sentenced on Conspiracy and Tax Fraud Charges
On September 25, 2012, in St. Louis, Mo., Darain Atkinson was sentenced to 96 months in prison and ordered to pay more than $4 million in restitution. Darian Atkinson pleaded guilty April 9, 2012 to one count of conspiracy to commit mail and wire fraud, and one count of filing false tax returns. On September 18, 2012, in St. Louis, Mo., Cory Atkinson was sentenced to 40 months in prison and ordered to pay over $4 million restitution to the IRS. Cory Atkinson pleaded guilty in June 2012 to one count of conspiracy to commit mail and wire fraud and one count of filing false tax returns. According to court documents, Cory and his brother Darain Atkinson owned and operated US Fidelis, which was the nation's largest marketer of vehicle service contracts (VSCs). Prior to 2009, the business operated under the name National Auto Warranty Services, Inc. (NAWS). US Fidelis/NAWS made its money by marking up the price of the VSC, which was often more than $1,000. The total purchaser cost for a VSC was often greater than $2,000. As part of a criminal conspiracy, in 2008 Darain and Cory Atkinson made fraudulent payments on behalf of VSC purchasers who were in default or likely to be in default so that US Fidelis/NAWS would receive its dealer profit when it was not entitled to receive such profit. In addition, Cory Atkinson admitted that he filed a false tax return for the tax year 2006 that failed to include millions of dollars in distributions that he received from US Fidelis/NAWS. According to the plea agreement, between 2006 and 2008, Darain and Cory Atkinson received millions in distributions from US Fidelis/NAWS, a substantial percentage of which funds were used to pay for their personal and non-business expenses. The tax loss to the United States was more than $4 million.
Business Owner Sentenced for Tax Evasion
On August 13, 2012, in St. Paul, Minn., Robert Michael Aasen, the owner of RMA Builders and Remodelers, a business that handled residential work in Minnesota and other states, was sentenced to 13 months in prison. Aasen pleaded guilty on May 14, 2012, to one count of tax evasion. In his plea agreement, Aasen acknowledged that he diverted corporate receipts for personal use, employed multiple bank accounts to hide income, and withheld information from his accountant and the IRS agents investigating his case. Through his actions, Aasen evaded paying approximately $265,863 in federal income taxes between 2005 and 2007.
Former CFO at Bixby Energy Sentenced for Securities Fraud and Tax Evasion
On July 16, 2012, in St. Paul, Minn., Dennis Luverne Desender, the former acting chief financial officer for Bixby Energy Systems, Inc., was sentenced to 97 months in prison for lying to investors to get them to commit large sums of money to the business and for failing to file federal tax returns and reporting his income for three years. According to court documents, from January 2010 through May 2011, Desender was a consultant for Bixby Energy but had previously been the company’s chief financial officer, in charge of raising funds for Bixby projects, including a coal gasification energy system. Desender admitted soliciting unqualified investors to invest in the company. While some investment money was used by Bixby, Desender spent a significant portion of the funds on salaries and commissions for himself and others. Desender routinely provided false information to investors to induce them into remaining financially involved with Bixby and to potential investors to entice them into initiating investments. Desender was responsible for approximately $4.3 million in investor losses. Desender also admitted that he failed to file tax returns for tax years 2005 to 2008. In addition, he admitted that on October 17, 2005, he filed a false Form 1040 tax return for the tax year 2004, failing to report gross receipts of $31,878 and falsifying $314,885 in business deductions relative to his financial consulting business.
Former CEO of Connecticut Company Sentenced for Embezzling $1.7 Million
On July 10, 2012, in Bridgeport, Conn., Kevin Coleman, of Waseca, Minn., was sentenced to 70 months in prison and three years of supervised release for embezzling approximately $1.7 million from his former employer and for failing to pay more than $740,000 in federal taxes. On February 27, 2012, Coleman pleaded guilty to one count of wire fraud and one count of tax evasion. According to court documents and statements made in court, from approximately November 2005 to December 2010, Coleman was the Chief Executive Officer (CEO) of a Shelton, Conn., company. From approximately October 2008 to November 2010, Coleman and Joanne Osmolik, who served as the company’s vice president for human resources, embezzled approximately $3.5 million in corporate funds to pay personal expenses. As part of the scheme, Coleman and Osmolik charged substantial personal expenditures on corporate credit cards. Coleman directed Osmolik to charge personal items to the corporate American Express card of another employee to conceal their expenses from the company’s finance department. Coleman also instructed Osmolik to destroy company records to conceal their fraudulent nature from others at the company. Through this scheme, Coleman embezzled approximately $1.7 million from the company and Osmolik embezzled approximately $1.77 million. Coleman also did not file federal income tax returns for tax years 2007 through 2010. During these four years, in addition to his embezzled income, Coleman earned $1,585,128 in wages, resulting in a tax loss to the government of $741,029. The judge also ordered Coleman to pay $1,700,459 in restitution and an additional $450,000 jointly with Osmolik, to compensate the victim company for legal fees and other costs it incurred as a result of this crime. Coleman also was ordered to pay $1,372,711 in back taxes, interest and penalties. Osmolik, of Newtown, Conn., was sentenced on April 26, 2012, to 48 months in prison and ordered to pay full restitution to the victim company. She also forfeited her interest in three residential properties in Vermont, six motorcycles, an all-terrain vehicle, four snowmobiles, vehicle trailers, jewelry and numerous appliances and other home furnishing items.
New Hampshire Man Sentenced for Tax Evasion
On July 10, 2012, in Concord, N.H., Renato Maldini, of Newington, was sentenced to 18 months in prison and fined $50,000 for evading federal income taxes. According to court documents, from 2004 through 2007, Maldini, the owner of an electric company in Greenland, New Hampshire, issued 123 non-payroll checks totaling $1,419,120 to himself from the company’s bank account. All 123 checks were deposited into Maldini’s personal bank account. Maldini falsely recorded the purpose for each check as a payment to a vendor doing business with his company. Maldini did not report this income on his federal tax returns for tax years 2004, 2005, 2006 and 2007.
Maryland Liquor Store Owner Sentenced for Evading Taxes
On June 18, 2012, in Baltimore, Md., Chung K. Choi, of Woodbine, Md., was sentenced to 18 months in prison and three years of supervised release for tax evasion. Choi was also ordered to pay $533,208 in restitution to the IRS and $206,045 to the State of Maryland. According to his plea agreement, Choi owns and operates Frankford Garden Liquors in Baltimore. The corporate tax returns Choi filed for 2006, 2007, 2008 and 2009 understated the corporation’s taxable gross receipts by $1,572,162. Additionally, from March 5, 2009, to December 16, 2010, Choi routinely deposited cash into his bank accounts in amounts under $10,000 to avoid triggering bank currency reporting requirements. The amount of structured deposits was at least $745,000.
Texas Man Sentenced for Orchestrating $7 Billion Investment Fraud Scheme
On June 14, 2012, in Houston, Texas, R. Allen Stanford, the former Board of Directors Chairman of Stanford International Bank (SIB), was sentenced to 110 years in prison for orchestrating a 20-year investment fraud scheme in which he misappropriated $7 billion from SIB to finance his personal businesses. A jury found that 29 financial accounts located abroad and worth approximately $330 million were proceeds of Stanford’s fraud and should be forfeited. As part of Stanford’s sentence, the court also imposed a personal money judgment of $5.9 billion. All forfeited funds recovered by the United States will be returned to the fraud victims and credited against Stanford’s money judgment. According to court documents and evidence presented at trial, Stanford began operating a bank in 1985 in the British West Indies, under the name Guardian International Bank. He moved the bank to Antigua in 1990 and changed its name to Stanford International Bank in 1994. SIB issued CDs which typically paid a premium over interest rates on CDs issued by U.S. banks. By 2008, the bank owed its CD depositors more than $8 billion. According to SIB's annual reports and marketing brochures, the bank purportedly invested CD proceeds in highly conservative, marketable securities which were also highly liquid, meaning the bank could sell its assets and repay depositors very quickly. The bank also represented that all of its assets were globally diversified and overseen by money managers at top-tier financial institutions, with an additional level of oversight by SIB analysts. As shown at trial, that purported investment strategy and management of the bank's assets was followed for only about 10-15 percent of the bank's assets. Stanford diverted billions in depositor funds into various companies that he owned personally, in the form of undisclosed "loans." Stanford was thus able to continue the operations of his personal businesses, which ran at a net loss each year totaling hundreds of millions of dollars, at the expense of depositors. Evidence at trial established Stanford also used the misappropriated CD money to finance a lavish lifestyle. In addition, Stanford continued the scheme by using sales from new CDs to pay existing depositors who redeemed their CDs.
Indiana Man Sentenced in Tax Fraud Case
On May 17, 2012, in South Bend, Ind., Kenneth Gaipa was sentenced to 24 months in prison, two years of supervised release, and ordered to pay $62,019 in fines and restitution for tax evasion, social security fraud and bankruptcy fraud. According to court documents, Gaipa, owner of Kenneth G Rare Coins and Estate Jewelry, admitted that he willfully evaded federal income taxes for the years 2008 through 2010 by using business accounts to pay for personal expenses and having all of these expenses reported as if they were business expenses. He submitted false records to his tax return preparer knowing that the records would significantly under-report his income to the Internal Revenue Service in order to minimize taxes due and allow him to continue to receive social security disability payments to which he was not entitled. Gaipa also made false statements to the Social Security Administration in order to continue to receive benefits. Gaipa submitted a “Work Activity Report” in June 2011 that indicated he had not worked since February 2006 and that he had no income, when in fact he had substantial income as the owner of Kenneth G Rare Coins and Estate Jewelry.
Former Dynamex Corp. Employee Sentenced for Theft and Tax Fraud
On May 7, 2012, in Trenton, N.J., Joseph R. Algoo, of Monroe Township, N.J., and former employee of Dynamex Corp., was sentenced to 21 months in prison, three years supervised release, and ordered to pay $174,285 in restitution to Dynamex and to cooperate with the IRS in repaying more than $100,000 he owes the United States for stealing almost $175,000. Algoo previously pleaded guilty to Information charging him with wire fraud and subscribing to false tax returns. According to documents filed in this case and statements made in court, from 1999 through November 2009, Algoo worked as the branch manager for Dynamex’s New Jersey operations, including its offices in North Bergen, Secaucus, and South Brunswick. He processed and submitted delivery orders for independent drivers who made deliveries for Dynamex, which is based in Dallas and was a provider of same-day and overnight delivery services. Algoo admitted he accessed Dynamex’s internal computer systems and made changes to delivery orders, causing Dynamex to pay the independent drivers more than Dynamex should have. Algoo then obtained a portion of the improper payments and made significant cash deposits into his personal bank accounts. He obtained $174,285 in improper payments from Dynamex in 2007 and 2008. Algoo also admitted that he signed false personal federal income tax returns in 2007 and 2008, when he did not disclose to the IRS the $174,285 in improper payments that he received from Dynamex in those years. Algoo’s intentional failure to disclose this income to the IRS resulted in a tax loss to the United States of approximately $51,487.
Two Sentenced for Tax Charges in Connection with Operation of Three Florida Medical Clinics
On April 27, 2012, in Miami, Fla., Yolexi Marrero and Adel Garcia were each sentenced to 33 months in prison and three years of supervised release. Marrero was ordered to pay $689,958 in restitution; Garcia was ordered to pay $746,808 in restitution. According to court documents, Marrero and Garcia were sentenced for conspiring to defraud the United States, tax evasion, and subscribing to false tax returns. The charges against the defendants arose out of their operation of three medical clinics in Miami from 2003 through 2005. The three clinics all earned income by billing automobile insurance companies for treating automobile accident victims. Elizabeth Medical Center was jointly owned by Marrero and Garcia, Complete Care Rehabilitation Center was wholly owned by Marrero, and Healthy Family Care Center was jointly owned by Marrero and co-defendant Jorge Samuell. The evidence at trial established that Marrero, Garcia and Samuell directed most of the funds that their respective companies received from insurance companies to themselves by depositing checks into their bank accounts or cashing checks at their banks. The defendants failed to file corporate income tax returns for the clinics they owned, even though they were aware of their obligation to file corporate returns. The defendants also understated on their individual income tax returns the income they received from the corporations. On February 1, 2012, Jorge Samuell was sentenced to 18 months in prison.
Three Owners of a Georgia Meat Company Sentenced
On February 22, 2012, in Atlanta, Ga., Rhett Maughon, of Decatur, Ga.; Rafael Villarreal, Sr., of Suwanee, Ga.; and Marcus Maughon, of Decatur, Ga., were sentenced to prison on charges of tax and immigration fraud. Rhett Maughon was sentenced to 60 months in prison, three years of supervised release and ordered to work 100 hours of community service. Rafael Villarreal, Sr. was sentenced to 60 months in prison, three years of supervised release and ordered to submit to removal proceedings with Immigrations and Customs Enforcement following completion of his prison term. Marcus Maughon was sentenced to 36 months in prison, three years of supervised release and ordered to work 100 hours of community service. According to information presented in court, from early 2001 until June 2006, the defendants and two others jointly owned Atlanta Food Authority, doing business as Atlanta Meat Company, which was in the business of supplying meat products to restaurants throughout the Southeast. When customers paid in cash, the defendants did not record all the cash received on the company's books, and instead used the cash to pay themselves and employees cash wages. The defendants did not report the cash wages the company was paying to the payroll service they used to prepare the company's weekly paychecks and quarterly tax filings on behalf of the company. Therefore, the quarterly filings were false and fraudulent and the Atlanta Meat Company underpaid its employee withholding taxes. In addition, the defendants failed to disclose the cash wages to the accountant who prepared the company's corporate tax returns, therefore, the corporate returns for 2005 and 2006 were false and fraudulent. Each defendant also failed to report the cash he received as income on his personal tax returns for 2005 and 2006.
Couple Sentenced for Tax Evasion and Illegal Structuring Conspiracies
On February 14, 2012, in Boston, Mass., Joseph A. Pingaro, Jr., aka “Junior,” and his wife, Christine A. Scola, were sentenced for conspiring to defraud the United States by filing false income tax returns and conspiring to illegally structure cash transactions to evade reporting requirements. Pingaro was sentenced to 48 months in prison and two years of supervised release; Scola was sentenced to two years probation, of which the first six months are to be served in a halfway house. The defendants also were jointly ordered to pay $900,000 as forfeiture; $50,000 each in criminal fines; $8,000 each in costs of prosecution; and to jointly pay the Internal Revenue Service more than $500,000 in back taxes, penalties and interest. According to court records, Pingaro is the sole owner and operator of J&J Metals, a scrap metal yard in Roxbury where Scola is the bookkeeper. The defendants transferred large amounts of money, totaling millions of dollars, from the J&J business bank account into their personal bank account. Scola then withdrew cash from the personal account in a series of withdrawals, each just under $10,000, over consecutive days. Pingaro and Scola used substantial amounts of the cash to make large personal expenditures. Pingaro then falsely claimed on his income tax returns that almost all of the cash withdrawn had been used for legitimate deductible business expenses for J&J Metals. Pingaro and Scola’s scheme was designed to conceal the actual profits of J&J Metals and evade federal income tax. Scola’s banking activity was designed to further this evasion by avoiding the requirement that financial institutions must file a Currency Transaction Report with the government for each cash transaction exceeding $10,000. Similarly, Pingaro and Scola conspired to avoid U.S. Postal reporting requirements for the purchase of $3,000 or more in money orders from any one location in a single day, by conducting a series of transactions over consecutive business days and in various locations.
Former Virginia Resident Sentenced for Tax Evasion and Impeding the Internal Revenue Service
On December 16, 2011, in Alexandria, Va., Thomas J. Ernst, formerly a resident of McLean, Va. and Arlington, Va., was sentenced to 48 months in prison, three years of supervised release and ordered to pay $4,490,966 in restitution to the IRS. According to court documents, between 2000 and 2006, Ernst served as the president and chief executive officer of a health insurance benefits administration company. According to the plea agreement and statement of facts, Ernst admitted that between 2001 and 2007, he corruptly endeavored to obstruct and impede the due administration of the Internal Revenue laws by causing his employer to make payments from its corporate bank account for numerous personal expenses, including a summer rental house; more than $1.5 million in payments to himself, his wife, his sister-in-law, and his sons; his son's private college education; and various property purchases and rentals. In all, these payments totaled more than $3.3 million. Ernst also admitted that he caused his employer company to fail to file corporate income tax returns, despite the fact that the company earned more than $11 million in gross receipts between 2001 and 2006.
Officers of Triton Financial Sentenced for Defrauding Investors in Ponzi Scheme
On November 4, 2011, in Austin, Texas, Kurt Branham Barton, founder, President and CEO of Triton Financial, LLC, was sentenced to 204 months in prison, five years of supervised release and ordered to pay $63,707,496 in restitution for carrying out a Ponzi scheme that victimized more than 300 individuals and resulted in a total estimated loss to investors of over $50 million. Also sentenced was John Joseph Dimeglio to 60 months in prison, three years of supervised release and ordered to pay $63,707,496 in restitution after pleading guilty in August 2011 to charges related to his participation in the same Ponzi scheme. On August 17, 2011, a federal jury convicted Barton of conspiracy to commit wire fraud, making false statements to secure loans from financial institutions and money laundering, as well as multiple substantive counts including one count of securities fraud, 15 counts of wire fraud, five counts of making a false statement related to the acquisition of loans and 17 counts of money laundering. Evidence presented during the trial revealed that from December 2005 and December 2009, Barton devised a scheme to obtain money from investors under false pretenses. Barton represented to investors, including members of the defendant’s family, members of a church, business leaders as well as professional football players, that Triton was purchasing properties, businesses and other assets with their funds when, in fact, he was using their money to satisfy the needs of other ventures and the need to pay quarterly dividends or redemptions to prior investors. Testimony also revealed that Barton used prominent former National Football League players and Heisman Trophy winners to solicit and encourage additional investors. To conceal his scheme, Barton presented fabricated and fictitious versions of his E*Trade monthly account statement to financial institutions, commercial lenders and potential investors. According to the factual basis, Barton enlisted the help of Dimeglio to carry out his scheme. Dimeglio acquired an ownership interest in Triton and held himself out publicly as the Chief Financial Officer and Executive Vice President of Triton.
Former Le-Nature's CEO Sentenced for $685 Million Fraud Scheme
On October 20, 2011, in Pittsburgh, Pa., Gregory J. Podlucky, of Ligonier, Pa., was sentenced to 20 years in prison and five years of supervised release on his convictions for fraud, money laundering and income tax evasion. According to information presented to the court, Podlucky was CEO of Le-Nature's until its bankruptcy. The company was described by prosecutors as a criminal enterprise kept afloat despite constant losses by ever-increasing extensions of credit from numerous lenders. Podlucky operated a "loan-Ponzi" scheme in which new, larger loans to the company paid off older loans. Lenders were deceived by financial statements that falsely showed the company enjoyed growing sales and substantial profits between 1997 and 2006. The company's sales and assets were fabricated, and forged documents were presented to auditors to pass audits. Podlucky siphoned off company funds to buy $30 million of precious gems and jewelry and spent $10 million constructing a mansion, which was never finished. Evidence showed the loss caused by Podlucky's scheme was $685 million.