Examples of General Fraud Investigations - Fiscal Year 2012
The following examples of general fraud investigations are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Missouri Man Sentenced for Filing a False Tax Return
On September 28, 2012, in Jefferson City, Mo., Mark Theron McGuire, III, was sentenced to 12 months and one day in prison, one year of supervised release, and ordered to pay $85,701 in restitution. McGuire pleaded guilty in December 2011 to one count of filing a false income tax return. According to his plea agreement, 2003 through 2008, McGuire earned income from a side business, Pioneer Supply, which he willfully failed to report as income on his tax returns.
Indiana Man Sentenced for Filing a False Tax Return
On September 26, 2012, in Evansville, Ind., Richard E. Brown, of Mt. Vernon, was sentenced to 60 months in prison, three years of supervised release, and ordered to pay $189,908 in restitution and a $30,000 fine. Brown pleaded guilty to wire fraud, mail fraud, and making a false tax return. According to court documents, while serving as office manager and bookkeeper for an Evansville family business, Brown used credit cards from that business to pay his own personal expenses without authorization. Brown also used checks from a former employer to pay his church’s expenses, where he had also served as bookkeeper. In addition, Brown filed false income tax returns on which he failed to report over $250,000 of the embezzled funds as income.
CEO of Los Angeles Company Sentenced in Telemarketing Investment Scheme
On September 27, 2012, in Los Angeles, Calif., Mark Johnson, founder of Pacific Starr Fleet (PSF) in Los Angeles, was sentenced to 18 months in prison, three years of supervised release and ordered to pay $179,100 in restitution. On May 10, 2012, Johnson pleaded guilty to one count each of tax fraud and mail fraud. According to the plea agreement, Johnson was the President and CEO of PSF, a business that claimed to offer private jet charter services to corporate and private customers through memberships. Johnson rented office space and hired telemarketers to solicit investor money. The company did not own any assets, airplanes or hangar space. The company also did not have any customers and sold no memberships. Between December 28, 2006, and November 17, 2008, Johnson induced more than ten investors to invest in PSF. Johnson was aware that telemarketers promised significant returns on investments, such as a 250 percent in three months and a 400 percent return in six months. Johnson induced one investor to invest $500 in PSF. In exchange, Johnson promised that after PSF was offered for sale publicly through an initial public offering, Johnson would pay the investor $25,000 for a portion of the investor’s shares. The company never went public and only a small portion of the investor funds were used for business expenses. Most of the funds were used to pay Johnson’s personal expenses. The total loss to investors was $179,100.
Arizona Man Sentenced on Foreign Currency Investment Fraud Scheme
On September 26, 2012, in Tucson, Ariz., Anthony Eugene Linton, of Tucson, was sentenced to 33 months in prison. On July 19, 2012, Linton pleaded guilty to wire fraud and engaging in illegal monetary transactions greater than $10,000. According to the plea agreement, Linton devised a scheme to defraud individual investors by causing them to invest in his Private Trading Pool (PTP). Linton told investors that he would be investing their funds in the Foreign Currency Exchange Market. Instead, he used the funds to buy and sell items on eBay and pay personal expenses including mortgage, car, and credit card payments. Linton advised investors that their investments would be free of tax consequences because they could “gift” to him up to $12,000 a year to invest in the PTP tax free, and he could then "gift" their return on investment back to them tax free for amounts up to $12,000 a year. Linton caused at least 26 investors to “invest” approximately $808,685 in the PTP. Linton paid investors approximately $331,127 in Ponzi-type repayments with the use of other investors' funds.
Former New York Pizzeria Owner Sentenced for Tax Evasion
On September 18, 2012, in Buffalo, N.Y., Michael Gerace, of Buffalo, was sentenced to 21 months in prison and ordered to pay $176,000 in restitution to the IRS following his conviction for tax evasion. According to court documents, from 2005 through 2007, Gerace maintained two separate sets of books and records for his business, Abbott Pizza, located in Buffalo. The first set of books, which accurately recorded the total revenue generated by the pizzeria, Gerace removed from the pizzeria and concealed after he received information that he might be under investigation by the IRS. The second set of books, which recorded only a portion of the pizzeria's revenue, Gerace gave to his accountant to prepare his personal and corporate tax returns for 2005 through 2007. Gerace’s unreported income during these three years was more than $500,000, resulting in his failure to pay approximately $176,000 in income taxes.
Connecticut Woman Sentenced for Evading Taxes on Embezzled Income
On September 18, 2012, in New Haven, Conn., Deborah Wilmot, of Bridgewater, was sentenced to 24 months in prison, three years of supervised release and ordered to pay $69,049 in restitution, plus interest and penalties, to the IRS. According to court documents and statements made in court, in 2008 and 2009, Wilmot embezzled $221,624 from a software company where she was employed as a bookkeeper. When she filed her federal tax returns for tax years 2008 and 2009, Wilmot failed to report the embezzled income, resulting in a tax loss to the IRS of $69,049.
New York Man Sentenced for Investment Fraud
On September 14, 2012, in Buffalo, N.Y., James E. Rotterman, of Orchard Park, N.Y., was sentenced to 72 months in prison and ordered to pay over $4,500,000 in restitution. According to court documents, in 2006 Rotterman started using two companies he formed, JRCG Holdings, LLC and Warlord Media, LLC, to advertise that he had businesses for sale on the internet site BizBuySell.com. The businesses Rotterman touted were allegedly profitable merchant portfolio accounts, which were to provide a cash flow to the investor. Rotterman provided prospective investors information about the businesses and financial documents demonstrating how successful the businesses were, including false profit statements and falsified bank statements and tax returns. Rotterman successfully attracted hundreds of investors who sent him over $6 million between 2006 and 2010. All the representations Rotterman made about the businesses for sale were false because he had no businesses to sell. The financial documents he provided were either made up or altered to show large income. Any “cash flow” the investors received was from their own or other investor funds. Rotterman used the remaining cash to support his lifestyle and pay off large gambling obligations. The government estimated that losses might be as high as $5,111,000. In addition, Rotterman did not report all the income he received from the investors on his 2008 and 2009 tax returns. Tax losses total over $387,000.
Former Colorado Attorney Sentenced for Financial Fraud
On September 14, 2012, Denver, Colo., Robert T. McAllister, a former Denver attorney, was sentenced to 78 months in prison. McAllister pleaded guilty to two counts of conspiracy to commit financial fraud and one count of bankruptcy fraud. In his plea, McAllister admitted that from 2006 to 2011 he conspired to obtain wire transfers totaling more than $1 million in a scheme to obtain funds that were subject to a temporary restraining order and then used that money for a down payment on a house in Clark, Colo. As part of the conspiracy, McAllister embezzled funds from a client that he had agreed to hold in trust in an interest bearing account. He transferred the stolen funds into accounts he controlled and into an account belonging to a title company. To cover up the fact McAllister had embezzled client funds, he prepared a series of phony bank statements to give the impression the clients’ money was safe and earning interest.
Florida Attorney Sentenced on Conspiracy to Violate Federal Election Campaign Act and other Fraud Charges
On September 14, 2012, in Miami, Fla., Steven N. Lippman, of Plantation, was sentenced to 36 months in prison and two years of supervised release for his part in a conspiracy to commit crimes through the operation of the former Fort Lauderdale law firm of Scott W. Rothstein, called Rothstein, Rosenfeldt and Adler, P.A. (RRA). Lippman was also ordered to pay a fine of $15,000 and to pay restitution in the amount of $179,000 to the IRS. Lippman, an attorney admitted to practice law in Florida, was a shareholder of RRA, but had no equity interest in the firm. Lippman pleaded guilty on May 11, 2012 to conspiracy to violate the Federal Election Campaign Act, to defraud the United States, and to defraud a financial institution. According to the charges to which he pleaded guilty, Lippman maintained a bank account from a prior law firm where he was a partner. Lippman used this account to float checks between and among certain bank accounts maintained by RRA to execute a form of bank fraud, commonly known as “check kiting.” He also defrauded the IRS by failing to report as income certain expense reimbursements and other reportable income he received from RRA and was unlawfully reimbursed by RRA for certain contributions which he made to a presidential campaign.
Former U.S. Mint Police Officer Sentenced for Theft of Government Property and Tax Evasion
On September 13, 2012, in Camden, N.J., William Gray, of North Wildwood, N.J., was sentenced to 36 months in prison, three years of supervised release and ordered to pay $15,208 in restitution to the U.S. Mint, forfeit $2.3 million and cooperate with the IRS to resolve his tax liability. Gray pleaded guilty to two counts of an Information charging him with theft of government property and tax evasion. According to documents filed in this case and statements made in court, Gray admitted that between June 1996 and January 2011 he was employed by the U.S. Mint in Philadelphia as a Mint police officer. Starting in 2007, Gray said he took Presidential $1 coins with missing edge lettering knowing they would be considered more valuable to coin collectors because they were considered “mint errors.” He admitted he then smuggled the error coins out of the Mint and eventually shipped them to a coin distributor in California. He admitted to receiving approximately $2.3 million for the error coins. Gray also admitted that between 2007 and 2009, he failed to report the sale of the coins on his income tax return, understating his tax liability by approximately $801,651.
Minnesota Man Sentenced for Embezzling $1.9 Million
On September 13, 2012, in Minneapolis, Minn., Brandon Vi Tran, of Brooklyn Park, was sentenced to 46 months in prison. Tran pleaded guilty in June 2011 to one count of wire fraud and one count of money laundering. In his plea agreement, Tran admitted that between 2005 and October 28, 2010, he embezzled approximately $1.9 million. At the time, he was an accountant at Diamond Graphics, Inc., where he was responsible for creating checks payable to various vendors. Once a check was created, it was presented to one of four individuals in the company who had the authority to sign the check. Once signed, the check was supposed to be sent to the appropriate vendor. However, Tran would deposit the check into his personal bank accounts.
New Jersey Woman Sentenced for Failing to Report Income
On September 12, 2012, in Newark, N.J., Siew Leng Cheong, of North Brunswick, N.J., was sentenced to five months in prison, seven months of home confinement, one year of supervised release and ordered to pay $80,985 in restitution for filing fraudulent personal income tax returns. On May 10, 2012, Cheong pleaded guilty to a two-count Information that charged her with subscribing to false personal income tax returns for 2006 and 2007. At her plea hearing and according to court documents, Cheong was a co-owner of Route 18 Carpet Corporation in East Brunswick. Cheong admitted that in 2006 and 2007, she diverted cash and checks that represented business proceeds from Route 18 Carpet Corporation into her personal checking account at China Trust Bank. On her joint federal income tax returns for 2006 and 2007, Cheong admitted that she failed to include over $100,000 and $300,000, respectively, of diverted business proceeds.
Father and Son Operators of Adult Entertainment Club and Internet Gambling Business Sentenced for Concealing More than $4.6 Million of Income
On September 7, 2012, in Chicago, Ill., father and son operators of an adult entertainment club were sentenced for conspiracy to impede the Internal Revenue Service in the collection of federal taxes. Anthony Buttitta was sentenced to 30 months in prison, and his father, Dominic Buttitta, was sentenced to 18 months in prison. Anthony and Dominic Buttitta, who operate Blackjacks Gentlemen’s Club in Elgin, were also ordered to pay $1,306,187 in restitution to the IRS and to forfeit $400,000. Between 2005 and 2009, they also ran an Internet gambling business, including the web sites Skybook.com, Largejoe.com, Theredhotel.com., and others based in Costa Rica. According to their guilty pleas, both Buttittas filed false federal corporate tax returns for calendar years 2002 through 2009 and false federal individual income tax returns for calendar years 2002 through 2008 that under-reported by $4,664,959 the total income they received from the operation of Blackjacks and a gambling business. They concealed the diverted funds from their tax preparers and the IRS and used the unreported income to acquire personal property and to pay personal expenses. The diversion resulted in a federal tax loss of more than $1.3 million. The defendants admitted that they skimmed approximately $3,704,959 in cash from the operation of Blackjacks and later destroyed records of the cash they diverted from the business. They also placed agents of their Internet gambling business on the payroll of another company to provide the employees with the appearance of a legitimate source of income and benefits. In return, they solicited and received kickbacks in the form of cash from the agents and concealed the payments from their tax preparers, bookkeepers and the IRS. The defendants admitted they received approximately $1 million in gross wagers from the gambling business between 2005 and 2009 and made approximately $400,000 in net profits, which is the amount of the forfeiture judgment.
Utah Woman Sentenced on Tax Charges
On September 5, 2012, in Salt Lake City, Utah, Sara Savoy was sentenced to 36 months in prison, three years of supervised release, and ordered to pay $1,306,963 in restitution. Savoy pleaded guilty to one count of filing a false return. According to court documents, from 2006 through 2009, Savoy embezzled $1,776,117 from her employer, Reaction Engineering International. She failed to claim the embezzled funds as income on her individual income tax returns.
Illinois Man Sentenced for Role in Tax Fraud Scheme
On August 30, 2012, in Chicago, Ill., John Pop was sentenced to 33 months in prison, three years of supervised release, and ordered to pay $160,253 in restitution to the IRS. Pop pleaded guilty in March 2011 to one count of conspiracy to defraud the United States. According to court documents, Pop was associated with others who filed false claims for tax refunds and economic stimulus payments. Pop allowed bank accounts he controlled to be used for the deposit of money obtained through fraudulent means. Pop would then withdrawn the money, keeping a portion for himself and giving the rest of the funds to the co-conspirators.
Former Energy Drink Company Owner Sentenced
On August 27, 2012, in Las Vegas, Nev., Russell Pike, the former CEO of a Nevada sports energy drink company, Xyience Inc., was sentenced to 52 months in prison and three years of supervised release and ordered to pay $1,189,773 in restitution to the IRS. According to evidence presented at trial, Pike founded Xyience Inc., which manufactured, marketed and sold sports energy drinks, most notably, Xenergy, which was sold in over 45,000 stores throughout the United States. Pike received at least 12 million shares of Xyience stock in 2004. During 2006, Pike sold over 4.4 million shares of his Xyience stock for approximately $7.9 million, which included a sale in November 2006 of over three million shares to an investor for $5 million. In early 2007, Pike requested that the investor change the date of the stock purchase agreement from 2006 to 2007, so that Pike could avoid paying taxes for 2006. The evidence also established that during 2006, Pike spent millions of dollars on his lavish lifestyle, driving luxury cars and betting millions of dollars at local sports books.
Illinois Man Sentenced on Tax and Weapons Charges
On August 23, 2012, in Benton, Ill., David Bartels, of De Soto, Ill., was sentenced to 53 months in prison, three years of supervised release, and ordered to pay a special assessment of $500. In addition, Bartels was ordered to pay $1,191,900 in restitution to the victim of a fraud scheme and another $268,859 to the IRS for unpaid taxes. Bartels pleaded guilty in March 2012 to four counts of tax evasion and one count of being a felon in possession of a firearm. According to his plea agreement and statements made in court, Bartels admitted that he had filed false tax returns that failed to claim over $1,000,000 he obtained by various fraudulent actions between 2005 and 2008. He also admitted to possessing multiple firearms even though he was a convicted felon.
Former City of Miami Police Officer Sentenced
On August 22, 2012, in Miami, Fla., Vernell Reynolds, a former City of Miami police officer and former president of the Miami Community Police Benevolent Association (MCPBA), was sentenced to six months in prison and three years of supervised release including six months home detention. On April 25, 2012, Reynolds pleaded guilty to one count of wire fraud and one count of tax fraud relating to her embezzlement of MCPBA funds. According to court documents and statements, Reynolds used MCPBA funds for her personal benefit. Reynolds also admitted that in 2010, she filed a tax return with the IRS that under-reported her income which resulted in a tax loss to the IRS. In her signed plea agreement, Reynolds admitted to an abuse of trust and agreed to an order of restitution to the MCPBA of $210,664. Reynolds also agreed to surrender any and all licenses or certifications to be employed as a law enforcement officer. Additionally, she agreed to cooperate with the IRS to address her tax liability.
West Virginia Woman Sentenced for Tax Evasion
On August 20, 2012, in Huntington, W.Va., Georgiana Ciavarello, of Putnam County, West Virginia, was sentenced to 37 months in prison, three years of supervised release and ordered to pay $1,025,428 in restitution. Ciavarello pleaded guilty to tax evasion charges in February 2012. According to her plea agreement, Ciavarello was employed as a bookkeeper by Quail Ridge Construction (QRC) Company from August 2007 through November 2010. She was responsible for the computer program QRC used for its general ledger and check register, inputting and coding checks and entering the names of payees and vendors codes. She was also responsible for drafting (but not signing) checks, making deposits into QRC's bank accounts, making transfers among QRC's bank accounts and reconciling the accounts. In addition, she was authorized to use QRC's business credit card to make purchases on behalf of the business and for drafting checks to be used to pay employees' per diem expenses. Beginning in September 2007 and continuing until her discharge in November 2010, Ciavarello embezzled at least $689,790 from QRC. For tax years 2007 through 2010, Ciavarello did not report her embezzled income on her personal tax returns.
Defendant Sentenced for Making False Statements on Tax Return
On August 17, 2012, in Chicago, Ill., Gregory Callegari was sentenced to 12 months and one day in prison, one year of supervised release, and ordered to pay $57,743 in restitution to the IRS. Callegari was convicted in May 2012 of one count of false statements on an income tax return. According to court documents, for tax year 2003, Callegari filed an income tax return which contained false statements. Specifically, Callegari falsely claimed a loss of $121,575 from rental real estate property and a loss of $43,404 from the sale of a business property.
California Men Sentenced for Operating Ponzi Scheme
On August 16, 2012, in Cleveland, Ohio, Steven G. Barkus and Michael A. Lombardo were sentenced to 97 months and 57 months in prison, respectively, for their roles in swindling investors through false representations and promises. They were also ordered to pay $905,000 in restitution to their victims and $2,788,778 to the IRS. The defendants, both residents of California, were sentenced for tax violations arising from their conspiracy to evade an assessment of more than $1 million each and failure to pay taxes on monies obtained from investors. According to court documents and testimony, Barkus and Lombardo recruited Steven I. Helfgott, a now disbarred attorney from Cleveland, Ohio, to collect and hide investors’ funds from the IRS. They used nominee or shell bank accounts, primarily Helfgott’s attorney trust account and PCF Finance Partners Fund, Inc. (a defunct California corporation), to evade IRS collection efforts and divert the money for their personal use. Helfgott was previously sentenced to 18 months in prison.
Arizona Man Sentenced in Money Laundering and Tax Scheme
On August 16, 2012, in Phoenix, Ariz., Gino Carlucci was sentenced to 188 months in prison, ordered to pay $893,716 in restitution, and to forfeit $722,841. Carlucci was convicted by a jury on July 25, 2011, on conspiracies to commit money laundering and to defraud the IRS and for filing a false income tax return. According to the evidence presented at trial, Carlucci and his co-defendant, Wayne Mounts, stole large sums of money and assets from Joseph Flickinger, a tax return preparer in Ohio, who had himself defrauded multiple clients of their life savings in a fraudulent investment scheme. Flickinger pleaded guilty to federal charges in a separate case and was sentenced to 70 months in prison. After defrauding Flickinger of the money, Carlucci and Mounts devised a scheme to have Flickinger arrested by federal officials, and then used the money for their own personal benefit. In addition to money, Carlucci and Mounts defrauded Flickinger out of several high-end vehicles and a condo near Lake Erie, Ohio, which they quickly sold for $210,000. Carlucci had some of the funds transferred into bank accounts held in his wife’s and father-in-law’s names. Carlucci’s wife and Mounts withdrew more than $300,000 in cash over several months in increments of $10,000 or less so that they could avoid having the bank report their withdrawals to authorities. Carlucci and Mounts spent an additional $150,000 of the funds to buy a 43-foot luxury boat whose existence Carlucci concealed from the government for over two years. Mounts was sentenced in January 2012 to 63 months in prison.
Pennsylvania Man Sentenced for Tax Fraud
On August 14, 2012, in Pittsburgh, Pa., Michael J. Falbo, of Allegheny County, Pennsylvania, was sentenced to 18 months in prison and one year of supervised release for reporting less than half of his business income on his 2003 federal tax return. Falbo pleaded guilty in April 2012 to under-reporting the gross receipts of Pittsburgh Lawn Care, which he owns with his wife, Jennifer Falbo. Jennifer Falbo pleaded guilty to the same charge in July 2012 and awaits sentencing. According to court documents, the Falbos reported that their business had gross receipts of about $138,000 in 2003 when its actual gross receipts were about $314,000.
Michigan Man, Father and Uncle Sentenced for Running Ponzi Scheme
On August 13, 2012, in Grand Rapids, Mich., James Wiederhold, formerly of Byron Center, was sentenced to 72 months in prison and three years of supervised release for running a Ponzi scheme that stretched from Michigan to Florida. Wiederhold was also ordered to pay $827,300 in restitution and forfeit $803,000. Wiederhold, a former HVAC technician turned supposed investment guru, represented to investors that he was the “co-manager” of the Atlas Fund, which purportedly guaranteed 24 percent annual returns to investors. In reality, Wiederhold and his co-conspirators had no investment experience and simply paid old investors with new investor money in a classic Ponzi scheme. Investors lost over $800,000. Others sentenced in this scheme were Neal Wiederhold, James Wiederhold’s father, to serve 12 months and one day in prison; Larry Niewenhuis, James Wiederhold’s uncle, to serve 24 months in prison; Anthony Rinkus, of Key West, Fla., to serve 35 months in prison; and Joseph M. Angioi, of Oviedo, Fla., to serve five years of probation.
Residents of California and Utah Sentenced for Tax Fraud
On August 13, 2012, in Los Angeles, Calif., David L. Johnson and Michael L. Putnam were sentenced following their convictions for their roles in the Genesis Fund, a private investment fund that was marketed as investing in foreign currency trading, but that operated as a Ponzi scheme. Johnson, of Loma Linda, Calif., was sentenced to 30 months in prison for filing two false tax returns in which he failed to disclose a bank account in Costa Rica to the IRS. According to the plea agreement, Johnson used this bank account to conceal Genesis Fund distributions from the IRS. Johnson was also ordered to pay $2.3 million in restitution. Putnam, of St. George, Utah, formerly of Huntington Beach, Calif., was sentenced to 12 months and a day in prison for conspiracy and tax fraud and ordered to pay over $13 million in restitution. According to court documents, Johnson and Putnam received significant distributions that they hid in foreign bank accounts and did not report to the IRS. Johnson received over $2.4 million while Putnam received over $1.5 million.
Former Tribal Council Member Sentenced for Tax Fraud
On August 9, 2012, in Miami, Fla., David Roger Cypress, of Clewiston, Fla., was sentenced to 18 months in prison and one year of supervised release. Cypress pleaded guilty to a one count information charging him with filing a false 2007 income tax return. According to court documents and statements made in court, Cypress was a duly elected representative for the Big Cypress reservation to the governing Tribal Council of The Seminole Tribe of Florida from at least 1999 to June 2010. In his capacity as a Tribal Council representative, Cypress had the authority to authorize distributions to Tribal members, including to himself and to his family members. Cypress admitted that while he was a Tribal Council representative, he authorized substantial distributions to be paid to or for the benefit of himself and his family members. Specifically, Cypress received approximately $285,433 in taxable distributions from The Seminole Tribe of Florida, which he knowingly and willfully failed to report on his 2007 federal tax return. As part of the plea agreement, Cypress agreed to pay $5,457,889 as restitution to the IRS, which includes tax, interest and penalties which the IRS has determined are due and owing by him for tax years 2003 through 2009.
Owner of Ohio Private Investigation Company Sentenced for Tax Evasion and Conspiracy
On August 9, 2012, in Cincinnati, Ohio, James Simon, owner and operator of a Cincinnati private investigation company known as Business Intelligence, Inc. (BII), was sentenced to five years probation, of which 24 months will be served in home confinement, and ordered to pay $385,967 in restitution. Simon pleaded guilty on February 28, 2012, to one count of tax evasion and one count of conspiracy. Court documents show that between 2003 and 2008, Simon skimmed at least $1,047,656 from BII and failed to report the money as income to the IRS, causing a tax loss of $385,967. Simon used the money for personal expenses and gambling. He then enlisted two other individuals who worked for him to help conceal his gambling winnings from the IRS. Simon also accepted payments from clients in cash or cashier’s checks and deposited them into his own personal bank accounts.
Wisconsin Resident Sentenced for Tax Evasion
On August 8, 2012, in Milwaukee, Wis., Diane L. Baugh, of Appleton, was sentenced to 15 months in prison, three years of supervised release, and ordered to pay $2,232,000 in restitution to Hobby Lobby and $86,032 to the IRS. Baugh pleaded guilty to three counts of tax evasion based on her failure to report over $300,000 in income she received by using the Internet to knowingly sell stolen merchandise. According to court documents, between January 2005 and April 2010, Baugh received over $605,000 by selling stolen scrapbooking merchandise. Baugh received the stolen merchandise from Virginia M. Akers of Indiana who had shoplifted it from Hobby Lobby department stores in several states and shipped it to Baugh. Baugh advertised the merchandise on eBay and also used direct email marketing with foreign and domestic customers that she had cultivated on eBay over the years. Baugh sold the stolen merchandise for 25 percent of its true retail value of over $2.2 million. From the gross receipts of over $605,000, Baugh paid Akers over $257,000. After paying over $46,000 in shipping costs, Baugh’s net income was approximately $301,561. Baugh’s fraudulent tax returns also claimed that after deductions and credits, she had no taxable income and was therefore entitled to tax refunds. On January 23, 2012, Akers was sentenced to 60 months in prison for conspiracy to commit mail and wire fraud.
Maine Pharmacist Sentenced on Kickback and Tax Charges
On August 8, 2012, in Bangor, Maine, Reginald S. Gracie, Jr., of Bowdoin, Maine, was sentenced to 46 months in prison, three years of supervised release and was ordered to repay $41,784 in back taxes. Gracie pleaded guilty on February 17, 2012, to charges of soliciting and accepting kickbacks as an agent of an organization receiving federal funds and for filing false federal income tax returns. According to court records, Gracie was the Director of Operations at PIN Rx, a mail order pharmacy operated by the Penobscot Indian Nation. He became the Pharmacist-in-Charge in April 2006. Between May and November 2006, he solicited and accepted more than $120,000 from six companies that sold prescription drugs, including controlled substances, over the Internet. In 2006, PIN Rx received over $5,000,000 in MaineCare funds, most of which were paid by the U.S. Department of Health and Human Services. Gracie also failed to report his illicit income on his 2006 individual income tax return and on a 2006 corporate income tax return for Gracie Enterprises, Inc.
Arizona Man Sentenced for Tax Fraud
On August 7, 2012, in Phoenix, Ariz., Elmer Lee Defoor, of Phoenix, was sentenced to 24 months in prison, ordered to pay $239,274 in restitution and to perform 100 hours of community service. Defoor pleaded guilty on March 12, 2012, that he filed his 2008 federal income tax return on which he falsely claimed an income tax refund of $239,274. To assist the Court in determining the appropriate sentence, Defoor also admitted that he filed three additional fraudulent tax returns for the 2005, 2006, and 2009 tax years. All of the tax returns were primarily based upon false claims that various financial institutions had withheld money on behalf of Defoor, and that he was entitled to the withholdings. No such withholdings, however, were ever made. Defoor submitted various false Forms 1099 to the Internal Revenue Service to support the false claims.
Office-Supply Warehouse Security Guard Sentenced for Theft and Tax Violations
On August 2, 2012, in Birmingham, Ala., Walter Skrobak, of Woodstock, Ala., was sentenced to 30 months in prison after pleading guilty to one count of interstate transportation of stolen goods and one count of making false statements with respect to a federal tax return. Skrobak was also ordered to pay $851,943 in restitution on the stolen goods count and to pay the government $141,608 in taxes due. In addition, he was ordered to forfeit $393,347 to the government as proceeds of illegal activity. According to the plea agreement, between August 2006 and December 2010, Skrobak, former head security guard at a national office-supply store distribution center, stole at least 1,600 units of computer software, with a retail value of about $851,943, and sold them, via PayPal, to a party outside of Alabama. Skrobak received nearly $400,000 from selling the stolen goods, but did not report the money on his federal tax returns.
Massachusetts Man Sentenced for Structuring Cash Transactions
On August 1, 2012, in Boston, Mass., Richard C. Souza, Jr, of South Dartmouth, was sentenced to 51 months in prison and three years of supervised following his conviction for structuring cash transactions. According to court documents, Souza befriended an elderly widower, whose mental health was declining, and persuaded him to use approximately a quarter of his retirement savings to purchase a property in Maine and take out a loan of over $85,000 using the property as collateral. Souza then took the loan proceeds for himself and in less than two hours, he withdrew the majority of the proceeds of the Maine property loan in six separate cash withdrawals of $9,000 each from five different Sovereign Bank branches in the New Bedford area. The withdrawals were structured to conceal his possession of the loan proceeds and to avoid currency reporting rules that require banks to report cash transactions of over $10,000 to the United States Treasury. At the sentencing hearing, the government also presented evidence that from 2004 to 2008, Souza caused the widower’s net worth to decline from over $750,000 to virtually nothing, while also causing the widower to incur liabilities of over $140,000 during the same period. The evidence also showed that Souza pawned the widower’s watch and other valuables after the widower had been placed into an assisted living facility.
New Jersey Doctor Sentenced for Tax Evasion
On July 31, 2012, in Camden, N.J., Scott Salkind, of Medford, N.J., was sentenced to six months in prison, six months of house arrest with electronic monitoring, three years of supervised release and fined $15,000. Salkind, who has already paid $430,000 in restitution and penalties, pleaded guilty to an Information charging him with one count of income tax evasion. According to court documents and statements made in court, from 2005 through 2008, Salkind, a licensed doctor of osteopathy, failed to report more than $1 million of income on his federal income tax returns by diverting corporate business receipts into a shell company bank account under his control. He then withdrew the money by purchasing cashier’s checks payable to himself and used the money to pay personal expenses. Salkind practiced medicine under the name General Medical of New Jersey Inc. Salkind maintained a business checking account at a bank for General Medical into which he deposited insurance payments. These deposits represented the gross receipts reported on the General Medical corporate income tax returns for 2005 through 2008. Salkind also maintained a business bank account in the name of a fictitious company into which he also deposited insurance payment checks. When the insurance checks cleared, he withdrew the money by writing checks to himself to purchase cashier checks made payable to himself.
Iowa Man Sentenced for Falsely Claiming Millions of Dollars of Tax Refunds
On July 19, 2012, in Davenport, Iowa, James Lavon Miller, of Kalona, Iowa, was sentenced to 33 months in prison and three years of supervised release for falsely claiming over $6 million in refunds on his tax returns for 2005, 2006, 2007, and 2008. According to court documents, Miller filed five false returns claiming refunds ranging from approximately $130,000 to over $5 million. Miller supported the claims by listing fabricated interest payments and commensurate amounts of federal withholding in each return. No refunds were actually paid on the claims.
North Carolina Woman Sentenced for Wire Fraud and Filing a False Tax Return
On July 25, 2012, in Charlotte, N.C., Beth Ann Cox, of Indian Trail, N.C., was sentenced to 33 months in prison and three years of supervised release for wire fraud and filing a false tax return. In addition, Cox was ordered to pay $727,584 in restitution of to her former employer and $203,725 to the IRS. According to court documents, from 2003 to 2009, Cox engaged in a scheme to defraud a corporation where she was employed as an administrative assistant. Court documents indicate that Cox had full access to her employer’s operating company bank account and handled payroll transactions and money transfers for the company. Cox used her access to her employer’s bank account to make unauthorized wire transfers from the company’s account to pay off balances on her personal lines of credit. Additionally, Cox forged company checks made out to her name and, in turn, falsely logged the fraudulent checks as commissions, bonuses or tuition payments. Cox admitted that she was never authorized to make those wire transfers or issue those checks. Cox received at least $727,570 from the fraudulent scheme; however, she did not reflect the additional income on her tax returns.
Former Employee of Nursing Home Company Sentenced for Kickback Schemes and Tax Evasion
On July 19, 2012, in Roanoke, Va., John D. Henderson, former director of corporate maintenance and renovations at Medical Facilities of America Inc. (MFA), was sentenced to 63 months in prison and ordered to pay $698,088 in restitution and additional taxes, penalties and interest to the IRS. According to court documents, Henderson oversaw the bidding process for repair, maintenance and renovation contracts at MFA facilities. Henderson steered contracts to several venders in return for kickbacks and directed subordinates to solicit quotes only from vendors who paid him. He created fictitious competitor bids that were higher than the quotes submitted by the venders who paid him, in order to create the appearance of competition. Henderson received more than $560,000 in kickbacks, and had at least $101,000 more paid to a co-conspirator. In all, he steered MFA contracts totaling more than $5 million. Henderson pleaded guilty on March 14, 2012, to two counts of conspiracy to commit mail and honest services fraud for the kickback schemes and to two counts for failing to include the kickbacks and other income he received on his federal income tax returns for years 2005 and 2006. Henderson is the fifth individual to be sentenced in this scheme. Donald R. Holland and Larry R. Sumpter were each sentenced to two years of probation and were fined $50,000 and $15,000, respectively. Edward T. Fodrey was sentenced on January 31, 2012, to serve 37 months in prison and was ordered to pay $326,799 in restitution. Gary L. Johns was sentenced on March 14, 2012, to three years of probation and to pay $169,341 in restitution.
Florida Man Sentenced in Fraudulent Investment and Mortgage Fraud Schemes
On July 17, 2012, in Albany, N.Y., Arthur Strasnick, of New Smyrna Beach, Florida, was sentenced to 60 months in prison, three years of supervised release and ordered to pay $1,994,620 in restitution. Strasnick pleaded guilty to two counts of mail fraud and one count of identity theft. According to court documents, in early 2003, Strasnick lured a Saratoga Springs woman into investing money with his firm, Backstreet Associates, Inc. Individuals were “guaranteed” high fixed annual rates of returns ranging from 12% to 20% interest. Investors were paid purported interest and principal payments, when in reality, the investors were receiving monies obtained from the same investor or other investors. In addition, in the Fall of 2006, Strasnick operated a mortgage fraud scheme in which he tricked individuals into providing him money representing equity in their homes. The mortgages were obtained after Strasnick either made false representations to the homeowners or forged the signatures of the actual homeowners.
Four Individuals Sentenced for Their Roles in Multi-Million Dollar Mortgage Fraud Scheme
On July 11, 2012, in Chicago, Ill., four individuals, including two Chicago lawyers, were sentenced for participating in a multi-million dollar mortgage fraud scheme involving at least 40 residential properties. All four defendants were convicted of multiple counts of mail and wire fraud for their roles in a scheme that netted them approximately $5.45 million in fraudulently obtained mortgage loan proceeds. The scheme involved paying kickbacks to a non-profit organization to fraudulently obtain some of the properties at a discount from the U.S. Department of Housing and Urban Development (HUD). Charles Murphy, an attorney, was sentenced to 72 months in prison and ordered to forfeit more than $2.4 million and pay $651,290 in restitution. John Farano, an attorney from Palos Park, was sentenced to 108 months in prison and ordered to forfeit more than $2.3 million and pay more than $1.3 million in restitution. Tracey Scullark, a sales agent for Genesis Investment Group, Inc., was sentenced to 78 months in prison. On July 10, 2012, Robert Brunt, the president of Genesis, was sentenced to 150 months in prison. In addition, Scullark and Brunt were each ordered to forfeit $4.2 million and pay more than $1.6 million in restitution. According to the evidence at trial, between 2002 and November 2006, Brunt, Scullark, Farano and Murphy acquired and caused to be acquired at least 40 residential properties in Chicago, often in economically-depressed areas, that needed extensive rehabilitation, with the intent to quickly resell the properties at fraudulently and grossly inflated prices for a profit. The defendants fraudulently acquired many of the properties by paying kickbacks to a former non-profit organization, Westwood Community Development, that was eligible to purchase the properties from HUD at a discount on the condition that the properties be sold to low-to-moderate income buyers. Rather than sell the properties to low-to-moderate income buyers, the defendants sold the properties to buyers who did not intend to reside in the homes and who were fraudulently qualified for financing based on false statements about their qualifications and false statements about the condition of the properties. Many of the residences were bought and sold through Genesis Investment Group Inc., which purported to renovate and sell residential properties.
Former Senior Program Coordinator for University Of Louisville Equine Industry Program Sentenced for Wire Fraud and Money Laundering
On July 9, 2012, in Louisville, Ky., Alisha Ward was sentenced to 37 months in prison, three years of supervised release and ordered to pay $461,889 in restitution. According to court documents, Ward, while working as a Senior Program Coordinator for the University of Louisville College of Business Equine Industry Program (UofL-EIP), devised a scheme and through a series of transactions embezzled $463,636 from the university. From January 2007 through February 2011, Ward used her position to fraudulently obtain funds from the Equine Riding and Racing Club student account and to use a UofL-EIP procurement card. Ward also fraudulently requested disbursements and made fraudulent requisitions from UofL-EIP. She used the funds she obtained from the disbursements and requisitions for personal items, including the costs for remodeling in her home.
Virginia Man Sentenced for Filing a False Tax Return and Structuring Financial Transactions
On July 2, 2012, in Newport News, Va., Adewale V. Oshin, of Portsmouth, Va., was sentenced to 18 months in prison, three years of supervised release and ordered to pay $86,946 in restitution. Oshin, a naturalized American citizen from Nigeria, pleaded guilty on February 1, 2012, to filing a false tax return and structuring financial transactions. According to court documents, Oshin owned at least six adult nightclubs in the Tidewater area. From 2003 to 2005, Oshin deposited, or caused to be deposited, over $1.2 million dollars in cash into his personal bank accounts. He failed to report this income on his personal tax return. Additionally, Oshin structured over $170,000 in bank transactions in 2004-2005.
Two Individuals Sentenced for Role in Tax Conspiracy
On June 29, 2012, in Ft. Lauderdale, Fla., Elmo Antonio George was sentenced to 71 months in prison for his role in a conspiracy to defraud the IRS and for filing false tax returns. George and Nasheba Necia Hunte were convicted in March 2012 of a conspiracy to defraud the IRS that spanned from as early as January 2003 through at least April 2007. George and Hunte were also each convicted of two counts of filing false 2005 and 2006 individual income tax returns on which they claimed false tax refunds for themselves. Hunte was sentenced to 51 months in prison on May 31, 2012. According to court documents, in February 2005, George incorporated Winco Holdings Inc. in Florida. George and Hunte were Winco’s only officers and despite having no employees and paying no wages, the defendants filed employment tax returns for Winco for quarters in 2005, 2006 and 2007 that falsely claimed substantial quarterly employment tax withholdings for Winco employees. None of the withholding amounts were paid over to the IRS. In February 2007, a fraudulent check for $1,676,991 was written from Winco’s bank account to the U.S. Treasury for Winco’s employment tax obligations. The defendants then filed corporate tax returns for Winco for tax years 2005 and 2006 that reported fictitious partnership losses. These fictitious losses then “passed through” to the defendants’ individual income tax returns along with the false Winco wage and withholding amounts. These withholding amounts generated false refunds for both defendants for tax years 2005 and 2006. George’s refund was deposited into a joint bank account of another entity, Dikingdom Inc. The defendants used the false refund to buy a home for $145,500 in cash in Villa Rica, Ga. To conceal the purchase of this property and the proceeds of the fraud, George deeded the property to an alias named the Overseer of Dikingdom.
Georgia Fiction Author Sentenced for Two Fraud Schemes
On June 28, 2012, in Atlanta, Ga., Mitchell Gross, of Marietta, Ga., who has written and published novels under the name “Mitchell Graham,” was sentenced to 151 months in prison, three years of supervised release, and ordered to pay more than $5.8 million in restitution. Gross pleaded guilty on February 21, 2012, to wire fraud and money laundering. Gross defrauded a woman he met through an Internet dating service of almost $3 million; he defrauded another woman with whom he had a romantic relationship of approximately $1.5 million; and he defrauded a couple of over $2 million in legal fees for “representing” them in a lawsuit that was never filed.
Investment Broker Sentenced in $5 Million Ponzi Scheme
On June 27, 2012, in Providence, R.I., Martin B. Feibish, an independent insurance agent and investment broker, was sentenced to 60 months probation, 12 months to be served in home confinement. Feibish was also sentenced to pay a combined restitution to the victim and Massachusetts Mutual Insurance in the amount of $10,106,209. Feibish pleaded guilty on April 11, 2012, to one count each of mail fraud and filing a false tax return. According to court documents, Feibish admitted that between 2001 and February 2011, he induced an investor to invest with him more than $5 million by creating false and fictitious investment schemes. Feibish admitted that he returned only a portion of the funds to the investor, and falsely represented that the funds were returns on the investor’s investments. Feibish admitted that the funds he provided were actually the result of a Ponzi scheme that he perpetrated with the investor’s own money. Feibish admitted to the court that he used the investor’s funds for his own benefit. Feibish also admitted to the court that he filed a false tax return for tax year 2009, claiming income in the negative amount of $94,699. Feibish admitted that he had received income substantially more than the amount he reported.
Former Union Benefit Funds Administrator Sentenced for Embezzlement and Tax Crimes
On June 21, 2012, in Manhattan, N.Y., Melissa G. King was sentenced to 72 months in prison, three years of supervised release and ordered to forfeit millions of dollars of assets, including her $2 million residence. According to court documents, King embezzled millions of dollars from the employee benefit plans she administered on behalf of the Compressed Air and Free Air Foundations, Tunnels, Caissons, Subways, Cofferdams, Sewer Construction Workers Local 147. In addition, she filed false personal income tax returns that understated her personal income by millions of dollars. Local 147 represents construction workers employed in numerous construction projects in the New York City area. The union and its collective bargaining partners have established plans that provide various employment-related benefits to Local 147’s members, including pensions, annuities, worker’s compensation, vacation benefits and other benefits. King provided administrative services to the Local 147 Funds through her company, King Care LLC, such as collecting employer contributions, maintaining bank accounts, determining eligibility for benefits, paying claims to beneficiaries, filing reports with regulators, maintaining a general ledger of the funds, income and expenses, and providing reports to the funds’ trustees. Since 2002, King had written agreements with Local 147, which provided that King Care was to be paid up to $15,000 per month for each of the Local 147 Funds, for a total of $45,000 per month. The agreements further provided that King Care could bill the Local 147 Funds for hiring staff and for expenses related to King Care’s services. However, between 2002 and 2008, King caused at least $42 million to be transferred, in the form of checks, from the bank accounts of the Local 147 Funds into an account controlled by King Care . Moreover, between 2002 and October 2009, tens of millions of the embezzled funds were transferred out of the King Care Account through check, wire transfers, and other means, in transactions that were unrelated to the Local 147 Funds but which were for the personal benefit of King. As a result of King’s embezzlement, hundreds of participants in the Local 147 Benefit Plans each lost approximately $55,000 to $80,000 in retirement savings and other benefits.
Commodity Pool Operator Sentenced for Two Fraud Schemes and Tax Evasion
On June 18, 2012, in Trenton, N.J., Victor E. Cilli, was sentenced to 36 months in prison, five years of supervised release, and ordered to pay $710,000 in restitution. In addition, Cilli must comply with the IRS in filing amended tax returns and pay more than $410,000 in taxes, penalties, and interest. Cilli pleaded guilty to an Information charging him with securities fraud, conspiracy to commit bank fraud and tax evasion. According to court records, beginning in August 2006, Cilli was the sole owner and president of Progressive Investment Funds LLC (PIF), a commodity pool operator engaged in an investment trust that solicited funds for the purpose of trading commodity futures. Cilli had sole trading authority over Progressive Managed Futures Fund LP (PMFF), which remained open until approximately February 2009. Beginning as early as January 2007 and through September 2007, Cilli engaged in a Ponzi scheme to defraud at least four commodity pool participants of approximately $506,000. Although Cilli returned some funds to the investors, the payments were from funds of existing pool participants. Cilli made false and misleading statements to the pool participants claiming he had made money for them when, in fact, most of his trading resulted in losses. Cilli also misappropriated thousands of dollars in pool funds for personal expenses. In an unrelated scheme, from 2002 through September 2006, Cilli and 16 others conspired to defraud a financial institution based in Cleveland, Ohio, of more than $1.5 million in student loans by falsely representing that they would use the funds to attend a pilot and flight crew training school in DeLand, Fla., and use the proceeds of student loans for educational expenses. Based upon prior agreements between Cilli and his co-conspirators, they never intended to enroll, nor repay principal or interest on the student loans. After the bank disbursed the loan proceeds to the school, approximately $600,000 of the loan proceeds were deposited into bank accounts solely owned and operated by Cilli. Cilli then made kickback payments totaling approximately $130,000 to his co-conspirators for signing up for the loans. To conceal his fraudulent conduct, Cilli maintained bank accounts in the names of Northeast Flight Training Inc., which was not a flight training school, and United Charities of America Inc., which was not a charitable organization. Both accounts were maintained by Cilli solely to perpetuate his frauds and fund his personal expenditures. For calendar years 2003 and 2004, Cilli also intentionally failed to provide the IRS with any information regarding the proceeds that he received in connection with his conspiracy to commit bank fraud, totaling $547,705, resulting in a tax loss of approximately $158,674.
Former Austin Police Officer Sentenced on Tax Charge
On June 18, 2012, in Austin, Texas, Randall Keith Ballard was sentenced to one year in prison after pleading guilty in March 2012 to one count of making and submitting a false income tax return. In his guilty plea, the former Austin Police officer admitted that on his 2010 federal income tax return, he failed to declare approximately $114,000 in income generated from an off-duty private security job. According to an Information filed in this case, Ballard made a false declaration on his return that his total income was $40,562 when in fact, he knew it to be approximately $155,289. Information presented in open court at the time of his guilty plea revealed that Ballard admitted that he did not pay taxes on any of this extra income nor did he work all of the hours he was paid to provide private security.
Anchorage Woman Sentenced for Running Ponzi Scheme
On June 15, 2012, in Anchorage, Alaska, Samantha Delay-Wilson was sentenced to 84 months in prison on her conviction of defrauding investors and lenders of over $5 million during a more than decade-long Ponzi scheme. According to court documents, Delay-Wilson defrauded 14 individuals by making false representations and promises and by providing false documents to victims regarding investments she would make on their behalf. Delay-Wilson guaranteed investors a high-rate of return and made false claims regarding how she was going to invest the victims’ money, making different claims to different victims. She told victims she would invest their money in a global investment fund, European sub-prime loans, and an investment banking service company, when in fact she used the victims’ money for her personal expenses, to fund her lavish lifestyle, and to pay out earlier investors.
Maryland Woman Sentenced for Embezzling Over $313,000 from Her Employer
On June 14, 2012, in Baltimore, Md., Sandra Iris Klaus, of Hampstead, Md., was sentenced to 44 months in prison and three years of supervised release for mail fraud, aggravated identity theft and filing a false tax return in connection with a scheme to steal $313,000 from her employer and use her employer’s identity to obtain a mortgage. Klaus was ordered to pay $274,162 in restitution to her former employer and $111,780 to the IRS. According to Klaus’ plea agreement, from March 2005 to March 2011, she was employed by a roofing and sheet metal company located in Westminster, Maryland. From January 2007 to March 2011, Klaus caused payroll checks to be issued to a fictitious employee, which Klaus then endorsed and cashed. Klaus also used the company credit cards to make unauthorized purchases for her own benefit. In September 2009, Klaus prepared and submitted a fraudulent letter on the company letterhead in support of an application for a mortgage to purchase a home. Finally, Klaus admitted that she filed false tax returns for tax years 2007 through 2010, substantially underreporting her income in those tax years by not including any of the funds stolen from her employer. The total tax loss resulting from the Klaus’ illegal conduct was $111,780.
Former CFO of New Jersey Investment Management Company Sentenced for Wire Fraud and Tax Evasion
On June 6, 2012, in Newark, N.J., David Newmark, former chief financial officer of Columbus Hill Capital Management LP, an investment management firm based in Short Hills, N.J., was sentenced to 54 months in prison, three years of supervised release and ordered pay $10,442,379 in restitution. Newmark pleaded guilty to an Information charging him with one count of wire fraud and one count of tax evasion. According to court documents and statements made in court, between February 2008 and March 2011, Newmark embezzled from his former employer by requesting checks and wire transfers from custodians of the investment management company accounts and diverting the funds to bank accounts he controlled. Newmark deposited the checks and wire transfers – including a single wire transfer of more than $2.4 million in April 2010 – into a bank account he set up with a name similar his employer’s. The majority of the $10.4 million that Newmark embezzled came from the management company rather than investor funds. For tax year 2008, Newmark did not disclose to the IRS the more than $2.8 million he received from the fraudulent scheme, resulting in a tax loss to the United States of $1,012,441.
Four Sentenced for Scheme to Steal Aviation Fuel from Army Airfield in Texas
On May 31, 2012, in El Paso, Texas, Tomas Hermann Quintero was sentenced to 30 months in prison for his role in a scheme to steal an estimated $290,000 worth of aviation fuel from Biggs Army Airfield in El Paso. According to public records, in May 2008, federal law enforcement officials learned of the theft of jet fuel from a El Paso-based commercial company that had a contract with the Department of Defense Energy Support Center to provide aircraft fuel to military and federal civilian aircraft at Biggs Army Airfield. A subsequent investigation revealed that from January 2007 through September 2010, two employees – Quintero and Luis Campos – conspired to steal aviation fuel while the fuel was physically stored at Biggs AAF and then sell the stolen fuel for cash to Fernando Baca and his brother, Ricardo J. Baca, to use to operate their commercial gravel trucks. Fernando Baca also falsified fuel receipts and used these receipts to increase his business expenses for income tax purposes. In March 2012, Quintero pleaded guilty to one count of conspiracy to commit theft of public property and theft on Government property and one count of tax evasion for failing to report income he made in 2008 from the sale of stolen jet fuel. On May 25, 2012, Fernando Baca was sentenced to 15 months in prison after pleading guilty in February 2012 to one count of conspiracy to commit theft of public property and theft on Government property plus one count of false statement to the IRS on his 2008 tax return for knowingly inflating his business expenses. On May 24, 2012, Campos was sentenced to four months in prison and four months of home confinement after pleading guilty in March 2012 to the conspiracy charge. On May 22, 2012, Richard Baca was sentenced to five years probation after pleading guilty in March 2012 to the conspiracy charge. In addition to the prison terms, the defendants were ordered to pay combined restitution to the Defense Energy Support Center-Defense Logistics Agency, U.S. Department of Transportation and Internal Revenue Service as follows: Quintero, $362,134; Fernando Baca, $343,832; Campos, $318,328; and, Richard Baca, $83,814.
Woman Sentenced for Tax Fraud Conspiracy in South Florida
On May 31, 2012, in Fort Lauderdale, Fla., Nasheba Necia Hunte, of Villa Rica, Ga. and formerly from the U.S. Virgin Islands, was sentenced to 51 months in prison for her role in a conspiracy to defraud the Internal Revenue Service (IRS) and for filing false tax returns. Hunte was also ordered to pay $229,305 in restitution to the IRS. According to the indictment, Hunte and her co-conspirator, Elmo Antonio George, were the only officers of a shell company, Winco Holdings Inc. Although the company had no employees and paid no wages, employment tax returns for Winco for quarters in 2005, 2006 and 2007, falsely claimed substantial quarterly employment tax withholdings for Winco employees. None of the withholding amounts were paid over to the IRS. Hunte and George also filed corporate tax returns for Winco for tax years 2005 and 2006 that reported fictitious partnership losses. These fictitious losses then “passed through” to Hunte’s individual income tax returns along with the false Winco wage and withholding amounts. These withholding amounts generated false refunds for tax years 2005 and 2006.
Former Ford Assembly Plant Manager Sentenced on Tax Evasion Charges
On May 31, 2012, in St. Louis, Mo., John Perry was sentenced to 51 months in prison, three years of supervised release, and ordered to pay $926,602 in restitution. According to court documents, Perry approved false and inflated invoices submitted to Ford by a vendor for transportation and storage expenses. When Ford paid the invoices, the owner of the logistics company paid Perry a kickback. Perry failed to report a large portion of these kickback payments on his federal income tax returns. Perry also participated in an inflated lease scheme for which he received kickbacks. While Perry was employed at Ford, Syms Trucking Co. obtained a contract to provide transportation logistics work and yard management at the St. Louis Assembly plant. Perry directed Syms to make payments to him in exchange for allowing Syms to keep its contract with Ford. A large portion of these payments were not reported on his federal income tax returns. From 2001 through 2004, Perry received in excess of $2,000,000 from these two schemes, causing a tax loss of more than $600,000.
Three Florida Men Sentenced in False Billing and Kickback Scheme
On May 22, 2012, in Fort Lauderdale, Fla., Steven Cross, of Hollywood; Israel Campos, of Miami; and Mark Cantrell, of Pembroke Pines, were sentenced on charges of conspiring to commit mail fraud and wire fraud. Cross and Cantrell were also sentenced for tax evasion. Cross, the track supervisor at Calder Race Course, was sentenced to 57 months in prison, three years of supervised release, and ordered to pay $2,766,433 in restitution. Campos, who through his companies Delta Supply and Maintenance Distributors, Inc., participated in the false billing and kickback scheme by giving Calder invoices for products that were never delivered, was sentenced to 33 months in prison, three years of supervised release, and ordered to pay $1,580,819 in restitution. Cantrell, who through his companies Marquee Enterprises, Inc., and A-Jem Industries, Inc., participated in the false billing and kickback scheme by also giving Calder invoices for products that were never delivered, was sentenced to 13 months in prison, three years of supervised release and ordered to pay $1,185,614 in restitution.
California Man Sentenced for $9.5 Million Investment Scam
On May 21, 2012, in Los Angeles, Calif., Mark Roy Anderson was sentenced to 135 months in prison and ordered to pay more than $9.5 million in restitution. Anderson pleaded guilty in July 2011 to one count of wire fraud and one count of money laundering. According to court documents, Anderson solicited investments from victims who were told that their money would be invested in various oil companies and oil-related ventures in Oklahoma and California. Anderson also promised his victims substantial returns on their investments. Instead of using investors’ money for oil ventures, Anderson used investors’ funds for living expenses and personal items.
Florida Health-Care System Bribery Scheme Conspirator Sentenced
On May 18, 2012, in Miami, Fla., Paul Chaiet was sentenced to 18 months in prison, three years of supervised release and ordered to pay $259,690 in restitution for his part in a bribery scheme at a Florida health-care system. According to court documents and trial testimony, one of Chaiet’s co-defendants was employed as the director of facilities management at a hospital and was responsible for contracting with vendors to perform work at the hospital. Various vendors, with help from Chaiet, would conceal kickback payments through entities such as Whitehead Industries, RSM&F Enterprises, Inc. and Dorece Consulting. Nine vendors collectively received over $15 million in contracts from the health-care system during the execution of the conspiracy. According to the indictment, Chaiet, a certified public accountant, was the registered agent for various companies used to facilitate the kickback arrangement.
New York Woman Sentenced for Theft of Government Money and Filing a False Tax Return
On May 18, 2012, in Buffalo, N.Y., Karen Peterson, of Alden, N.Y., was sentenced to three years probation, including 24 months home confinement. Peterson pleaded guilty to theft of government money and filing a false tax return. According to court records, from June 1989 through September 2010, Peterson collected and used for her own benefit approximately $570,000 in Civil Service Retirement System benefits, which were erroneously paid to her deceased father in law. Peterson falsely told the government that her father in law, who died in 1989, was still living. Peterson admitted that she did not report the benefits to the Internal Revenue Service, and from 2007 through 2009, she did not pay approximately $13,000 in income taxes.
Former Finance Executive of New Jersey Company Sentenced for Embezzling More Than $1.3 Million
On May 14, 2012, in Camden, N.J. Rusty Spickenreuther, former controller of an environmental and industrial services firm based in Swedesboro, N.J., was sentenced to 57 months in prison for defrauding his former employer by improperly diverting funds and taking more than $1.3 million from the company. In addition, Spickenreuther must serve three years of supervised release, pay $1,304,472 in restitution to the company and forfeit $289,576 seized by the United States. During the period of supervised release, Spickenreuther is prohibited from working in the accounting field, as a controller, or in a job where he has oversight of the disbursement or transmission of money. Spickenreuther pleaded guilty to an Information charging him with one count of wire fraud, one count of money laundering, and one count of tax fraud. According to documents filed in this case and statements made in court, Spickenreuther admitted that between June 2009 and June 2011, he embezzled from his former employer by stealing more than 50 checks payable to the company and diverting the funds to bank accounts he controlled. Spickenreuther deposited the checks – which ranged from $255 to more than $88,000 – into a bank account he set up in the name of “EISCO,” an acronym that is regularly used to refer to the company. Spickenreuther, who had access to the company’s financial books and records in order to perform his duties as the controller, used that access to conceal the theft. Once in possession of the stolen funds, Spickenreuther wire transferred large sums of money among various bank and brokerage accounts, ultimately using much of the stolen money to day trade in stocks from a brokerage account he controlled. For the 2009 and 2011 tax years, Spickenreuther failed to disclose in excess of $760,000, resulting in a tax loss of $258,712.
Brothers and Sister Sentenced for Defrauding Elderly and Disabled Victims
On May 14, 2012, in Tucson, Ariz., Robert Lee Skaggs and Jo Anne Skaggs were sentenced to 110 months and 70 months in prison, respectively. The two had pleaded guilty to conspiracy, mail fraud, and conversion of payee funds. In addition, the defendants were ordered to pay $1,435,093 in restitution to more than 750 victims. Robert Lee Skaggs was also ordered to pay $371,864 to the Internal Revenue Service for employee tax liabilities. According to court documents, Robert Lee Skaggs, Jo Anne Skaggs, and Ray T. Skaggs, Jr. were employed by Scope Payee Services, Inc. (SCOPE), a representative payee for beneficiaries of Supplemental Social Security Income (SSI); Federal Old-Age, Survivors, and Disability Insurance benefits; and U.S. Railroad Retirement benefits. Robert Lee Skaggs was the president and agency director of the company. Jo Anne and Ray T. Skaggs were payee coordinators for the company. According to court documents, between December 1994 and April 2008, the Skaggs’ conspired to convert SSI payments to their own use. As part of the scheme, they maintained open client accounts in the names of deceased and fictitious beneficiaries, as well as beneficiaries whose location was not known, and maintained inaccurate financial records of the beneficiaries’ accounts and created false entries. To facilitate the misappropriation of beneficiary funds from SCOPE bank accounts, they paid clients in cash and kept large cash balances on site. Using funds from SCOPE bank accounts, they purchased money orders totaling at least $89,000 and used at least $60,000 of the money orders for their personal benefit. They issued checks totaling at least $100,000 from SCOPE bank accounts to Ray T. Skaggs and his spouse and then made false entries in the books and records of SCOPE to disguise the diverted monies as payments to SCOPE’s vendors and others. They failed to report on federal and state individual income tax returns the monies misappropriated from SCOPE clients and the funds stolen from the SSA. In addition, Robert Lee Skaggs maintained his personal residence in a family member's name to avoid paying federal tax liens of $105,840 and $91,132 for failure to pay payroll taxes withheld from employees’ wages. Ray T. Skaggs was sentenced on May 21, 2012 to 30 months in prison, three years of supervised release and ordered to pay $1,435,093 in restitution.
Rhode Island Steelworks Contractor Sentenced in Multi-Million Fraud Scheme
On May 7, 2012, in Providence, R.I., Mario Perretta, of Cranston, R.I., owner of M&M Ironworks in Providence, was sentenced to 96 months in prison and three years of supervised release for bilking nearly two dozen investors in his company out of nearly $4.3 million. Perretta was also ordered to pay $4,275,745 in restitution to the 23 victims he defrauded. Perretta pleaded guilty on January 31, 2012, to eight counts of wire fraud and two counts of tax evasion. Perretta admitted to the court that he promised inventors high rates of return on investments in projects that did not exist. Instead, Perretta admitted that he used the majority of the money to gamble, purchase personal items and pay for personal expenses. M&M Ironworks performs structural steel work, primarily as a subcontractor on construction projects. In late 2007, Perretta admitted to the court that he hired an individual to recruit investors in his company. Perretta provided the employee with false and fraudulent information regarding projects that did not exist to induce investors to provide money to his company. The projects Perretta fraudulently claimed his company was involved in included the construction of a YMCA on Martha’s Vineyard, Mass., and a construction project at MGM Grand at Foxwoods Resort and Casino in Mashantucket, CT. Perretta admitted to the court that he had an attorney draft promissory notes which he gave to investors which outlined the terms of their investment and falsely promised a high rate of return, around 12-14 percent. Perretta admitted that he pressed investors to provide him with cash investments in M&M by falsely claiming that the company was in dire need of immediate cash infusions to continue operations. In addition, Perretta falsely represented to the investors that their investments would be safe because the construction projects were insured.
Oregon Certified Public Accountant Sentenced for Defrauding Clients
On May 5, 2012, in Portland, Ore., Brian D. Stevens, of Bend, Oregon, was sentenced to 48 months in prison for defrauding clients of his former business, Summit Accomodators, Inc. Stevens, a Certified Public Accountant, pleaded guilty to conspiracy to commit wire fraud and conspiracy to commit money laundering violations. According to his plea agreement, Stevens admitted he and others defrauded Summit’s customers from 1999 through 2008, misused over $44 million of customer funds, and caused 91 Summit customers to lose $13.7 million. Stevens and others created Summit to help customers take advantage of lawful federal income tax deferral transactions. In a typical transaction, a customer would sell income-producing property, allow Summit to hold the proceeds of the sale, then buy another income producing property within 180 days. Federal income tax laws then allowed the customer to defer paying taxes on the profits from sale of the first property. Stevens admitted that through Summit, he and his co-conspirators promised Summit’s customers their money would be deposited in a bank, where it would remain for the 180 day period until used to purchase another income producing property. Stevens acknowledged that from 2004 through October 2008, Summit held between $49 million and $109 million of its customers’ money in a typical month. Stevens admitted that contrary to Summit’s representations to customers, he and his co-conspirators used Summit customers’ money to invest in over 100 real estate projects and that he and his co-conspirators had direct personal interests in most of these projects. Stevens also admitted the conspirators loaned a portion of this money to individuals and businesses and to themselves. Stevens admitted he and his co-conspirators concealed this fraudulent activity, in part, by creating a company called Inland Capital Corporation, loaning Summit customer money to Inland Capital, then causing Inland Capital to loan the money to small corporations they created to own each real estate investment. When Summit’s customers and affiliate owner-operators began to express concern about the safety of Summit customer money, the conspirators used statements in e-mails and other media to convey the false impression that all Summit customer money was deposited and maintained in financial institutions.
Mother and Daughter Sentenced for Mortgage Fraud Scheme
On May 4, 2012, in Camden, N.J., Patricia Smith and her daughter Jamilah Smith, of Irvington, N.J., were each sentenced to 24 months in prison and five years of supervised release for participating in a scheme involving New Jersey properties that caused mortgage lenders to release more than $1.9 million in loans obtained by fraud. Co-conspirator Carol Ashley, of Las Vegas, was sentenced to six months of house arrest with electronic monitoring and three years of supervised release. According to documents filed in this case and statements made in court, Patricia and Jamilah Smith served as “straw buyers” to purchase two condominiums each in North Wildwood, N.J. The straw buyers had good credit scores, but lacked the financial resources to qualify for mortgage loans. The Smiths’ accomplices created false documents such as fake bank statements, W-2 Forms, and pay stubs – to make the straw buyers appear more creditworthy than they actually were. Ashley falsely verified to the lenders that Patricia Smith worked for Ashley’s company, Exclusive Entertainment Production, based in the Los Angeles area. Once the loans were approved, the mortgage lenders sent the loan proceeds in connection with the real estate closings. The defendants’ accomplices used a portion of the proceeds to pay the Smiths for their roles. In addition to the prison term, Patricia Smith was ordered to forfeit $82,746 and pay $892,168 in restitution, and Jamilah Smith was ordered to forfeit $65,047 and pay $647,290 in restitution.
Former Ohio State University Quarterback Sentenced for Fraudulent Ticket Sales Investment Scheme
On May 4, 2012, in Columbus, Ohio, Arthur E. Schlichter was sentenced to 127 months in prison and ordered to pay $38,482 in restitution to the IRS for defrauding 55 investors out of approximately $2.15 million through a ticket resale business he claimed he was operating. Schlichter pleaded guilty on October 11, 2011, to one count each of wire fraud, bank fraud and filing a false income tax return. According to court documents, Schlichter began soliciting people in 2008 to invest in a ticket-resale business. He represented to them he was buying tickets to Ohio State football and basketball games and NFL football games (using his supposed personal connections) at low prices and in bulk, and that he would then re-sell the tickets at a profit. As part of the scheme, he instructed a person to send a wire transfer of funds from an account in Florida to an account he controlled in the Southern District of Ohio. In truth, however, Schlichter did not have connections through which he could get tickets at unusually low prices, and he did not use the money that people gave to him to buy tickets or to invest in a ticket-resale business for either purpose. Schlichter instead spent the money on personal expenses, gambled with it, or used it to repay older debts. Schlichter paid investors with checks he knew were drawn on accounts that did not have sufficient funds. He also failed to disclose income he received from the scheme when he filed his taxes in 2008. Schlichter reported an income tax liability that was $38,482 less than what it should have been.
Florida Ponzi Schemer Sentenced
On April 27, 2012, in Tampa, Fla., Marian I. Morgan, of Sarasota, was sentenced to 35 years in prison for conspiracy, wire fraud, interstate/foreign transportation of stolen funds, money laundering, and filing false tax returns. Morgan was also ordered to pay $19,958,995 in restitution. Her husband, John Morgan, pleaded guilty to conspiracy and money laundering charges in June 2011 and was sentenced to 121 months in prison in November 2011. According to the evidence presented at trial, Marian and John Morgan, were principals of a company named Morgan European Holdings from approximately 2005 to 2009. They promoted sham "high yield/ prime bank note" investment programs, promising investors that they would receive returns of 200-300 percent in three months and that their principal funds would be held safe in an escrow account in Denmark. Evidence at trial, however, showed that the Morgans spent more than $10 million of investor money on themselves soon after investors wired the funds to the escrow account. The Morgans purchased luxury automobiles, a waterfront mansion, and numerous luxury items with investor funds. When investors inquired about the status of their investments, Marian I. Morgan sent repeated "lulling" communications, assuring the investors that their funds were safe in the escrow account. Between 2005 and 2009, the evidence showed that the Morgans took in more than $28 million in investor funds and returned some funds in the form of "Ponzi" payments. The Morgans were arrested in August 2009 in Sri Lanka after attempting to pass a forged financial instrument and were returned by federal agents to the United States in December 2009.
Adult Entertainment Consultant Sentenced on Tax Charges
On May 1, 2012, in Detroit, Mich., Francis Sharrak was sentenced to 72 months in prison, three years of supervised release and ordered to pay $4.2 million in restitution to the Internal Revenue Service (IRS) for tax evasion. According to court documents, during tax years 1997 through 2005, Sharrak earned millions of dollars in taxable income by running and promoting adult websites, spamming millions of email addresses, and consulting for adult entertainment dance clubs. In 2003, Sharrak filed his 1997 through 2001 tax returns, reporting over $3.7 million in income with $1.4 million in taxes owed to the IRS. He submitted an Offer in Compromise to the IRS to settle his tax debt for an amount that was far less than the tax he admittedly owed. The IRS did not accept the offer, and Sharrak then failed to file tax returns for tax years 2003 through 2005, during which time he received more than $1.4 million in income. The IRS attempted to collect the taxes Sharrak owed through liens and levies, but Sharrak was able to derail these efforts by concealing his assets, using nominees, and making false statements to IRS agents. Knowing that he owed the IRS a significant amount of tax, Sharrak paid himself in cash from the accounts of the adult entertainment clubs he ran and paid his bills using financial accounts he controlled that were in the names of nominees. He also leased and purchased high-end vehicles in other people's names. Sharrak’s debt to the IRS now exceeds $4 million.
Co-Founder and Former CEO of Technology Company Sentenced for $30 Million Fraud Scheme
On April 30, 2012, in San Francisco, Calif., Mouli Cohen, aka Samuel Cohen, was sentenced to 264 months in prison, three years of supervised release and ordered to pay a money judgment of $31,422,403, a $25,000 fine, and a $2,900 special assessment. Cohen was convicted by a trial jury in November 2011 of 15 counts of wire fraud, 11 counts of money laundering and three counts of tax evasion. Evidence at trial showed that Cohen falsely told prospective investors – most of whom were affiliated with the Vanguard Public Foundation, the former San Francisco non-profit organization – that Cohen’s company, Ecast, Inc., was about to be acquired by Microsoft. Based on those false representations, victims purchased more than $6 million of Cohen’s founders’ shares in Ecast. Cohen falsely represented that this investment would provide an opportunity for the investors to contribute a substantial amount of the profits to the Vanguard Public Foundation. Then Cohen falsely told investors that there were delays in the approval of the acquisition and that investors needed to pay their share of the fees and to post bonds held in escrow to assure the acquisition was completed or the investors would lose their prior investment. In addition to their initial $6.2 million investment, over the course of approximately three years, scores of investors paid $25 million toward this purported acquisition based on Cohen’s false representations about the non-existent acquisition of Ecast. Evidence showed that while pulling in millions of dollars from this fraudulent scheme, Cohen spent money on luxury expenses, for example, more than $6 million on private jet rentals; hundreds of thousands of dollars worth of jewelry; high-end vehicles and numerous luxury vacations. Finally, despite collecting tens of millions of dollars from victims and spending huge amounts to live a lavish lifestyle, Cohen reported almost no income on his tax returns and paid zero taxes. Over the course of several years, Cohen scammed more than 50 victims out of approximately $31 million.
California Man Sentenced for Role in Debt Collection Scheme
On April 30, 2012, in Fresno, Calif., Paul Anthony Vasquez, of Santa Clarita, was sentenced to 108 months in prison for conspiring to commit mail and wire fraud and money laundering. Vasquez was ordered to pay $1.3 million in restitution and to forfeit assets seized by federal agents, including over $950,000 in cash and a 1.5 carat diamond ring. According to court documents, Vasquez was the principal operator of Maxwell, Turner and Associates Inc. (MTA) in Bakersfield. MTA claimed to provide debt collection services. After a client signed a contract, MTA would provide them with false information about legal proceedings, the whereabouts of the debtor, the ability to collect the funds, and the need for additional fees. When MTA collected money from the debtor, it would not send the money to it’s clients. Once the client stopped sending money to MTA, they would stop communication with the client. The losses to victims of this scheme were more than $1 million. Vasquez is the third defendant to be sentenced for this scheme. On November 28, 2011, Darrian Jeffrey Summers and Stefan Lemar Miller were sentenced to 96 months in prison and 81 months in prison, respectively.
Pastor Sentenced for Operating $1.8 Million Ponzi Scheme
On April 27, 2012, in Seattle, Wash., Anthony C. Morris, a Seattle-area pastor, was sentenced to 40 months in prison, three years of supervised release and ordered to pay $1,843,932 in restitution for defrauding two dozen victims out of more than $1.8 million. Morris pleaded guilty in January 2012 to wire fraud and money laundering. According to the plea agreement and charges filed in the case, between 2003 and April 2011, Morris convinced various investors to provide him money based on false and fraudulent representations. Morris told investors that their money would be placed in an overseas trading program or used to invest in property for his church. He represented that the investments would provide a high rate of return in a short period of time. Morris promised to return investor money in as little as a few days or a few weeks, with returns of as much as 400 percent. All these representations were false, and in fact, Morris simply used the funds from later investors to pay off earlier investors. Some of the money went for Morris’s expenses and for the expenses of his church.
Defendant Sentenced for Failure to File a Tax Return and Other Federal Charges
On April 26, 2012, in Boston, Mass., Michael Ostrowski, of East Patchogue, N.Y., was sentenced to 24 months in prison, three years of supervised release and ordered to $100,459 in restitution to MassHealth and $85,751 to the Internal Revenue Service. The court also ordered forfeiture of $179,500 in cash and all items he had purchased with the proceeds of his fraud. On January 9, 2012, Ostrowski pleaded guilty to conspiracy to commit mail fraud; mail fraud; interstate transportation of stolen property; receipt, possession, concealment and disposition of stolen property having crossed a state boundary; engaging in a monetary transaction in property derived from specified unlawful activity; and failure to file an income tax return. According to court documents, on June 20, 2006, Ostrowski became the temporary guardian for his grandfather, who was incapacitated with dementia. As temporary guardian, Ostrowski was required to manage his grandfather’s assets and administer the estate in his grandfather’s best interests. Instead, Ostrowski engaged in a conspiracy to defraud MassHealth and his grandfather by spending his grandfather’s assets for his own benefit and that of others, thereby forcing MassHealth to pay for his grandfather’s care. As part of the scheme, Ostrowski misappropriated over $300,000 of his grandfather’s liquid assets. Ostrowski liquidated a bank account belonging to his grandfather that was worth more than $250,000. He later transported the cash across state lines from Massachusetts to New York. Ostrowski willfully failed to file a 2006 federal income tax return, including the income that he derived from this fraudulent activity.
New Jersey Woman Sentenced for $1.7 Million Student Loan Scam
On April 26, 2012, in Camden, N.J., La’Vada Cruse was sentenced to 61 months in prison, five years of supervised release and ordered to pay $136,403 in restitution. Cruse pleaded guilty to an Information charging her with one count of mail fraud, two counts of tax evasion, and one count of aggravated identity theft. According to documents filed in this case and statements made in court, Cruse admitted that beginning in December 2003 and continuing through 2007, she applied for more than 90 student loans in her name or in the names of individuals – including family members – using their names, social security numbers and dates of birth without permission. Of the $1.7 million she sought, Cruse successfully obtained 17 student loans and received more than $192,000. Cruse stated in her applications that she was a full-time student at one of six New Jersey-area colleges. In many of the applications, she included a fake college enrollment letter and fraudulent biographical, employment, and financial information for a person listed as the co-borrower. Cruse also included phony employment letters as well as fake pay stubs and co-borrowers’ tax forms. She used her actual home address so the loan proceeds would be forwarded to her. Once the student loan applications were approved, banks and lending institutions issued checks – for as much as $22,000 – and Cruse deposited them directly into one of the bank accounts she controlled. Cruse admitted she evaded paying taxes on the loan proceeds for tax years 2005 and 2006.
Convenience Store Manager Sentenced for Food Stamp Fraud and Money Laundering
On April 26, 2012, in Greensboro, N.C., Kongkeo Keomoungkhoun, aka Kim Stukes, was sentenced to 27 months in prison and three years of supervised release for food stamp fraud and money laundering. Keomoungkhoun was also ordered to pay $1,000,000 in restitution to U.S. Food and Nutrition Services, the agency responsible for oversight of the federally-funded Supplemental Nutrition Assistance Program (SNAP, formerly known as Food Stamps). According to court documents, Keomoungkhoun was employed as the manager of a food market in Thomasville, N.C. Keomoungkhoun purchased SNAP benefits for cash and allowed the purchase of non-food items such as cigarettes using the electronic benefits transfer (EBT) cards. Individual customers would buy cigarettes or other low-priced items and Keomoungkhoun would ring up the transactions and return cash to the customers. Keomoungkhoun fraudulently redeemed SNAP benefits in a manner that allowed her to retain about 40 cents of each benefit dollar and fraudulently caused a contractor handling SNAP electronic transactions to wire thousands of dollars to the food market bank account from which she then made withdrawals for her personal use.
Two Sentenced for Roles in Million Dollar Ponzi Scheme
On April 24, 2012, in Sacramento, Calif. Duane Allen Eddings, of San Francisco, was sentenced to 210 months in prison and Robert C. Brown Jr., of Vallejo, was sentenced to 188 months in prison. Eddings was convicted in November 2011 by a jury of wire fraud, money laundering, bankruptcy fraud, and tax evasion in connection with a fraudulent investment scheme. Brown pleaded guilty in April 2010 to wire fraud for his participation in the scheme. According to court documents and evidence presented at trial, from September 2005 to May 2007 Eddings and Brown ran a “Ponzi” scheme to defraud investors throughout the United States. In order to recruit investors, they falsely stated that the investors’ money would be put in the stock market and guaranteed a high rate of return. Eddings and Brown encouraged investors to raise additional funds by taking out mortgages and home equity lines of credit on their homes. Evidence at trial established that much of the investor money was funneled through the “WISE” account (wise investors simply excel) opened by Eddings. This account received approximately $8 million in investor deposits between 2005 and 2007, but the money was never invested. Eddings transferred money from this account to his personal and business accounts and made lulling payments to earlier investors in order to continue the scheme and prevent its discovery. In total, approximately 400 victims were defrauded by Eddings and Brown. Eddings was also found guilty of bankruptcy fraud. In his bankruptcy petition, Eddings understated his income from the Ponzi scheme by millions of dollars, failed to disclose bank accounts and ownership interests in various entities, and failed to disclose his current possession or recent transfer of expensive items. He also falsely listed a debt of $2.5 million to Brown that he did not owe. Finally, in his 2005, 2006, and 2007 tax returns, Eddings reported that his taxable income was $21,224, $0, and $0, respectively. Evidence at trial established that Eddings’s taxable income was in the hundreds of thousands of dollars in each of those three tax years. As a result, Eddings evaded over a half million dollars in federal income taxes.
Montana Woman Sentenced on Tax Charges
On April 20, 2012, in Missoula, Mont., Leslie Jean McIntosh, of Columbia Falls, was sentenced to 21 months in prison, three years of supervised release, and ordered to pay $159,464 in restitution. According to court documents, in January 2006, McIntosh was hired by FITEC, LLC, in Kalispell as its Chief Financial Officer (CFO). FITEC was a professional collection agency, specializing in commercial collections and accounts receivable. FITEC also provided risk review and credit granting assistance, credit and adverse reporting, and asset and adverse searching assistance. As CFO, McIntosh was responsible for handling all remittances of client services accounts, accounts payable and receivable, all tax preparations and all employee payroll, to include paychecks, withholdings, benefits, Social Security benefits, and Worker’s Compensation issues and insurance. McIntosh also had access to accounts associated with related companies, FITEC, Inc., and Lazare, Inc. McIntosh prepared forms W-2 for FITEC, LLC employees, including her own. An audit of FITEC, LLC finances found that in calendar years 2006, 2007, and 2008, an additional $131,511 was deposited into McIntosh’s personal account and the account of another individual. All of the noted money was over and above McIntosh’s documented salary with FITEC, LLC. The other account holder told law enforcement that McIntosh told him the checks had to be deposited in his account to conceal the money from the IRS. McIntosh did not include any of the $131,511 on her income tax returns for the given calendar years. Based on the audit, an interview with the victims, and an IRS review, it was determined that McIntosh under-reported her taxable income in 2006 by $71,924; in 2007 by $55,378; and in 2008 by $4,207 of which a total of $28,849 in tax is due and owing to the IRS, in addition to an estimated $6,710 in interest.
San Antonio Man Sentenced for Ponzi Scheme
On April 19, 2012, in San Antonio, Texas, Gregory Thompson was sentenced to 96 months in prison and three years of supervised release for running a Ponzi scheme. According to court documents, from 2003 through 2005, Thompson acted as a dealer and broker of securities. Thompson solicited funds from more than 40 victims to participate in one-year investment opportunities with foreign banks. The investment contracts offered monthly returns of between 5 and 8 percent; representing a 60 to 96 percent annual return. Thompson occasionally provided a portion of the funds to the investors representing income earned on their investment, but used some funds for his own purposes. The victim investors, misled by their earnings, often invested more money and encouraged others to invest. Thompson collected more than $100 million from investors.
Former Executive Director of a Tennessee Housing Authority Sentenced in Embezzlement and Tax Evasion Scheme
On April 19, 2012, in Memphis, Tenn., David Royce Ford, of Ripley, Tenn., was sentenced to 24 months in prison, three years of supervised release and ordered to pay $43,990 in restitution to the Internal Revenue Service and $158,794 to the housing authority. Ford pleaded guilty in January 2012, to charges of embezzlement, money laundering, and tax evasion. Ford began working for a housing authority as the executive director in January 2009. In that capacity, Ford made unauthorized purchases and withdrawals from the housing authority’s checking account for his personal use including the purchase of a 2009 Ford F150 pickup truck for $33,800. The total loss to the housing authority is approximately $216,000. Additionally, Ford failed to report to the Internal Revenue Service approximately $50,000 in additional taxable income for calendar year 2009 that he received as a result of the embezzlement, resulting in a tax loss of approximately $10,490 for that year.
Maryland Liquor Store Owner Sentenced for Underreporting Income on Tax Returns
On April 19, 2012, in Baltimore, Md., Jin Ho Kim, of Columbia, Md., was sentenced to 18 months in prison and one year of supervised release for making a false statement on his 2009 federal tax return. In addition, Kim was ordered to forfeit $155,895. Kim is the owner of RP Liquors, Inc. According to Kim’s guilty plea, a comparison of his sales records for 2006 through 2009, with the amount of income declared on his tax returns for those years revealed that Kim underreported his income by $844,486, which resulted in a tax loss to the United States of $155,091, and a tax loss to the State of Maryland of $25,225 in income tax and $47,227 in sales tax. In addition to underreporting his income, Kim made structured deposits into his bank accounts in amounts less than $10,000 in order to avoid bank reporting requirements and to attempt to conceal his income.
Wisconsin Woman Sentenced for Tax Fraud
On April 18, 2012, in Madison, Wis., Cheryl McNamee, of Sun Prairie, Wis., was sentenced to 24 months in prison and ordered to pay $595,473 in restitution for tax fraud. According to court documents, McNamee admitted to embezzling $595,473 from her former employer between 2002 and 2011. As a result of McNamee's conduct, her former employer was put out of business and all the employees lost their jobs. McNamee must pay $469,413 in restitution to the owners of the company that went out of business and an additional $126,060 to First American Title Company. McNamee pleaded guilty in February 2012 to failing to declare the money she embezzled in 2009 on her tax return for that year; claiming only $12,507 in income.
California Man Sentenced for Operating a Ponzi Scheme
On April 16, 2012, in San Diego, Calif., Steven Bartko was sentenced to 24 months in prison, three years of supervised release, and ordered to pay $5,362,765 in restitution for his role in a “ponzi scheme” that defrauded investors of over $5 million. Bartko pleaded guilty on September 8, 2011, to a criminal Information charging him with mail fraud and filing false income tax returns. According to court records, Bartko, through his entity Starfire Technologies, falsely represented to investors that Starfire was in the business of providing circuit boards and other electronic parts to government contractors. Bartko promised monthly returns to investors ranging from 5 to 8 percent and falsely represented that Starfire was making in excess of 20 percent returns within 60 days on electronic parts that he supplied to government contractors. Bartko also issued false account statements to investors indicating that they were routinely earning substantial positive returns and created false invoices indicating that Starfire had deals with major government contractors. In addition, Bartko admitted that he defrauded the United States by filing fraudulent tax returns resulting in over $123,000 in a tax loss.
California Building Contractor Sentenced for Defrauding Investors
On April 13, 2012, in Sacramento, Calif., Leo Wheeler, of Roseville, was sentenced to 51 months in prison and three years of supervised release for defrauding investors in a real estate project. According to court documents, Wheeler defrauded more than 10 investors of hundreds of thousands of dollars by submitting approximately 85 fraudulent invoices for work he falsely claimed he had performed on a 30-lot subdivision known as Creekside Oaks Estates in Lake County. Wheeler used three fictitious companies, Kenneth Gutman Trucking, SNC Solutions, and California Maintenance, to funnel funds to himself and to other projects.
Connecticut Man Sentenced for Filing False Tax Returns
On April 13, 2012, in Bridgeport, Conn., Eugene Ceriello, of Stamford, was sentenced to 18 months in prison, one year of supervised release, and ordered to pay to $295,841 to the Internal Revenue Service in back taxes, penalties and interest. Ceriello pleaded guilty on June 2, 2011, to one count of filing a false tax return and admitted that he willfully filed false income tax returns for the 2006, 2007 and 2008 tax years. According to court documents and statements made in court, Ceriello was employed for approximately 10 years as the manager of an automotive service station formerly based in Greenwich. As the manager, Ceriello had complete control over the day-to-day operations, as well as complete access to the business' computerized records. For several years, Ceriello embezzled hundreds of thousands of dollars by taking cash generated from vehicle repair services, as well as from the sale of gasoline and other retail items. Ceriello regularly accessed the business’ computer system to alter the records of the amount of money the business received. Between 2004 and 2008, Ceriello deposited into his bank account approximately $707,485 in cash that had been embezzled and failed to pay federal taxes on this income.
Utah Woman Sentenced for Taking Approximately $1.3 Million from Employer
On April 9, 2012, in Salt Lake City, Utah, Pamela Jane Madsen, of Bluffdale, was sentenced to 46 months in prison, five years of supervised release, and ordered to pay $1,351,102 in restitution. She also must forfeit three snowmobiles and three four-wheelers. Madsen pleaded guilty in January 2012 to mail fraud and money laundering charges in connection with a scheme to take approximately $1.3 million from her employer. According to court documents, Madsen worked from May 2000 to October 2010 as a secretary at Professional Painting, Inc. (PPI), a commercial painting company in Murray. In 2007, her job duties expanded to include picking up the mail, filling out deposit slips for PPI’s bank deposits, and preparing these checks for deposit into the business’s bank account. In November 2007, Madsen opened a bank account in the name of Professional Painting, Incorp., a slight variation of PPI’s name. Madsen was the only authorized signer on the account. Between November 2007 and February 2010, Madsen deposited checks representing payment from PPI’s clients for services the company provided into her own account. To conceal the theft of the checks, she accessed PPI accounting records and made entries crediting the accounts of the customers whose checks she stole.
Indiana Man Sentenced for Wire Fraud and Tax Evasion
On April 5, 2012, in Hammond, Ind., Jerry Haymon of Gary, Indiana, was sentenced to 41 months in prison, two years of supervised release and ordered to pay $234,966 in restitution for wire fraud and tax evasion. According to court documents, beginning in 2003, Haymon operated and controlled three businesses; a non-profit corporation used to help individuals buy real estate by providing down payment funds, a real estate consulting business used to connect buyers and seller of property, and a construction company used to renovate property. In 2007 and 2008, Haymon participated with others in a scheme to defraud and obtain money by lying to lenders, buyers, sellers and others to obtain loan proceeds from property sales. Activities included recording of fake mechanics liens and purchase agreements. Regarding the tax evasion charge, Haymon cashed at least 130 checks payable to the Coalition for Concern, obtaining money orders and cash, diverting at least one million dollars to bank accounts he controlled and failed to disclose that he had cashed almost two million dollars of checks in Chicago. Haymon also failed to report the money he diverted on his income tax return.
Former Georgia Attorney Sentenced for Million Dollar Fraud Scheme
On April 4, 2012, in Raleigh, N.C., Gregory Bartko, an Atlanta attorney and securities broker, was sentenced to 276 months in prison and three years of supervised release and ordered to pay $885,946 in restitution. In November 2010, Bartko was convicted of one count of conspiracy to commit mail fraud, the sale of unregistered securities and money laundering, four counts of mail fraud and one count of the sale of unregistered securities. According to evidence presented during his trial, Bartko’s fraud harmed approximately 200 victims in 21 different states. Victims were falsely promised their principal would be secure, insured, and guaranteed and they were guaranteed a high level of interest.
California Woman Sentenced for Failing to Report over $1.1 Million in Income
On April 2, 2012, in Los Angeles, Calif., Shelly Tammy Kim, of Northridge, was sentenced to 18 months in prison and ordered to pay $398,164 in restitution to the Internal Revenue Service (IRS) representing the taxes owed for the years 2003 through 2005. According to her plea agreement, Kim owned and operated Best Funding Incorporated (BFI), CalState Lending Incorporated (CLI) and Pacifica Mortgage (PMI), companies that earned income by referring loans to various lenders from whom they received loan referral commissions. Kim failed to report all of the income she received from BFI, CLI and PMI on her 2003 through 2005 tax returns by issuing checks payable to three individuals and informing her tax return preparer that these payments represented commission payments to loan agents for loan referrals. However, Kim cashed the checks and used the funds for her own benefit. In filing her income tax returns for the years 2003, 2004 and 2005 Kim failed to report approximately $1,184,554 in income, resulting in a tax due of approximately $398,164.
Owner and Founder of “Metro Dream Homes” Sentenced in $78 Million Mortgage Fraud Scheme
On March 30, 2012, in, Greenbelt, Md., Andrew Hamilton Williams, Jr., of Hollywood, Florida, was sentenced to 150 years in prison and three years of supervised release for his participation in a massive mortgage fraud scheme. On November 10, 2011, a federal jury convicted Williams on charges of conspiracy to commit wire fraud, wire fraud and conspiracy to commit money laundering. According to evidence presented at trial, beginning in 2005, Williams and his conspirators targeted homeowners and home purchasers to participate in a purported mortgage payment program called the “Dream Homes Program.” In exchange for a minimum $50,000 initial investment and an “administrative fee” of up to $5,000, the conspirators promised to make the homeowners’ future monthly mortgage payments and pay off the homeowners’ mortgage within five to seven years. Dream Homes Program representatives explained to investors that the homeowners’ initial investments would be used to fund investments in automated teller machines (ATMs) and flat screen televisions that would show paid business advertisements, and electronic kiosks that sold goods and services. According to trial testimony, Williams and his co-conspirators failed to advise investors that the ATMs, flat-screen televisions and kiosks never generated any meaningful revenue. The defendants used the funds from later investors to pay the mortgages of earlier investors. Evidence showed that Metro Dream Homes (MDH) had not filed any federal income tax returns throughout its existence. The defendants also did not advise investors that their investments were being used for the personal enrichment of MDH employees, including Williams, to pay salaries of up to $200,000 a year as well as their mortgages; employ a staff of chauffeurs and maintain a fleet of luxury cars; and attend the 2007 NBA All-Star game and the 2007 Super Bowl. Nor were investors told that investor funds were used to pay off investors in a prior failed ATM investment venture called Bankcard Group. Trial testimony showed that Williams and his co-conspirators arranged for early Dream Homes Program investors, whose monthly mortgage payments had been paid by MDH using the funds of later Dream Homes Program investors, to attend recruitment meetings to assure potential investors that the Dream Homes Program was not a fraud. MDH encouraged homeowners to refinance existing mortgages on their homes to withdraw equity and generate the funds necessary to enroll their homes in the Dream Homes Program. Because of the scheme, more than 1,000 investors in the Dream Homes Program invested approximately $78 million. When Williams and his co-conspirators stopped making the mortgage payments, the homeowners were left to attempt to make the mortgage payments MDH had promised to make in full. Previously sentenced in this scheme were Michael Anthony Hickson, the chief financial officer of MDH, who was sentenced to 120 months in prison; Isaac Jerome Smith, the president of MDH; was sentenced to 70 months in prison; and Alvita Karen Gunn, vice president of operations, was sentenced to 60 months in prison.
Virginia Lawyer Sentenced for Tax Fraud
On March 29, 2011, in Roanoke, Va., Steven Frank Helm, who practiced law in Salem, Va., was sentenced to 24 months in prison, two years of supervised release and fined $200. Helm pleaded guilty in December 2011 to mail fraud and filing a false tax return. According to the Factual Basis, in 2005, a client retained Helm to represent him in a personal injury case. The case settled in 2006 and Helm received the settlement proceeds, which he deposited into his attorney trust account. Helm’s client was required to use a portion of the settlement proceeds to reimburse Medicare for medical costs incurred because of an accident. Helm’s client believed that Helm had reimbursed Medicare in 2006. However, in December 2009, the client learned that Medicare had not been reimbursed. The client filed a complaint with the Virginia State Bar. When Helm learned of complaint, he mailed three checks to Medicare, but stopped payment on one of the checks. The Virginia State Bar investigated the complaint and determined that Helm had inappropriately used other clients’ funds, and his trust account had been overdrawn on at least three separate occasions. In 2009, Helm inappropriately disbursed $130,000 and used the fund for such things as personal travel; a family member's tuition; building expenses for Helm’s property interests; and personal financial commitments. Despite using these funds for his personal expenses, Helm’s did not report any of the funds taken from his trust account or converted from his operating account as income on his 2009 tax return.
Alabama Man Sentenced for $7.3 Million Fraud Conspiracy
On March 29, 2012, in Birmingham, Ala., Maurice William Campbell Jr., the former state director of a college consortium of business development centers, was sentenced to 188 months in prison and ordered to pay $5.9 million in restitution to the State of Alabama and to forfeit $7.6 million to the federal government. A federal jury convicted Campbell in November 2011 on charges of conspiracy, fraud and money laundering in a scheme to use his position as director of the Alabama Small Business Development Consortium to obtain more than $7 million from the state. Last year, three other individuals admitted their guilt in Campbell’s criminal enterprise and testified at Campbell’s trial. Lauren Young, head of marketing for the Alabama Small Business Development Consortium, was sentenced earlier this month to 10 months in prison and ordered to pay the state $195,000 in restitution. Mickie Davis, bookkeeper for the Alabama Small Business Institute of Commerce, was sentenced in February to 24 months in prison and ordered to forfeit $7.3 million to the federal government. Benjamin Johnson, executive director of the Institute of Commerce, and was sentenced in February to 21 months in prison and ordered to forfeit $5.7 million to the federal government. According to trial testimony, Campbell was hired as state director of the Small Business Development Consortium in January 2003. About February 2005, Campbell incorporated the Alabama Small Business Institute of Commerce with himself as president, a director and the initial registered agent. The Institute was formed as a nonprofit, with the representation that the corporation would not be operated for private profit, nor would its assets be used to benefit any shareholder, member, director, or other individual. The Institute received nearly all of its funding from the state through grants, contracts and appropriations in the education budget. From 2005 through 2010, the Institute received more than $7.3 million in public funds to provide, among other services, education and training to Alabama workers. Campbell and his co-defendants used the state funds provided to the Institute for personal gain.
Former IRS Revenue Agent Sentenced in $8 Million Investment Scam
On March 19, 2012, in Los Angeles, Calif., George Tannous, a former revenue agent with the Internal Revenue Service, was sentenced to 33 months in prison in relation to a securities fraud scheme that took more than $8 million from hundreds of victims across the country. In addition, Tannous was ordered to pay $8,797,201 in restitution to 218 victims. In May 2008, Tannous pleaded guilty to a two-count Information charging him with conspiracy and subscription to a false tax return. The charges related to Tannous’ participation in a scheme to defraud investors nationwide through material misrepresentations and the concealment of material facts in the sale of investments in Bidbay.com, Inc., AskGT.com, Inc., and related companies from 1999 through 2003. Tannous and three co-conspirators solicited victims to purchase unregistered stock in Bidbay.com, Inc. and several related companies. Bidbay.com was in the business of developing and marketing an internet auction website. According to the plea agreement, victims were lured by false statements that Bidbay.com would soon be acquired by an international known internet auction company. Tannous failed to disclose that Bidbay.com and the related companies paid sales commissions of up to 50% percent to telemarketers who solicited investors. In 2001, Tannous personally received nearly $3 million in investor funds that he failed to disclose to the IRS.
Defendant Sentenced in Investment Fraud Scheme
On March 9, 2012, in Grand Junction, Colo., Philip Lochmiller, Sr., was sentenced to 405 months in prison and three years of supervised release for conspiracy, money laundering conspiracy, money laundering, and mail fraud. In addition, he was also ordered to pay $18,649,999 in restitution to the victims of his crime. The restitution is to be paid jointly with his two co-defendants, Philip Lochmiller, Jr., and Shawnee Carver. Both Lochmiller, Jr., and Carver pleaded guilty earlier and were sentenced to 96 months and 24 months in prison, respectively. According to court documents and evidence presented at trial, Valley Mortgage, Inc., was incorporated in Colorado in September 1994 by Philip Lochmiller, Sr. The company originally engaged in the business of originating or brokering home mortgages. Lochmiller, Sr., later added the name Valley Investments as a does business as for Valley Mortgage. Beginning in 2000, Valley Mortgage entered into the “affordable housing” real estate market by buying vacant land or existing mobile home parks, titling the land so residential subdivisions could be built, and then selling lots with either a mobile home or a manufactured home on it. Valley Investments purchased land with financing provided by the sellers in a “owner-carry” arrangement. The company promised returns from 10 percent to 16 percent, and in some instances, as high as 18 percent. In exchange, investors were promised a promissory note and a recorded first “Deed of Trust” on individual lots. Both of the Lochmillers represented to investors that Valley Investments used investor funds exclusively to acquire property and finance the development of the subdivisions. Between 2000 and 2005, Valley Investments acquired five properties purportedly to develop “affordable housing” subdivisions. Between 2000 and 2009, Valley Investments received over $30,000,000 from approximately 400 investor contracts. Once investor money started coming into Valley Investments, the funds went to personal expenses, family expenses and other non-business expenditures. Further, incoming investor funds were used to make interest and principal payments to existing investors.
Former IRS Employee Sentenced for Wire Fraud and Tax Evasion
On March 8, 2012, in St. Louis, Mo., Richard Saunders, formerly of St. Louis, was sentenced to 72 months in prison and ordered to pay more than $6 million in restitution to investors and nearly $446,000 to the IRS for operating a Ponzi-style investment scheme. According to court documents, Saunders operated and was affiliated with a business known as Advisors Capital Holdings, Inc. (ACH), in St. Louis County, as well as other businesses. ACH was a primary company used in the investment scheme. Investors in the scheme were promised guaranteed returns, based on off-shore annuities. In reality, the investors who were paid returns on their investments were normally paid using investment funds obtained from other investors, rather than from returns on legitimate investments. Between 2002 and January 2008, Saunders spent, paid and diverted millions of dollars in investor funds. Some of the funds were transferred to overseas accounts, including accounts in Thailand. Saunders used substantial funds for personal purposes. Saunders, a former IRS employee, also failed to file timely returns for tax years 1992-1998 leaving a total of $445,836 in taxes owed to the IRS. While the IRS was trying to collect the taxes due, Saunders provided false information regarding his assets and accounts.
Maryland Woman Sentenced for Failing to Pay Taxes and for Fraudulently Billing NSA
On March 7, 2012, in Baltimore, Md., Christina Turley Knott, of Edgewater, Maryland, was sentenced to 15 months in prison, three years of supervised release of which one year will be served on home detention, and ordered to pay $300,000 in restitution to the IRS and the state of Maryland for fraudulently billing the National Security Agency (NSA) and for subscribing to a false tax return. According to her plea agreement, Knott is the daughter of William Turley, who owned Bechdon Company, a company located in Upper Marlboro, Maryland, which manufactured metal, plastic and sheet metal parts and other specialty items for customers, including NSA. William Turley was the president of the company from 1966 until his resignation on November 19, 2008. Knott worked as a bookkeeper at her father’s company until 2005, preparing and submitting invoices to the NSA. Beginning in at least 2003 and continuing until October 2005, Knott participated with her father and brother in a scheme to defraud the NSA by inflating the hours worked by various Bechdon employees on NSA jobs. Knott admitted that she instructed at least four Bechdon employees to inflate the number of hours they had worked for the NSA. In addition, from 2002 through 2005, Knott used her position as bookkeeper to embezzle approximately $4.5 million from the company by writing checks to herself that were drawn on company accounts. When the embezzlement was discovered in 2005, Knott’s employment was terminated. Knott did not report the embezzled funds as income on her 2003 or 2004 federal income tax returns, for a total tax loss of $1,042,297. Both William Turley, of Annapolis, Maryland, and his son Donald Turley, of Owings, Maryland, were sentenced on March 2, 2012, to 18 months in prison and ordered to pay $247,631 in restitution.
Minnesota Man Sentenced for Defrauding Investors in a House-Flipping Scheme
On March 6, 2012, in Minneapolis, Minn., Robert Dufresne was sentenced to 97 months in prison and ordered to pay more than $6.5 million in restitution for mail fraud and money laundering. According to court documents, Dufresne admitted that between October 2005 and October 2008, he sought investors to supply funds purportedly for the purchase, rebuilding, and resale of residential properties in Minnesota and other states. Investors expected the sale proceeds to be divided among them. However, Dufresne used the initial investment funds for his personal benefit and relied on subsequent investment funds to pay off the initial investors.
Former Chief Financial Officer of Nevada Company Sentenced for Embezzling Over $2 Million
On March 6, 2012, in Reno, Nevada, Juan Ramon Cabezas was sentenced to 87 months in prison, three years of supervised release, and ordered to pay a $50,000 fine. Prior to sentencing, Cabezas paid a restitution settlement to his former employer for $3.5 million. Cabezas pleaded guilty in October 2011 to mail fraud, tax evasion, aggravated identity theft, money laundering, and bank fraud. Cabezas worked as the chief financial officer for Securitron Magnalock Corporation, an electronic door lock manufacturer in Sparks, Nevada. According to the court records, as chief financial officer, Cabezas had complete control over the financial activities and accounting functions of Securitron Magnalock. From about May 2003 to early 2010, Cabezas embezzled approximately $2.5 million from his employer. Cabezas accomplished this by making false entries in the company accounting system and generating checks payable to a personal retirement account, and by forging checks. Some of the funds Cabezas stole were used to purchase a residence in Reno and stock. Between 2004 and 2009, Cabezas failed to report any of the stolen income on his federal income tax returns, resulting in a tax loss of approximately $882,532.
Texas Man Sentenced for Income Tax Violations
On March 5, 2012, in Sherman, Texas, Morris Dwayne Turner, of Lancaster, Texas, was sentenced to 18 months in prison, three years of supervised release and ordered to pay $1,103 in restitution. Turner pleaded guilty on August 31, 2011, to filing a false claim with the Internal Revenue Service. According to information presented in court, Turner filed a Form 1040 with a Form 1099-MISC for the tax year 2006, fraudulently overstating tax payments by a substantial amount and claiming a refund of $169,682. The return was processed by the Internal Revenue Service and a tax refund was mailed to Turner's home address. Turner attempted to use the money for his own personal benefit. The Internal Revenue Service previously seized and forfeited $168,578 from Turner, who was ordered to pay an additional $1,103 in restitution, the outstanding balance of the fraudulent refund.
Former Owner of Connecticut Restaurant Sentenced for Tax Evasion
On February 24, 2012, in New Haven, Conn., Luciano G. Mase, of Westbrook, Conn., was sentenced to 12 months and one day in prison, three years of supervised release, and fined $5000 for evading the payment of taxes on nearly $1.4 million in income he earned over a seven-year period while operating The Bulkeley House Restaurant. According to court documents and statements made in court, Mase owned Moreland Corp., which did business as The Bulkeley House Restaurant, and incorporated the business in his daughter’s name. Mase and his daughter, who did not work at the restaurant and received no payments from the business, had signatory authority on the business’s two bank accounts. The Moreland Corp., through the operation of the restaurant, generated cash receipts, some of which Mase deposited into his personal bank accounts rather the business bank accounts. For the 2003 through 2009 tax years, Mase filed false U.S. Income Tax Returns for an S Corporation for the Moreland Corp. that substantially under-reported the business’s gross receipts. Each year, The Moreland Corp. issued K-1 forms that attributed Moreland Corp.’s ordinary income to Mase’s daughter rather than to him. During these years, Mase reported on his individual income tax returns total income of $136,565 when, in fact, his total income was more than $1.53 million.
Restaurateur Sentenced on Tax Charges
On February 24, 2012, in Pittsburgh, Pa., Adam Lucas, of North Huntingdon, Pa., was sentenced to six months in prison, followed by six months home detention and one year of supervised release on his conviction of tax evasion and filing a false tax return. According to information presented to the court, Lucas was the owner of the Pizza and Gyro Express restaurant and failed to report approximately 50 percent of the gross receipts from his business, and also under-reported payroll and employment taxes due on federal employment tax returns. For the years 2005 through 2009, the total tax loss due to Lucas's false personal, corporate and employer payroll tax returns was $321,376.
Tennessee Business Owners Sentenced for Signing False Tax Returns
On February 23, 2012, in Knoxville, Tenn., Kevin Matthew Flannery, of Gatlinburg, Tenn., was sentenced to 24 months in prison and Margaret Anne Flannery, also of Gatlinburg, was sentenced to three years of probation and one year of home confinement. In September 2010, Kevin Flannery pleaded guilty to one count of subscribing a false tax return for M.K.M.K. Associates, Inc., doing business as “Southland Car and Jeep Rental,” for tax year 2003. On the same date, Margaret Flannery pleaded guilty to one count of subscribing a false tax return for X.M.K.M. Enterprises, Inc., doing business as “Famous Fries,” for tax year 2002. According to court documents, both entities were run as family businesses. Margaret Flannery was primarily responsible for the daily operations of Famous Fries, an exclusively cash business. Kevin Flannery was responsible for the daily operations of Southland, largely a cash enterprise as well. The Flannerys both participated in a cash skim from Famous Fries. In addition, Kevin Flannery skimmed cash from Southland. Although they provided gross receipts amounts and other information to the accountants for Southland and Famous Fries, respectively, they did not inform the accountants of the true gross receipts of the entities. As a result, the tax returns, which Margaret Flannery signed for Famous Fries and Kevin Flannery signed for Southland, were materially false because they substantially understated the actual gross receipts. The tax loss totaled $550,649.
Former Chairman and CEO of Kellogg, Brown & Root Inc. Sentenced for Foreign Bribery and Kickback Schemes
On February 23, 2012, in Houston, Texas, Albert Stanley, a former chairman of Kellogg, Brown & Root, Inc. (KBR), was sentenced to 30 months in prison, three years of supervised release and ordered to pay $10.8 million in restitution for conspiring to violate the Foreign Corrupt Practices Act. Two co-defendants were also sentenced in connection with the scheme: Jeffrey Tesler, of the United Kingdom, was sentenced to 21 months in prison, two years of supervised release and ordered to pay a $25,000 fine and forfeit $148,964,568. Wojciech Chodan, also of the United Kingdom, was sentenced to one year of probation and ordered to pay a $20,000 fine and forfeit $726,885. KBR was a member of the TSKJ joint venture company. Between 1995 and 2004, TSKJ was awarded four engineering, procurement and construction (EPC) contracts, valued at more than $6 billion, by Nigeria Liquefied Natural Gas (LNG) Ltd., to build LNG facilities on Bonny Island. From approximately 1994 through 2004, TSKJ, Stanley, Tesler, Chodan and others agreed to pay bribes to a wide range of Nigerian government officials in order to obtain and retain the EPC contracts. The joint venture hired Tesler as a consultant to pay bribes to high-level Nigerian government officials, including top-level executive branch officials. At crucial junctures preceding the award of the EPC contracts, Stanley and other co-conspirators met with successive top-level office holders in the executive branch of the Nigerian government to ask the office holders to designate a representative with whom TSKJ should negotiate bribes to Nigerian government officials. TSKJ paid approximately $132 million to a Gibraltar corporation, controlled by Tesler during the course of the bribery scheme, for use, in part, to pay bribes to Nigerian government officials.
Former Police Officer Sentenced for Illegal Gun Sales and Tax Crime
On February 23, 2012, in Tacoma, Wash., Roy Alloway, of Bremerton, Washington, was sentenced to 24 months in prison and three years of supervised release for unlawful dealing in firearms and filing a false income tax return. According to court documents, Alloway is a former Bremerton Police Officer, who for years was assigned to the West Puget Sound Narcotics Task Force. Alloway purchased and sold guns without a federal firearms license – including nearly 600 guns purchased from Bremerton and Tacoma gun shops, and another 169 firearms purchased from a Shelton source. Much of the conduct occurred while he was an active police officer. As part of the plea agreement, Alloway is forfeiting 45 firearms to the government. In addition, between 2007 and 2010, Alloway deposited cash, checks and money orders into his bank account totaling about $192,000 from the sale of firearms. However, he failed to declare that income on his tax returns. As part of his plea agreement, Alloway has agreed to pay all back taxes.
New Jersey Man Sentenced for Tax Evasion and Making False Statements
On February 23, 2012, in Trenton, N.J., Eric Logiudice, of Manalpan, N.J., was sentenced to 18 months in prison, three years of supervised release, and pay restitution of $199,847 to the IRS; $52,872 to HUD; and at least $150,000 to his former employer. According to court documents and statements made in court, from 2005 through 2008, Logiudice evaded $199,847 in taxes by submitting false and fraudulent tax returns that failed to disclose $607,161 in income. This unreported income included at least approximately $150,000 stolen and embezzled from his former employer, NJS Metropolitan Architectural Woodworking Inc. While working at NJS, Logiudice became aware that an individual was submitting an application to the City of Orange Township Department of Planning and Development to receive Essex County HUD’s Community Economic Revitalization Program funds for a renovation project. After he became the general contractor for the project, Logiudice caused another NJS employee to create fraudulent, certified weekly payroll reports for five employees who never worked on the project and then submitted them to City of Orange officials, obtaining $52,872 in community redevelopment funds from HUD.
Maryland Pawn Shop Owner Sentenced for Evading Taxes from Sale of Merchandise
On February 22, 2012, in Baltimore, Md., Yooho Weon, aka “Peter,” of Centreville, Va., was sentenced to 30 months in prison, three years of supervised release and ordered to pay $2.4 million in restitution to the Internal Revenue Service (IRS). According to his plea agreement, Weon owns Parkway Pawn Shop, Inc. and Earth 1 Computer, Inc., doing business as Bargains 101/Parkway Pawn Shop, located in Bladensburg, Maryland. Weon sold items in his pawn shop, online through his website and eBay/PayPal, and at flea markets. Weon failed to file federal corporate income tax returns for 2003 through 2008. Records of eBay/PayPal sales revealed that between May 31, 2000 and August 27, 2009, Weon received approximately $6,531,334 from online sales. This money was wired into Weon’s bank accounts. Other bank records from Weon's companies show total gross sales from the businesses of $18,418,796 from 2004 to 2008, none of which was reported to the IRS.
Former Nevada Home Builder Executive Sentenced on Mail Fraud and Tax Evasion Charges
On February 17, 2012, in Las Vegas, Nev., William "Bart" Monroe, of Henderson, was sentenced to 63 months in prison, three years of supervised release, and ordered to pay approximately $3.7 million in restitution to his former employer and $568,412 to the IRS. Monroe pleaded guilty on June 23, 2011, to one count of conspiracy to commit mail fraud, 11 counts of mail fraud, and one count of tax evasion. According to the plea agreement, from about March 31, 2004, to July 2008, Monroe engaged in a continuing scheme to defraud his then-employer, a homebuilder in Nevada, for whom he was placed in charge of land development. Without disclosing it to his employer, Monroe and two co-conspirators created a business named Silverado Pipe and Supply. Monroe and his co-conspirators then submitted false and fraudulent invoices to his former employer for PVC pipe and other supplies. Monroe knew that the invoices were fraudulent, but he used his authority as vice-president of the homebuilder to approve them and have payments issued to one of the co-conspirators. When the co-conspirator received the payments from the homebuilder, the co-conspirator sent a portion of it in cash to Monroe. Between July 7, 2004, and July 25, 2008, Monroe received 11 payments totaling approximately $1.45 million which he failed to declare as income on his tax returns. For the tax years 2004 to 2008 he owed additional tax of about $568,412.
California Woman Sentenced in Investment Fraud Scheme
On February 17, 2012, in Santa Ana, Calif., Brenda A. Eschbach, owner of Aventine Investment Services and EMA Investment Properties, was sentenced to 41 months in prison and ordered to pay $2.5 million in restitution. Eschbach pleaded guilty in September 2011 to one count of money laundering and one count of mail fraud. According to the plea agreement, from 2007 to November 30, 2009, Eschbach engaged in a scheme to defraud millions of dollars from investors. Through her companies, Eschbach convinced investors to invest in a real estate investment trust, KBS Capital Markets Group (KBS). She mailed investor statements showing that investor’s money was earning a profit. Specifically, on December 31, 2007, Eschbach mailed a fabricated account statement to an investor, reporting a $1.3 million investment which didn’t occur. Instead of investing, Eschbach used investor funds to pay off other investors in a ponzi-like fashion and for her own personal use. Eschbach admitted that she misappropriated more than $2.5 million in total from investors.
Missouri Woman Sentenced for Stealing from College of Nursing
On February 17, 2012, in Springfield, Mo., Amy Elaine Phillips, of Republic, was sentenced to 30 months in prison and ordered to pay $717,999 in restitution to a hospital and $115,117 plus interest to the Internal Revenue Service (IRS). Phillips pleaded guilty in October 2011 to theft of program funds and tax evasion for embezzling more than $717,000 from a health care system and a college of nursing. According to court documents, from January 15, 2001 to February 26, 2009, Phillips was employed as an administrative assistant for a college of nursing, a division of a health care system. In that position, she was responsible for the upkeep of the facilities, college of nursing staff payroll, budgetary issues and general administrative duties for the dean and program director of the college of nursing. Between 2004 and 2007, Phillips intercepted checks intended for the health care system and the college of nursing, and deposited them into her personal bank account. She stole nearly $61,000 under this scheme, until her bank informed her, in 2007 that she would have to be listed as the payee for any checks deposited into her account. From 2007 to 2009, Phillips utilized a student nurses association bank account at a credit union, which was a private savings account owned and funded by the students of the college of nursing. Phillips deposited checks made payable to the health care system and the college of nursing into the student nurses association bank account and on the same day withdrew the funds, which she used for her personal benefit. Phillips stole more than $657,000 under this scheme, for a total theft of $717,999. Phillips admitted that she did not claim the embezzled funds as taxable income on her federal tax returns from 2004 through 2008.
Iowa Woman Sentenced on Fraud and Tax Charges
On February 17, 2012, in Des Moines, Iowa, Stacey Lynne Gross, of Adel, Iowa, was sentenced to 20 months in prison, three years of supervised release, and ordered to pay $518,364 in restitution on federal mail and tax fraud charges. According to court documents, Gross was the office manager for Data Business Equipment, Inc., in Des Moines between late 2007 and early 2011. Her job responsibilities included writing checks from the company account to pay for business expenses. Beginning in early 2008, Gross wrote more than 190 unauthorized checks totaling more than $518,364 from the company account for her own personal benefit. She wrote checks to her credit card company, mortgage lender, and to pay for furniture, jewelry, and other personal expenses. Gross admitted to failing to report the illegal income on her tax returns. To conceal her embezzlement, Gross made false entries in the company’s books. She would enter the name of a real Data Business Equipment vendor as the “payee” on the company’s general ledgers for checks she had actually written to pay personal debts.
New Hampshire Man Sentenced for Filing False Tax Returns
On February 14, 2012, in Boston, Mass., Joseph Minai, of Hampton Falls, N.H., was sentenced to 18 months in prison, one year of supervised release and ordered to pay $206,022 in restitution to the Internal Revenue Service and a $10,000 fine. Minai pleaded guilty in November 2010 to filing false tax returns and significantly understating his income from 2003 through 2006. According to court documents, had the case proceeded to trial, the government would have proven that, from 2003 through 2006, Minai worked for an information technology company and reported his income from this job on his federal income tax returns. In each of these years, however, he failed to report the significant additional income he received from his side job – doing consulting work and selling computer hardware to several local companies. That additional unreported income totaled more than $700,000, leading Minai to avoid paying more than $200,000 in taxes.
Minnesota Bookkeeper Sentenced for Stealing From Employer
On February 14, 2012, in Minneapolis, Minn., Caren Schmidt was sentenced to 16 months in prison and ordered to pay $347,942 in restitution for stealing more than $300,000 from her employer. According to court documents, Schmidt admitted that from 2005 through August 2010, she stole money from her employer, where she was employed as a bookkeeper. Her responsibilities included writing checks, paying vendors, depositing cash, and preparing the company’s ledgers and journals. It was during the course of that work that Schmidt diverted business proceeds for her personal use, including the payment of personal credit card bills. She also admitted that she wrote checks against the company checking account to pay for personal expenses and provide money for herself. To further the scheme and keep it hidden from her employer, Schmidt made false entries on the company books and records. Schmidt also failed to report the stolen money as income on her personal income tax returns between 2005 and 2010, resulting in a tax loss of $80,520.
Financial Planner Sentenced for Fraud, False Tax Returns
On February 14, 2012, in Pittsburgh, Pa., John D. Wosotowsky, of Monaca, Pa., was sentenced to 97 months in prison and ordered to pay $2,293,045 in restitution on his conviction of mail fraud and filing false income tax returns. According to information presented to the court, Wosotowsky was a certified licensed financial planner who worked for MetLife Securities. Over a period of approximately 10 1/2 years he stole approximately $2.5 million from 25 people, many of whom were elderly. Wosotowsky used the money to feed his gambling addiction. He told his victims that he would invest their monies in a safe high return investment product under the MetLife umbrella of companies. When the clients followed his advice, he put their monies into an account that he owned and controlled called Equity I&R. He often forged change of address notices and requests for disbursements. Wosotowsky used a Cranberry, Pennsylvania address that was just a mail drop. To lull his victims into believing their investments were safe, Wosotowsky sent out regular statements that were completely fabricated. For those who had products that required monthly checks, he sent them. However, all of the monies he repaid during the scheme to victims came from other victims.
Investment Scheme Promoter Sentenced on Federal Charges
On February 13, 2012, in Los Angeles, Calif., Chase Norwood, aka Thomas Gray, was sentenced to 60 months in prison and ordered to pay $876,386 in restitution. Norwood was convicted by a jury trial in December 2009 of two counts of tax evasion, five counts of mail fraud, and eight counts of wire fraud. He has been in custody since his arrest in March 2008. The evidence presented during trial showed that Norwood solicited individuals to invest directly in purported Internet start-up companies including Undertherapy.com and Cal Broadband. Norwood used investor funds to support an extravagant lifestyle. He also used investor monies to hire several unlicensed brokers/telemarketers to identify individuals to invest in companies he promoted. In 2000, Norwood removed significant investor funds deposited to company bank accounts by writing checks to “cash” as well as using funds to pay a relative’s rental payments at a condominium complex. In 2001, Norwood deposited investor funds to business bank accounts opened under his former name, Thomas Gray. Norwood personally used deposited investor funds in these accounts by writing checks to “cash” and for rent payments on his mother’s condominium. In total, Norwood received at least $117,496 in taxable income in 2000 and $183,991 in 2001, upon which he owes income tax to the United States of $33,808 and $57,662, respectively.
“Alpha One” Foreign Currency Trader Sentenced for Securities Fraud
On February 10, 2012, in Houston, Texas, Robert Watson was sentenced to 240 months in prison and ordered to pay more than $22 million in restitution for securities fraud. According to court documents, between 2003 and 2009, Watson raised tens of millions of dollars from scores of investors and exercised custody and control over those funds under the pretense that he used them to trade, including buying and selling foreign currencies. To persuade people to invest or remain invested in his enterprises, he represented that he sought profits in the foreign currency markets using a model called Alpha One, which he claimed he developed and owned. Among other things, Watson claimed Alpha One earned high historical returns since 2000, never had a losing month and earned an annualized return of 23.04 percent between June 2006 and February 2009. Watson, however, admitted he failed to trade as he represented. Rather, he made a minimal number of trades and earned little, if any, profits. Nevertheless, he created periodic, sham account statements and sent them to investors via U.S. mail or wire communication, or to be made available to investors electronically, that tracked returns from trading profits when in fact the statements did not reflect real trades or account values. To make those sham account statements appear legitimate, he prepared phony statements of trading activity and bank accounts, which he provided to the entities’ insiders and employees and showed to inquisitive investors. When investors withdrew supposed returns or their principal investments, he admitted he paid with funds raised from other investors, not profits from foreign currency trades. Although he did minimal trading, Watson paid himself lucratively, receiving hundreds of thousands of dollars annually during the scheme.
Two Sentenced for Conspiracy, Wire Fraud, and Tax Evasion
On February 10, 2012, in Rapid City, S.D., Ron Jones and Arland Clark were sentenced to 96 months and 60 months in prison, respectively, for wire fraud and tax evasion in connection with a scheme to defraud investors. Both men were ordered to pay restitution of over $1.8 million. According to court documents, Jones enticed investors to invest over four million dollars in a computer advertising start-up company he called Plato Systems which he claimed to be developing. Working on behalf of Jones, Clark raised nearly one-and-a-half million dollars. Jones repeatedly lied to investors about his qualifications to develop and operate such a company by making numerous false claims about his college education and attendance at Harvard and MIT. He also falsely claimed to have previously been a vice-president at IBM. Ultimately, investigators discovered Jones paid Clark approximately $66,000 for his recruiting efforts. More significantly, Jones spent millions of dollars of investor funds on personal expenses entirely unrelated to the alleged business he was promoting. Only a fraction of investor money was spent by Jones on expenses which appeared to be related to developing Plato Systems. No investors ever received promised stock in Plato Systems, and only a handful received refunds of their investments. Instead, most investors have lost their entire investment.
Former Arkansas Accountant Sentenced on Charges of Defrauding Clients out of More than $1.5 Million
On February 9, 2012, in Fayetteville, Ark, Kimberly O’Dell was sentenced to 108 months in prison, three years of supervised release and ordered to pay $1,561,069 in restitution and $150,000 in fines. O’Dell, a former Fayetteville accountant, defrauded clients out of more than $1,500,000. O’Dell was a fugitive for nearly 18 months before being arrested in June 2011 in New Orleans, La. O’Dell pleaded guilty to six counts of wire fraud, four counts of money laundering, and one count of misuse of names or symbols related to the Department of the Treasury and the Internal Revenue Service (IRS). According to the plea agreement, O’Dell defrauded clients out of a total of $1,561,069 and fraudulently obtained funds from others. Specifically, O’Dell transferred money, without authorization, from her clients’ bank accounts to pay her credit card bills and wrote checks from her clients’ bank accounts to herself, her husband, and her accounting firm.
Washington Man Sentenced on Wire Fraud and Tax Evasion Charges
On February 9, 2012, in Spokane, Wash., John Earl Petersen was sentenced to 27 months in prison, three years of supervised release, and ordered to pay $167,794 in restitution. In November 2010, Petersen was charged by Indictment with wire fraud and tax evasion. According to court documents, Petersen ran a wire fraud scheme between May 2006 and May 2007 that promised to get back money individuals had lost in an investment called Empire State Viatical, aka Empire State Financial. Petersen falsely told the individuals he located $100 million from Empire State Viatical that was being held in a foreign bank and he needed money to pay various fees being charged by numerous entities to get the $100 million released. A total of $167,794 was sent to Petersen for these fictitious fees. Petersen spent all that money for his personal use; therefore, it is considered income to him. He attempted to evade the assessment of his federal income taxes for the tax year 2006 by failing to file an income tax return, depositing his funds into bank accounts under another person’s name and subsequently withdrawing the funds in cash. As a result, Petersen owes taxes, penalties and interest in excess of $51,260 for the tax year 2006.
Former Employee Sentenced for Defrauding Corporation of Over $1 Million
On February 7, 2012, in Knoxville, Tenn., Rickey L. Bright, formerly of Powell, Tenn., was sentenced to 37 months in prison, three years of supervised release and ordered to pay $1,196,404 in restitution for wire fraud and money laundering offenses. According to court documents, from April 2005 until April 2008, Bright, a former employee of a company based in Knoxville, Tenn., devised a scheme to defraud his former employer by submitting false invoices for payment. As detailed in the plea agreement, Bright was a project manager for the company, which specializes in the installation of HVAC, plumbing, and electrical components in new and existing commercial buildings. He was responsible for approving all purchases associated with his projects. He enlisted the owner of a construction products supply company to engage in his scheme to defraud his employer. Bright submitted false purchase orders to the supply company owner for supplies that were not required to complete projects that he managed. The supply company owner would submit false invoices, which Bright approved and submitted for payment. Bright’s employer would mail the checks to the supply company who would deposit them into the business bank account. To further the scheme, Bright opened a bank account at a federal credit union in the name of the Knoxville Track Club. As instructed by Bright, the supply company owner would then write a check for Bright's share of the embezzled funds payable to the “Knoxville Track Club.”
Oklahoma Man Sentenced for Defrauding Employer
On February 7, 2012, in Oklahoma City, Okla., John Bradley Thomas, of Edmond, Oklahoma, was sentenced to 24 months in prison, three years of supervised release and ordered to pay $600,161 in restitution to his former employer and $10,330 to his subsequent employer for wire fraud and money laundering in a scheme. Thomas was charged by Information on May 2011 and pleaded guilty to wire fraud and money laundering in July 2011. According to court records, Thomas was employed as a Vice President of Business Development for an Appleton, Wisconsin company. His duties involved marketing and sales, maintaining business relationships with clients, and project manager for certain projects. As the project manager, Thomas would set up jobs in the company computer system, order materials, hire subcontractors, invoice customers, and receive payments. He was also provided company credit cards issued for procurement purposes. From April 2006 through December 2008, Thomas established false projects and work orders in the company system and created false construction invoices submitted to the company from which he diverted money for his personal expenses.
California Man Sentenced on Federal Charges including Arson and Tax Evasion
On February 7, 2012, in Sacramento, Calif., Mark C. Anderson, of Sausalito, was sentenced to 324 months in prison and ordered to pay $70.3 million in restitution. Anderson pleaded guilty in November 2009 to 19 counts: one count of arson, four counts of interstate transportation of fraudulently obtained property, nine counts of mail fraud, one count of use of a fictitious name, and four counts of tax evasion. According to court documents, Anderson operated a business that provided storage for wine collectors for a fee. In September 2005, he was charged by Marin County with 10 counts of embezzlement based on the complaints of numerous clients that their wine was missing. In October 2005, a fire broke out in a warehouse which contained Anderson's clients wine. Over 4.5 million bottles of premium wine were damaged or destroyed in the fire. Some of these wineries lost entire vintages and, in some cases, their entire inventory. According to the guilty plea, Anderson admitted that he set fire to the Wines Central warehouse and that he had been embezzling wine from his clients for many years. Anderson also admitted that he failed to report more than $800,000 in income from the sale of the embezzled wine and therefore evaded more than $290,000 in taxes.
Fresno County Real Estate Broker Sentenced for Tax Evasion
On February 6, 2012, in Fresno, Calif., Brian Keith Cortez was sentenced to 18 months in prison, three years of supervised release, and ordered to pay $199,160 in restitution for evading the assessment of income taxes. According to court documents, Cortez was a real estate and mortgage broker who operated businesses in Fresno named Mortgage Express, Mortgage Express Inc., and Valley Investment Properties. Mortgage Express and Mortgage Express Inc., functioned as home mortgage brokers, providing, among other things, refinancing on mortgages and services for securing financing for home purchases. There were several branches throughout California, and Cortez owned one branch in Fresno. While Cortez owned the Fresno branch only, the other branches were independently owned, but provided Cortez’s with a 10 percent commission and a $200 fee for each loan they processed. As a result, Cortez generated substantial income through these businesses and evaded the assessment of his income taxes. According to the plea agreement, Cortez admitted that for tax years 2003 to 2006, his tax due and owing exceeded $200,000.
Montana Man Sentenced in Investment Fraud Scheme
On February 3, 2012, in Missoula, Mont., Christian Michael Baker, of Helena, was sentenced to 24 months in prison, three years of supervised release, and ordered to pay $1,204,608 in restitution. According to court documents, Baker had been in the "business" of raising capital for investment ventures for a number of years. Between 2007 and January 2010, Baker induced investors to give him more than $3,000,000. No investment ever materialized and about a third of the money was spent to sustain Baker's lifestyle. Some of the $3 million was used to make "confidence payments" to early investors. Confidence payments are a repayment of some of the funds, usually from proceeds obtained from subsequent investors, to calm nervous victims; using the money to renew their faith that the promises made with regard to their money will ultimately be fulfilled. Baker also assured at least one investor, when pressed, that he had not used any of the money deposited with him for investment for his own personal use, or his own personal obligations. Baker used several different bank accounts and various business names (i.e. JCNC, Strategx, and Private Capital Holdings), to facilitate the receipt, deposit, and disposition of money from investors.
Men Sentenced for Roles in International Telecommunications Fraud
On February 1, 2011, in Dallas, Texas, Robert William Moore, a citizen of the United Kingdom, was sentenced to 84 months in prison, one year of supervised release and ordered to pay any remaining balance of $63,693,718 in restitution. Moore is subject to deportation when he completes his sentence. In October 2011, Moore pleaded guilty to one count of wire fraud and two counts of conspiracy to commit bankruptcy fraud related to his role in defrauding two British telecommunications companies of more than $60 million. According to the indictment and evidence presented at the trial of one of Moore's co-defendants, Moore and his co-defendants committed fraud by purchasing a London business, London Digital Limited (LDL), that had pre-existing contracts and favorable credit terms with BT and MCI. Over an 18-month period from late 2003 to June 2005, the conspirators used LDL to quickly buy increasing amounts of “air time” from the telecom companies that they would sell at a loss to other wholesale companies, and then, when they were doing more than $20 million per month in business, put their London company into bankruptcy and walked away with three months’ worth of revenues that should have been paid to the telecom companies. The conspirators created two shell companies, Nationwide Call Company (NCC) in Dallas and FOCOS Electronics in Marbella, Spain, to covertly move the proceeds of their fraud to Aston Rothbury, a private “bank” in London operated by a convicted money launderer. From London, the conspirators had their fraud proceeds directed to three bank accounts in Beirut, Lebanon, and from there the funds were disbursed to accounts in numerous countries, including France, Kenya, Ireland, the United Kingdom, Poland, the United States, and Dubai in the United Arab Emirates. As part of their plan to keep the fraud secret, the conspirators utilized fake passports, spoke about the fraud on prepaid “bat phones,” and referred to each other with predetermined code names. On January 25, 2012, Jeffrey John Hemmer, of Dallas, Texas, and Steven Roy Jamieson, of Plano, Texas, were sentenced to 24 months and 48 months in prison, respectively, for their roles in this conspiracy. In addition, both were also ordered to pay any remaining balance of $63,693,718 in restitution.
Oklahoma Woman Sentenced for Embezzlement and Filing a False Tax Return
On February 1, 2012, in Oklahoma City, Okla., Sandra Johnson was sentenced to 20 months in prison, three years of supervised release, 104 hours of community service and ordered to pay $839,559 in restitution for embezzling from a health care benefits program and for signing a false tax return. According to court documents, from May 2006 until the Spring of 2009, Johnson worked as the office manager for a pediatrician in Lawton. Her duties included depositing checks from insurance companies that were intended to pay for medical services. At her plea hearing, Johnson admitted she cashed many of these insurance checks during 2007 and 2008 and used the cash for personal purposes. Johnson also admitted that she failed to report the cash from these diverted insurance checks as income on her 2008 personal federal income tax return.
Father and Son Sentenced in $39 Million Investment Scam
On January 30, 2012, in Los Angeles, Calif., Richard Alan Cohen was sentenced to 153 months in prison for his role in running a scheme that defrauded more than 1,000 victims out of over $39 million with promises of large returns in companies, including one that supposedly sold caffeinated breath mints. On January 23, 2012, Daniel Cohen, Richard's son, was sentenced to 151 months in prison for his role in the fraudulent scheme. In addition, the Cohens were ordered to pay $39,590,212 in restitution to victims of the fraud. According to court documents, in the mid-2000s, the Cohens formed several companies that they used to solicit investors with false claims that the businesses were successful and generated large profits. Potential investors were solicited in several ways, including by a team of salespeople who worked in a “boiler room.” In addition to making claims that the businesses were viable and successful, salespeople often told potential investors that the companies were on the verge of “going public” or were going to be taken over by larger companies. Salespeople commonly told potential investors that they could buy company stock from a widowed investor who was willing to sell her investment at a discounted price. In reality, the Cohen companies were not successful, the stock certificates issued by the companies were worthless, and a substantial portion of the money received from victim-investors was skimmed by the Cohens to fund their lavish lifestyles, which included luxury automobiles and Daniel Cohen’s “palatial” home.
Michigan Man Sentenced for Filing False Tax Returns
On January 27, 2012, in Detroit, Mich., Douglas Henry was sentenced to 22 months in prison and one year of supervised release. According to court documents, Henry pleaded guilty in 2010 to one count of filing a false tax return for tax year 2001. According to court documents, between 1999 and 2002, Henry was the CEO of a company and rather than taking a salary in his own name, Henry directed that company to make salary payments to his wholly owned corporation, Top Dollar, Inc. During 2001 and 2002, Henry filed corporate income tax returns for Top Dollar, Inc., in which he reported the salary payments, but falsely reported that Top Dollar had paid large sums for "cost of goods sold" and "expenses," reducing its taxable income to zero. In fact, Top Dollar produced no goods and had no significant expenses. Henry and his wife filed joint personal income tax returns for 2001 and 2002 that did not declare his CEO salary. The 2002 personal tax return also did not report a large severance payment he received when he left that position. Neither Henry nor Top Dollar, therefore, paid any income tax on his salary or severance payment.
Kentucky Businessman Sentenced for Filing False Tax Returns
On January 25, 2012, in Bowling Green, Ky., Robert Wilkins, Jr., a Scottsville, Ky., business owner, was sentenced to 12 months and a day in prison, one year of supervised release, and ordered to pay $447,145 in restitution to the Internal Revenue Service (IRS). According to court records, Wilkins filed federal income tax returns with the IRS for tax years 2004, 2005, 2006, and 2007 that failed to report approximately $1,117,384 in business cash receipts received during that period of time. Wilkins pleaded guilty in September 2011 to four counts of filing a false income tax return. According to the plea agreement, Wilkins admitted that he personally signed the tax returns each year and filed them with the IRS, knowing that this income should have been reported on the returns. Wilkins admitted that the tax loss to the United States as a result of his filing the false returns was approximately $319,843.
California Resident Sentenced for Failing to Report Almost $1 Million in Income
On January 23, 2012, in Los Angeles, Calif., Joseph Proctor was sentenced to 60 months in prison for failing to report almost $1 million as income that he raised from investors in a company. According to court documents, in 2002 and 2003, Proctor raised funds from investors for Powerhouse Studios, Inc. and Powerhouse Technologies Group, Inc. Investors in Powerhouse were directed to send their investment funds to a bank account held in the name of Brickhouse Venture Capital Limited. Although Brickhouse was a company opened in the name of the his brother, Proctor directed how the investor funds would be spent. In 2002, Proctor had $240,500 wire transferred in the name of his wife from the Brickhouse bank account to a joint bank account that he held with his wife. In that same year, Proctor had an additional $100,000 wire transferred in the name of his wife to a bank account held in her name. In 2003, Proctor wire transferred $610,000 in the name of his wife from the Brickhouse bank account to the same account held in his wife’s name. The funds were spent to fund the lifestyles of the defendant, his wife and their daughter. Proctor failed to report $950,500 in income on his federal income tax returns. In 2002, Proctor reported having only $5,500 in income and paid no income tax. In 2003, Proctor reported having only $7,450 in income and paid no income tax.
Restaurant Owner Sentenced for Filing False Tax Returns
On January 20, 2012, in Houston, Texas, Jesus Huerta was sentenced to 12 months and a day in prison and ordered to pay $543,646 in restitution for filing false tax returns. According to court documents, Huerta admitted that he had assisted in the filing of corporate income tax returns for his two restaurants for tax years 2001 through 2006 that under-reported sales by approximately $4,609,430, and as a result, these corporations had underpaid income taxes by approximately $543,646. At the time of sentencing, Huerta had already made restitution payments totaling approximately $276,000 with the balance due and payable during his supervised release term. Huerta is one of 13 local Taqueria Arandas restaurant owners charged with filing false federal income and employment tax returns for their restaurants. To date, IRS-CI has received almost $6 million in delinquent taxes, penalties and interest from these defendants and all remain subject to audit and further assessment of taxes, penalties and interest.
Purchase Factoring Representative Sentenced in Fraud Case
On January 18, 2012, in New Bern, N.C., James Edward Whitley, of Greensboro, N.C., was sentenced to 120 months in prison and three years of supervised release. In May 2011, Whitley pleaded guilty to one count of wire fraud and one count of money laundering. According to the indictment, from 2006 to 2009, Whitley represented himself as being in the factoring business. Purchase order factoring, sometimes called “contract funding,” addresses a need when suppliers want a business to pay up front via cash on delivery while the buyers want to purchase the goods within 30-60 days. Whitley informed potential investors that he had contracts with unidentified businesses, and the investors’ funds went directly to one of those funds, with Whitley receiving a small portion for commission. However, instead of investing the money, Whitley used the money to make interest payments or payments of principal to other investors. Additionally, he used the money for personal use.
Ohio Man Sentenced for Tax Fraud
On January 17, 2012, in Youngstown, Ohio, Leslie W. Jacobs was sentenced to 12 months and 1 day in prison, as well as an additional four months, less one day, of home confinement, and ordered to pay a $10,000 fine. Jacobs was also ordered to serve a one-year term of supervised release following his prison term, during which he will serve his period of home confinement. According to court documents, Jacobs, a partner in the Cleveland law firm of Thompson Hine, LLP, filed joint income tax returns, on which he falsely inflated his law firm business expense deductions and, as a result, falsely understated his law firm partnership income by a total of approximately $252,257. Before the sentencing hearing, Jacobs delivered a check for $75,385 to pay the amount of taxes stipulated as owing for 2004 through 2007. Jacobs was ordered to cooperate with the IRS in the determination and payment of any additional civil taxes, interest, and penalties.
Adult Entertainment Executive Sentenced for Tax Violation
On January 10, 2012, in Los Angeles, Calif., Oscar A. Macias, of Anaheim, was sentenced to 15 months in prison and one year of supervised release for subscribing to a false individual tax return for the 2003 tax year. According to Macias’ plea agreement, between 2003 through 2005, he received income from Universal Media Management (UMM), an adult entertainment business, that he did not report on his federal income tax returns. Macias’ failure to report his true income on the tax returns he filed for tax years 2003, 2004, and 2005 caused a total tax loss of approximately $32,897.
Recruiter of Investors to $930 Million Ponzi Scheme Sentenced for Failing to Report Income
On January 10, 2012, in Newark, N.J., Sydney Jack Williams, of Naples, Fla., was sentenced to 12 months and a day in prison, one year of supervised release and ordered to pay a $25,000 fine. The judge also ordered Williams to cooperate with the IRS in paying his outstanding tax obligations. Williams received more than $12 million for bringing more than 60 investors to Capitol Investments USA, Inc. (Capitol). Capitol was used by Nevin Shapiro to solicit approximately $930 million between January 2005 and November 2009 from individuals who believed they were investing in Shapiro’s grocery distribution business. Individuals recruited by Williams invested more than $307 million with Capitol, eventually losing more than $38 million as a result of the scheme. In pleading guilty to subscribing to a false tax return that failed to report $1.7 million income for 2005, Williams admitted that he also failed to report Capitol related income for tax years 2004 through 2007. According to the Information, Williams failed to report more than $6.4 million in income during that time and owed approximately $2.2 million in taxes on that income.
Prior Felon Sentenced on Fraud and Tax Charges
On January 6, 2012, in Buffalo, N.Y., John J. Gross, of Niagara Falls, New York, was sentenced to 33 months in prison, three years of supervised release and ordered to pay $161,000 in restitution. Gross was convicted of mail fraud and filing a false tax return. According to court records, the fraud arose out of a bid-rigging scheme involving work performed by a plumbing and general contracting business operated by Gross. Gross also maintained two sets of books in order to hide income from the Internal Revenue Service which had an outstanding judgment against him as a result of a tax evasion conviction in the late 1990's.
Connecticut Tax Professional Sentenced for Tax Evasion
On January 5, 2012, in New Haven, Conn., Stavros Ganias, aka Steve Ganias, of Wallingford, was sentenced to 24 months in prison, three years of supervised release, and ordered to pay $69,842 in restitution for evading payment of more than $160,000 in federal income taxes. According to the evidence presented at trial, Ganias operated Taxes International through which he provided accounting, bookkeeping, and tax preparation services for numerous individuals and small business clients. In 1998, Ganias and Taxes International began providing services to Industrial Property Management, Inc. (IPM), which was responsible for security and maintenance at the Stratford Army Engine Plant under a contract with the U.S. Army. Between 1999 and 2003, Ganias earned annual fees in excess of $100,000 from IPM, as well as income from other clients. However, rather than reporting all of the income he earned from IPM and other clients on his federal income tax returns, Ganias recorded significant portions of it in his own books as non-income, claiming it was petty cash that he deposited into the bank or that it was an owner’s infusion of capital into his business, Taxes International. For the 1999 through 2003 tax years, Ganias reported less than half of his true taxable income.
Tennessee Couple Sentenced for Fake Inheritance Scheme and Tax Charges
On January 3, 2012, in Greeneville, Tenn., Stephanie Ann Bare, of Elizabethton, Tenn., was sentenced to 46 months in prison and three years of supervised release. On January 9, 2012, Stephanie’s husband, David Michael Bare was sentenced to 37 months in prison and three years of supervised release. The Bares were also ordered to pay $553,310 in restitution. The Bares both pleaded guilty to wire fraud and tax fraud. The Bares concocted an elaborate fake inheritance scheme which bilked family, friends, and business associates of more than $500,000. Stephanie Bare signed fake promissory notes promising to pay exorbitant rates of interest, gave deeds on property she did not own, fabricated letters from the IRS and an attorney who allegedly represented her in her dispute with the IRS, and sent hundreds of fake communications promising to repay the funds. She and her husband dissipated the stolen funds in an extravagant lifestyle which included trips to Las Vegas and New York City.
Oklahoma Woman Sentenced for Filing a False Tax Return
On December 28, 2011, in Oklahoma City, Okla., Tina M. Roberson, of Duncan, Oklahoma, was sentenced to 18 months in prison, one year of supervised release, and ordered to pay $99,851 in restitution to the Internal Revenue Service (IRS). Roberson pleaded guilty in June 2011 to one count of willfully and knowingly making and subscribing a false income tax return. According to court documents, Roberson stated on her 2006 tax return that her “Other Income” was zero. Roberson admitted that the income she failed to report was over $350,000 that she had embezzled from her long-time employer
Vacuum Cleaner Distributor Sentenced on False Statement, Wire Fraud, and Tax Evasion Charges
On December 21, 2011, in Portland, Ore., Johnny “Mickey” Brown, of Beaverton, Oregon, was sentenced to 130 months in prison and five years of supervised release. Brown was convicted by a trial jury in May 2011 on charges of wire fraud, false statement to a financial institution, and tax evasion. The evidence presented at trial proved that Brown fraudulently obtained credit cards from unsuspecting victims, who believed they were investing in vacuum cleaner inventory for a profitable business. Once he secured the victims’ cards through false promises of no-risk dividends based upon the sale of the vacuum inventory, he immediately obtained all the available credit balance from each card. Brown did this by running the cards through a U.S. Bank Merchant Point of Sale terminal and falsely disguised each transaction as a sale of merchandise when, in fact, he didn’t sell anything. Each of these “fake” sales caused U.S. Bank to automatically deposit the amount of the fraudulent sale entered in the credit card machine into Brown’s business bank account. Brown used the money he obtained from his scheme for personal and business expenses. The largest business expense was the monthly debt service on 596 credit cards and payments of “dividends” to the many victim investors. These payments had to be made to extend the life of the Ponzi scheme. While carrying out this scheme, the evidence proved that Brown was also evading the payment of federal taxes due on 1993-1995 tax returns. To evade payment of the tax debt, Brown conducted his business and bought and sold assets through nominees. To further hide income from the IRS, Brown ran his credit card fraud scheme using a credit card processing agreement and bank accounts set up in the name of an employee.
Connecticut Real Estate Developer Sentenced for Failing to Pay Taxes
On December 20, 2011, in Hartford, Conn., Jeffrey A. Torrance, of East Lyme, was sentenced to six months in prison and one year of supervised release, with the first six months to be served in home confinement. Torrance pleaded guilty in April 2011 to one count of filing a false federal income tax return. According to court documents and statements made in court, Torrance was self-employed as a golf course consultant and real estate developer. He also served as the general partner of an entity known as the “Torrance Family Limited Partnership,” controlling the Partnership’s assets and bank accounts. In 2000, Torrance sold four properties in New Hampshire on behalf of the Partnership. The proceeds of these sales were then deposited into the Partnership’s bank accounts. In May 2002, Torrance knowingly and willfully filed a false federal income tax return for 2000 by failing to report $65,150 in income he received from the Partnership or an entity owned by the Partnership. In addition to owing approximately $18,242 in back taxes for 2000, Torrance also owes approximately $70,961 in additional federal income taxes, penalties and interest for 1992, 1996, 1997, 1998 and 1999.
Three California Men Sentenced for Defrauding Nut Growers and Processors
On December 19, 2011, in Fresno, Calif., Randal Alfred Burtis, of Patterson; Robert Morris Adams, of Turlock; and Jason Matthew Espinola, of Hughson, were sentenced for their roles in a scheme to defraud almond growers and nut processors of money and property from August 2000 to October 2007. Burtis was sentenced to 34 months in prison and ordered to pay more than $3.2 million in restitution; Adams was sentenced to 45 months in prison and ordered to pay more than $1.1 million in restitution; and Espinola was sentenced to seven months in prison and ordered to pay $159,076 in restitution. According to court documents, Burtis and Adams conspired with others to steal almonds from nut growers and businesses in the nut industry and to sell the almonds under false names. Burtis and Adams admitted that they caused a nut processor to enter into purchases of “ghost loads” of nuts that did not actually exist. The conspirators received payments in the false names for these sales, negotiated many of the checks through banks using forged endorsements, and distributed the proceeds among themselves. Espinola admitted in his guilty plea that he participated in part of the scheme from approximately 2000 to 2002 as a nominee grower on certain fictitious contracts.
Maryland Attorney Sentenced for Tax Crimes Including Failing to Report Over $1.5 Million in Income
On December 15, 2011, in Greenbelt, Md., Stanley Needleman, of Pikesville, Md., was sentenced to 12 months and a day in prison and three years of supervised release for tax evasion and structuring financial transactions to avoid reporting large cash receipts and deposits. Needleman has been disbarred from practicing law. Needleman was also ordered to pay $543,695 in restitution for tax losses incurred by the IRS, $117,319 for tax losses incurred by the State of Maryland, and forfeit $492,464 to the Drug Enforcement Administration (DEA) as illegal proceeds. According to his plea agreement and statements at the sentencing hearing, Needleman, a criminal defense attorney, practiced law for more than 40 years in state and federal court. Many of his clients were drug traffickers. Needleman’s ledgers show that most of his legal fees were paid in cash and much of the cash was not deposited into his business and personal bank accounts. Needleman intentionally failed to report on his tax returns the substantial amounts of cash that he received from his clients and hoarded in his basement. As a result, for tax years 2005 to 2009, Needleman failed to report $1,517,369 in income, resulting in a total of $543,695 in federal taxes owed, and $117,319 in state taxes owed.
New Mexico Man Sentenced on Tax Charges
On December 14, 2011, in Albuquerque, N.M., Robert A. Fout, of Tijeras, N.M., was sentenced to 36 months in prison, one year of supervised release, and ordered to pay $153,416 in restitution to the Internal Revenue Service (IRS) and $33,999 to the State of New Mexico Taxation and Revenue Department. Fout pleaded guilty in August 2011 to a criminal Information charging him with making a false statement on a tax return. According to his plea agreement, from 2005 to 2008, Fout worked as a general and electrical contractor in Albuquerque and other locations in New Mexico. During this time, Fout did not hold a general contractor’s license or a business license, but instead operated under the licenses of other contractors. Fout’s general and electrical contracting work generated significant receipts during the years 2005 through 2008, and Fout admitted that he willfully concealed from the IRS the receipts generated from his work. Fout admitted that in calendar years 2005, 2006, 2007 and 2008, he filed false tax returns in which he failed to report $438,514 in taxable income, resulting in the evasion of $153,416 in taxes.
New York Attorney Sentenced for Wire Fraud and Tax Evasion
On December 14, 2011, in Oakland, Calif., Igor Purlantov, a New York attorney, pleaded guilty and was sentenced to 24 months in prison for fraudulently transferring more than $1 million from the bank accounts of a deceased Contra Costa County resident and then failing to pay taxes on that income. According to court documents, Purlantov defrauded a deceased family friend by fraudulently adding himself on to the friend’s HSBC bank account in Geneva and then transferring more than $1 million to his own accounts in London before transferring some of the money to his accounts in New York. The scheme occurred from October 2004 through February 2005. The defendant then failed to pay taxes on the stolen income. Purlantov agreed to fully reimburse the beneficiaries of his deceased friend $1,175,666 and to pay $293,048 in back taxes to the Internal Revenue Service.
Illinois Woman Sentenced on Tax Fraud Offenses
On December 13, 2011, in East St. Louis, Ill., Belinda McKinney was sentenced to 37 months in prison, three years of supervised release and ordered to pay $952,705 in restitution. According to court documents, Belinda’s husband, Robert, and brother-in-law, John McKinney, owned and operated McKinney Hauling, a construction business. In 1999 and 2000, and from 2002 thru 2006, the brothers evaded taxes by diverting business income to nominee accounts and using that money to pay personal loans. Belinda and her sister-in-law, Chamethele McKinney, falsified mortgage loan documents while purchasing real estate - solely in their own names - so that business income earned by the husbands could be diverted into assets owned exclusively by their wives, thereby avoiding a combined IRS tax lien of $2,465,089, including penalties and interest. On her loan application to purchase a house, Belinda McKinney claimed that she was a full-time employee at McKinney Hauling for ten years, and she made $9,500 a month, information that was false and misled the lender. Knowing that her husband Robert McKinney had tax liens and poor credit, Belinda McKinney submitted the loan applications in her own name only. After closing, Belinda received a kickback of $49,990 from the seller, an amount above the actual cost of the house. John and Robert McKinney each received 57 months in prison and three years of supervised release for their role in the scheme. John and Robert were also ordered to pay $1,512,384 and $952,705 in restitution, respectively. Chamethele McKinney is awaiting sentencing.
Former New York Con Ed Manager Sentenced for Fraud, Bribery, and Tax Crimes
On December 9, 2011, in Manhattan, N.Y., James M. Woodason, a former Consolidated Edison of New York (Con Ed) manager, was sentenced to 70 months in prison and ordered to pay a $12,500 criminal fine. Woodason, a former department manager of purchasing at Con Ed, pleaded guilty on November 19, 2010, to charges that he accepted bribe payments from two industrial pipe supply vendors, in exchange for steering contracts to each of those vendors. According to court documents, Woodason was responsible for purchasing and awarding contracts for millions of dollars in goods and services and managing inventory on behalf of Con Ed. Woodason accepted approximately $297,000 from one vendor in a bribery scheme that took place from approximately November 2003 through approximately August 2008. Woodason accepted approximately $45,000 in bribe payments from another vendor in a bribery scheme that took place from approximately January 2009 until approximately August 2010. The department said that Woodason had also agreed to take an additional $465,000 in bribes from that vendor. According to the terms of his plea agreement, Woodason also paid $155,109 owed to the IRS as a result of the schemes and did not contest forfeiture of a $20,000 cash bribe payment found in the search of his home on the day of his arrest.
New York Man Sentenced for Filing False Tax Returns
On December 9, 2011, in Buffalo, N.Y. Cedric P. Owens, of Amherst, N.Y., was sentenced to 15 months in prison and ordered to pay $161,602 in restitution to the Internal Revenue Service. According to court documents, Owens operated a trucking business known as Falcon Express Transport. During the 2004, 2005 and 2006 tax years, Owens falsely claimed to be entitled to credits for federal taxes paid on fuels. As a result, Owens received $161,602 in tax refunds to which he was not entitled.
Washington Man Sentenced for “Nigerian Inheritance” Investment Scam
On December 9, 2011, in Seattle, Wash., Scott Alan Stuart, of Blaine, Washington, was sentenced to 60 months in prison and three years of supervised release for wire fraud and four counts of willful failure to file tax returns. According to court documents, Stuart convinced various investors across the country to send him money so he could claim a Nigerian inheritance from a bank in Canada. Stuart represented to investors that his father had made millions constructing an oil pipeline in Nigeria. He claimed that his inheritance from his father was in a bank in Canada and if investors provided enough money to pay the taxes, he would be able to access $30,000,000 and investors would get a large return on their investment. There was no inheritance or Canadian bank account. Stuart collected more than $3.8 million from investors across the country. The bulk of the money Stuart collected from others was used for his own expenses.
Michigan Accountant Sentenced for Money Laundering
On December 8, 2011, in Grand Rapids, Mich., Susan Morrison was sentenced to 46 months in prison and ordered to pay more than $1.1 million in restitution for money laundering and wire fraud. According to court documents, from 2007 to 2011, Morrison was an accountant at a hospital located in Traverse City, Michigan. During her time there, Morrison had access to business bank accounts. Using her authority as an accountant, Morrison made over $1.1 million in unauthorized transfers to her own bank account in the name of “Great Lakes Bear Factory of Traverse”. Court documents show that Morrison used the embezzled funds to pay personal expenses and to withdraw cash for herself and others. To complete some of the transfers, Morrison accessed a co-worker’s account by stealing a password and username when the co-worker was not around. In addition, Morrison transferred $15,000 of the funds from her account to her partner’s account at an out of state bank; knowing that these funds had been wired between Ohio and Michigan.
Missouri Woman Sentenced for Tax Evasion
On December 7, 2011, in St Louis, Mo., Marilyn Francel was sentenced to 12 months and a day in prison and ordered to pay $344,124 in restitution for tax evasion. According to court documents, Francel filed joint income tax returns with her husband from 2003-2006. During that time, Francel was the practice manager of her husband’s plastic surgery medical practice. The practice offered discounts for non-insured cosmetic surgeries when the patient paid by cash or cashier’s check. These discounted payments were recorded in a green ledger book maintained by the office business manager and not in the normal financial records of the practice. These receipts were not deposited into the business bank account for the practice. Francel admitted that cash and cashier’s check receipts ranging in amounts from $193,000 up to $264,000 were not reported on each of the joint federal income tax returns filed by her and her husband from 2003 through 2006.
Oklahoma Woman Sentenced for Embezzlement and Not Filing Income Tax Return
On December 7, 2011, in Oklahoma City, Okla., Pamela Whitson was sentenced to 30 months in prison, three years of supervised release, and ordered to pay $965,333 in restitution and $252,293 in back taxes for forging a check and failing to file a federal tax return in connection with her embezzling more than $960,000 from and oil and gas company. According to court documents, Whitson, an office manager at an oil and gas company in Oklahoma City, forged the signatures of authorized signers on checks drawn on the oil and gas company’s accounts from 2002 through 2008. Whitson admitted she wrote many of the forged checks payable to herself or to cash, and used the embezzled funds mostly for gambling. She also admitted that she did not claim any of the embezzled funds as income on tax returns.
Florida Man Sentenced for Role in More than $21 Million Ponzi Scheme
On December 6, 2011, in Tampa, Fla., James Davis Risher, aka Jay Risher, of Sanibel, Florida, was sentenced to 235 months in prison for mail fraud, money laundering, and engaging in an illegal monetary transaction. Risher was also ordered to forfeit vehicles, jewelry, and a painting and pay a money judgment of $12.4 million. According to court documents, Risher fraudulently represented himself as a well-trained, experienced, and successful principal money manager and investor. Risher omitted any mention of his prior convictions for state and federal felony fraud offenses in promotional materials. At least 106 victim-investors transmitted more than $21 million for investment. Risher used approximately $3.8 million invested by later victim-investors to make distribution payments to earlier investors to make it appear that the fund was performing as represented. Risher used approximately $4.1 million of investors’ funds to compensate an insurance agent for his role in promoting the purported private equity fund. He diverted approximately $12.4 million of the investors’ funds for his own personal enrichment.
Internet Consumer Electronics Company Founder Sentenced on Fraud Charges
On December 2, 2011, in Providence, R.I., David Whitaker, formerly of Bristol, Tenn., was sentenced to 70 months in prison, five years of supervised release and ordered to pay $10,065,399 in restitution to more than 80 business customers and a credit card processing firm from whom he defrauded more than $10 million. In May 2008, Whitaker, the founder of a defunct Rhode Island based Internet consumer electronics company, pleaded guilty to an Information charging him with wire fraud, conspiracy to commit wire fraud, money laundering and commercial bribery. According to court documents, Whitaker admitted that he received millions of dollars from business customers who purchased electronic equipment from his company, Mixitforme, Inc. The equipment, however, was not delivered to the customers, and Whitaker made various false statements to the customers in an attempt explain why the deliveries were not made and to encourage additional orders. During this same time, Whitaker admitted that he diverted millions of dollars which had been paid to his company for his personal use. He also admitted to having submitted false income tax returns to a credit card processing company to induce that company to act as the credit card processor for Mixitforme. Whitaker also admitted to negotiating an employment opportunity between his company and a local bank branch manager at an annual salary of nearly twice that which he was being paid as an employee of the bank. In return, Whitaker obtained from the bank manager letters of bank credit which the manager did not have the authority to issue.
Georgia Man Sentenced for Investment Scheme
On December 1, 2011, in Rome, Ga., Jeffrey Wallace “J.W.” Edwards, of Bremen, Ga., was sentenced to 108 months in prison and three years of supervised release on charges of wire fraud, mail fraud, and money laundering. A separate order is to be issued specifying the restitution Edwards would be required to pay to victims. In addition to forfeiting interest in real property and vehicles, the court ordered Edwards and Frontier Holdings each to pay personal money judgments of $2,043,626, which represents the amount of proceeds they obtained as a result of the mail and wire fraud offenses, and $3,240,687, which represents the amount of laundered money. According to the evidence at trial, between February 2006 and February 2007, Edwards promised investors they would receive returns of between 41 and 1066 percent on the money they placed in the “high yield” investment programs that he had with the Federal Reserve Bank. The evidence showed that Edwards also claimed to own a bank, to have access to lucrative but confidential investment opportunities, and to be a “special agent” of the Federal Reserve. Thirty-one victims mailed or electronically transferred over $7 million to Edwards.
Illinois Contractor Sentenced Tax Evasion
On November 30, 2011, in Chicago, Ill. Robert Conforti was sentenced to 12 months and a day in prison, one year of supervised release and ordered to pay $206,903 in restitution for failing to report $864,709 on his federal tax return. According to court documents, Conforti, the owner of a construction company, under-reported his income in 2004 by $324,381, resulting in an underpayment of $103,365 in taxes. In 2005, he understated his income by $540,328, resulting in an underpayment of $157,538. Conforti operated his business as a Subchapter S Corporation and was required to report his company’s annual net income or loss on schedules and attachments filed with his individual federal tax return. Instead, on numerous occasions, Conforti intentionally took cash from some of the business’s gross receipts and deliberately misstated the actual gross receipts in a financial record. In addition, he occasionally took cash from the business by falsely representing that certain checks were for business expenses when, in fact, he took the money for his personal use. He also wrote a number of checks payable to subcontractors that he cashed at a currency exchange. Conforti created numerous false financial records to hide the under-reporting of his firm’s gross receipts and the inflation of its expenses by hundreds of thousands of dollars. He then provided these false records showing a net business loss to his tax preparer, concealing his skim of cash from the business and his misrepresentation of his firm’s net expenses.
Florida Man Sentenced for Investment Fraud
On November 28, 2011, in Tampa, Fla., John S. Morgan, of Sarasota, was sentenced to 121 months in prison and ordered to forfeit a 2003 Fountain Lightning Fever Powerboat and pay a money judgment of $10,085,375. Morgan pleaded guilty on June 15, 2011 to conspiring to commit wire fraud and engaging in money laundering. According to his plea agreement, from about March 2005 through August 2009, Morgan, his wife, Marian I. Morgan, and others perpetrated an investment fraud scheme through a Danish entity named Morgan European Holdings APS (MEH), which the Morgans had formed. Morgan and others falsely represented to investors that MEH trading programs would yield returns of 30-70 percent per month or 200 percent per 90-120 day period, and that the investors' funds would never be put at risk. John Morgan and others caused investors to transfer more than $28 million to MEH accounts. Approximately $10.8 million of this total was then used by the Morgans for their personal benefit. The Morgans used investors' funds to purchase a waterfront residence and adjoining lot in Sarasota, to fund extensive renovations on a second Sarasota residence, and to purchase or lease several luxury automobiles, including a Maserati and two Jaguars. More than eighty investors located throughout the United States, Canada, and Europe entrusted the Morgans with their funds. Marian Morgan was found guilty and awaits sentencing.
Two Sentenced in Large-Scale Debt Collection and Telemarketing Scheme
On November 28, 2011, in Fresno, Calif., Darrian Jeffrey Summers, of Taft, and Stefan Lemar Miller, of Santa Clarita, were sentenced on charges related to a fraudulent debt collection service, Maxwell, Turner & Associates (MTA) in Bakersfield. Summers was sentenced to 96 months in prison for conspiracy to commit mail fraud and Miller was sentenced to 81 months in prison for conspiracy to commit mail fraud and money laundering. Summers and Miller were each ordered pay $1,311,700 in restitution and ordered to forfeit assets seized by federal agents, including more than $950,000 in cash and a 1.5 carat diamond ring. According to the charges in the case, from February 2009 until May 2010, Miller and Summers operated MTA and claimed to provide debt collection services. MTA used telemarketing to find clients. Once a client engaged MTA’s services, MTA would provide false information about legal proceedings, the whereabouts of the debtor, and their ability to collect the funds. When MTA collected money from the debtor, it did not send the money to its clients. MTA would frequently tell clients that additional fees were needed to continue with the litigation process, although no litigation was actually taking place. With this scheme, MTA took in more than $2.7 million.
Georgia Man Sentenced for $94 Million Fraud
On November 23, 2011, in Orlando, Fla., Michael Frank Burgess, of Alpharetta, Ga., was sentenced to 180 months in prison, three years of supervised release and ordered to pay over $94 million in restitution to his victims. Burgess pleaded guilty on May 4, 2011 to conspiracy to commit wire fraud and money laundering. According to court documents, Burgess was the manager of Prosperity International, a company that claimed to be in the business of development and funding for large real estate projects. Prosperity claimed years of experience in both the domestic and international markets. The company’s web-site boasted many successful projects in which it had secured millions of dollars of funding. Those representations were not true. Relying on those misrepresentations and others, victims provided Burgess with millions of dollars in fees to obtain funding for their projects.
Connecticut Woman Sentenced for Stealing More Than $1 Million from the Mark Twain House
On November 21, 2011, in Bridgeport, Conn., Donna Gregor, of East Hartford, was sentenced to 42 months in prison and three years of supervised release, for embezzling more than $1 million from the Mark Twain House & Museum. On August 5, 2011, Gregor waived her right to indictment and pleaded guilty to one count of wire fraud and one count of filing a false tax return. According to court documents and statements made in court, between 2002 and 2010, Gregor employed two different schemes to defraud the Mark Twain House. In the first scheme, Gregor submitted false information via the Internet to the Mark Twain House’s payroll management vendor in order to receive, as a direct deposit in her personal bank account, an additional amount of pay to which she was not entitled. Gregor then adjusted the general ledger to hide the payroll advances by reclassifying the amounts as utilities, maintenance, and similar items. Gregor also falsified the Mark Twain House’s bank statements to hide the advances. In the second scheme, Gregor used the Mark Twain House’s check-writing system to write checks payable to herself, forged the signature of her supervisors on those checks, and deposited those funds in her personal bank account. Again adjusting journal entries in the general ledger and falsifying the bank statements in order to hide the fraudulently prepared checks. Through these schemes, Gregor embezzled approximately $1,080,811 from the Mark Twain House. Gregor also failed to pay federal taxes on the funds that she embezzled. For the 2002 through 2010 tax years, this resulted in an underpayment of approximately $323,480 to the Internal Revenue Service. Gregor was also ordered to pay restitution to the Mark Twain House and to the insurance company that has paid the Mark Twain House $500,000 as a result of the loss, in addition to $323,480 to the IRS.
Missouri Woman Sentenced for Mail Fraud, False Tax Returns and Embezzlement
On November 18, 2011, in Springfield, Mo. Diana Erickson was sentenced to 33 months in prison for mail fraud and filing false tax returns. According to court documents, Erickson, who was employed as a bookkeeper, admitted that she embezzled $253,848 between March 2006 and April 2008. When customers mailed bank checks as payments, Erickson repeatedly intercepted those checks and deposited them in her own personal bank account. Erickson also admitted that she filed false U.S. Individual Tax Returns for tax years 2006, 2007 and 2008. These returns were false because Erickson failed to report income she embezzled.
Alabama Accounting Manager Sentenced to Prison for Embezzlement Scheme
On November 17, 2011, in Birmingham, Ala., Tammy Leigh Adams, of Pelham, was sentenced to 65 months in prison and ordered to pay restitution of $776,722 to her prior employer and $233,667 to the IRS. Adams, an accounting manager for a Shelby County company, was sentenced on one count each of bank fraud, aggravated identity theft and attempting to evade taxes. She pleaded guilty to the charges in May. Adams worked for the employer between 2004 and 2008. According to court records, she presented checks from her employer for deposit into her personal bank account. She forged the company president’s signature on checks and also made unauthorized wire transfers from the company’s accounts into her personal account. Adams embezzled $776,722 from her employer. Adams also neglected to pay taxes on the money she embezzled, resulting in a tax loss to the government of $233,667, according to court records.
Former Office Manager Sentenced for Embezzlement, Tax Evasion, and Making False Statements
On November 15, 2011, in Urbana, Ill., Tami Loy was sentenced to 38 months in prison and ordered to pay $271,994 in restitution for embezzlement, mail fraud, tax evasion, and making false statements related to documents required by the Employee Retirement Income Security Act (ERISA.). According to court documents, Loy admitted that from 2002 to 2007, while she was employed as the office manager, she embezzled from her former employer, including some funds that were intended for the company’s employee profit-sharing plan. To carry out the scheme and conceal the embezzlement, Loy admitted that she created phony accounts and falsified bank statements and Vanguard profit-sharing statements. Approximately $20,000 previously seized from Loy’s personal bank account will be forfeited to the government and applied to the restitution order. Loy also agreed to cooperate with the IRS in the assessment and collection of any taxes due, estimated at approximately $62,639, plus interest and penalties.
Former NASA Engineer Sentenced for Selling High-Tech Components to South Korea and Tax Fraud
On November 10, 2011, in Cleveland, Ohio, Kue Sang Chun, of Avon Lake, Ohio, was sentenced to 14 months in prison for exporting defense articles on the U.S. Munitions List without first obtaining an export license or written authorization from the U.S. Department of State, and one count of knowingly making and subscribing to a false U.S. Individual Income Tax return. According to court documents, between 2000 and 2005, Chun, a former employee at the NASA Glenn Research Center, knowingly exported and caused the export from the United States to the Republic of Korea (South Korea) of Infra Red Focal Plane Array detectors and Infra Red camera engines which were designated as defense articles on the United States Munitions List. Chun did so without first obtaining an export license or written authorization for such export from the U.S. Department of State. Chun also failed to report approximately $83,399 of taxable income he earned during the 2005 tax year.
Defendant in Advance Fee Scheme Sentenced for Defrauding Canadian Company and Others
On November 10, 2011, in Seattle, Wash., Aaron Wilmot, of Burien, Wash., was sentenced to 20 months in prison, three years of supervised release and ordered to pay $230,861 in restitution. Wilmot and Lynn Marie Abreu, an attorney, pleaded guilty to one count of wire fraud. According to court documents, between about September 2005 and continuing through about November 2006, Abreu participated in an advance fee scheme to defraud Advanomics Corporation, located in Montreal, Quebec, and others. Wilmot helped establish a company called Investcorp and helped represent that Investcorp would lease bank instruments which could be used to obtain financing. Clients were required to pay an up-front fee to lease these instruments. The advance fees were to be deposited into Abreu’s trust account and held there until the funding was provided, when they were to be returned to the clients. In reality, no financing was provided and the victim’s funds were not held in trust, but were instead used by the defendants for their personal use. Abreu’s is awaiting sentencing.
Missouri Man Sentenced For $500,000 Fraud Scheme
On November 10, 2011, in Springfield, Mo., Kenneth Edward Godat was sentenced to 70 months in prison and was ordered to pay $537,427 in restitution to the victim of his fraud scheme. On March 9, 2011, Godat pleaded guilty to tax evasion and to structuring financial transactions to evade federal reporting requirements. According to his plea agreement, Godat admitted that he stole more than $500,000 from a woman who believed she was investing in his business. Godat met the victim in September 2007 when he was performing work on her house. He claimed that his tree-trimming and debris-clearing business would work as a subcontractor on Federal Emergency Management Agency (FEMA) disaster relief contracts. The victim was to contribute capital to the venture to finance equipment, salaries, and other business-related expenses, and then they would split the profits. Godat told the victim that he would subcontract through a man named John Smitz, who did business as Tennessee Tree Company; in reality, neither John Smitz nor Tennessee Tree Company existed. From October 5, 2007, through March 12, 2008, the victim provided Godat with $562,427. To obtain funds from her, Godat provided false and fraudulent documents to her, purporting to verify his expenses on the business venture. These included phony letters, bills-of-sale, and contracts. On October 23, 2007, Godat gave the victim $25,000 of her own money, which he told her constituted profits from the fictitious FEMA contracts. Godat admitted that he was aware that banks are required by law to report any financial transactions greater than $10,000 to the government. To circumvent this reporting requirement and to hide his income from the IRS, Godat engaged in (or caused his victim to engage in) a series of financial transactions below the $10,000 threshold. Godat also failed to file tax returns for 2007 and 2008 that reported the income he received from his victim. As a result of Godat’s tax evasion, the total tax loss to the government for those two years was approximately $148,910.
Former Church Employee Sentenced for Embezzling More Than $850,000
On November 9, 2011, in Washington, D.C., Jason Todd Reynolds, of Bowie, Md., was sentenced to 97 months in prison, five years of supervised release and ordered to pay $851,298 in restitution to the victim as well as $185,435 in taxes. According to evidence introduced at trial, Reynolds was hired by a church in the District of Columbia in 2001 and later became its chief financial officer. Using his position of trust, between 2003 and 2008, Reynolds used various means to defraud the church. Evidence showed that Reynolds embezzled money from the church on a weekly basis. In addition to the theft, the evidence showed that Reynolds evaded taxes by not reporting any of the money he embezzled from the Church as income and failing to pay any taxes on it.
Denver Madam Sentenced for Tax Evasion
On November 7, 2011, in Denver, Colo., Brenda L. Stewart was sentenced to time served, two years of supervised release, with the condition that the first year be served in home detention with electronic monitoring. In addition, Stewart was ordered to pay $61,489 in restitution to the Internal Revenue Service (IRS). Stewart pleaded guilty in July 2011 to charges of tax evasion in connection with income derived from her prostitution business. According to the plea agreement, in approximately May 2005 Stewart agreed to purchase a prostitution business in which she was employed, known as Denver Sugar and Denver Players. Also in May 2005, Stewart created an entity called Phoenix Media and Consulting, LLC. This entity performed no media or consulting work. Instead, it was used as a front company to conduct the prostitution business operations, including credit card transactions, making payments and making purchases. Stewart also used Phoenix Media as a means to hide the source and true amount of her income from the IRS. Stewart also did not provide the majority of the employees with Forms 1099 or other required tax documents. Stewart filed a false 1040 individual income tax return for 2005 and she failed to file an individual tax return for 2006. She worked mostly with cash knowing that it was difficult for the IRS to track. She intentionally failed to report such income to the IRS.
New Jersey Restaurant Owner Sentenced for Filing False Tax Returns
On November 1, 2011, in Trenton, N.J., Michael Logan, of Jackson, N.J., was sentenced to nine months in prison, three months of home confinement and ordered to pay $158,245 in restitution. According to court documents, Logan pleaded guilty to making and subscribing to false business and personal federal tax returns. At his plea hearing, Logan admitted that he was the owner and operator of ITI, Inc., dba Michael’s Cucina Italia. He underreported his gross receipts and sales on his 2004, 2005 and 2006 corporate income tax returns; his 2007 corporate income tax return and partnership income tax return; and his 2004 through 2007 personal income tax returns.
Illinois Man Sentenced on Racketeering, Tax and Bombing Charges
On October 29, 2011, in Chicago, Ill., Mark Polchan was sentenced to 720 months in prison and five years of supervised release for racketeering, tax, and bombing charges. According to court documents, Polchan, owner of Goldberg Jewelers, had a leadership role in an organized crime enterprise and identified targets for armed robbery, organized other illegal activities including: gambling, arson, obstruction of justice, interstate commerce violations; and directed the activities of those employed in the enterprise from his business in Cicero, Ill. Polchan and a co-defendant used a pipe bomb to destroy a building in Berwyn, Ill., that was used as part of their interstate commerce activities. Polchan also filed false tax returns for 2004 through 2007, not claiming the proceeds from his illegal activities.
New York Man Sentenced for Orchestrating Ponzi-Style Scheme
On October 27, 2011, in Albany, N.Y., Christopher Bass was sentenced to 151 months in prison, three years of supervised release, and ordered to pay $5,308,340 in restitution to the victims of his Ponzi-style scheme involving entities formerly known under the name “Swiss Capital Harbor.” According to the plea agreement, Bass, formerly of Troy and Menands, N.Y., admitted that he relocated from Europe to Albany County in or about May 2006 and, thereafter, from approximately January 1, 2007, through February 1, 2010, promoted, managed and directed a fraudulent investment program involving the purchase and sale of securities to investors in the Capital Region and elsewhere. Operating under several different names, Bass admitted having solicited and accepted a total of over $5.5 million from more than 250 investors. At the time of sentencing, the government indicated that additional investigation confirmed the total deposits were over $6.7 million from approximately 400 victims, more than 300 of whom suffered pecuniary loss as a result of their investments in the scheme. While Bass promised these victims that their funds would be sent to Europe for investment, the majority of the investor deposits were (1) disbursed to Bass or used to pay for his personal expenses, (2) used to repay investors who demanded a return of their initial investment or distribution of the income allegedly earned, and (3) used to pay for expenses incurred in operating the fraudulent investment program. Bass also admitted that he caused periodic account statements to be issued that reported monthly returns and account balances that were false and grossly overstated, and that he made numerous additional false statements to prospective and actual investors, including that their investments were insured, risk free, or protected by a cash reserve account. In addition to his plea to one count of wire fraud involving the fraudulent investment program, Bass also pleaded guilty to attempted evasion of taxes in connection with the Form 1040 that he filed for himself and his spouse for 2007, in which he falsely reported the amount of income that he received from operation of the fraudulent investment program. Bass received gross income of at least $220,000 from the fraudulent investment program in 2007 with taxable income of at least $145,936, whereas he falsely reported only $114,732 in gross income and taxable income of $49,507, resulting in a substantial income tax due and owing for 2007 of at least $34,445.
Two Former Certified Public Accountants Sentenced for Conspiracy to Defraud IRS and Other Charges
On October 26, 2011, in Tampa, Fla., Gregory F. Guido was sentenced to 108 months in prison for conspiracy to defraud, conspiracy to commit wire fraud, and illegal monetary transactions. Guido was also ordered to pay a money judgment of $5,934,646, the proceeds of his charged criminal conduct. On October 25, 2011, George B. Calvert, of Hernando Beach, Florida was sentenced to 84 months in prison for the same conduct. Calvert was also ordered to pay a money judgment of $10,071,113, the proceeds of his charged criminal conduct. According to testimony and other evidence presented at trial, Calvert and Guido conspired with others to defraud the IRS via a fraudulent tax credit scheme. During the relevant time frame, the Internal Revenue Code permitted producers of certain fuels from non-conventional sources (FNS) to claim a tax credit if the fuels were sold to unrelated third parties. From 2003 through 2006, Calvert and Guido and their co-conspirators promoted a tax credit scheme involving the sale to individual taxpayers of fraudulent FNS tax credits. Calvert and Guido promoted their tax credit scheme to a network of tax return preparers, and referenced their purported rights in landfills, as well as bogus engineering reports and landfill gas purchase agreements. They used the balance of the proceeds to pay other expenses and for their own personal enrichment.
California Woman Sentenced for Tax Evasion
On October 26, 2011, in San Francisco, Calif., Ann Ray, aka Georgia Engelhart, was sentenced to 46 months in prison and ordered to pay $4,758,107 in restitution to her former employer and $1,269,927 to the Internal Revenue Service (IRS). Ray pleaded guilty on July 19, 2011, to six counts of tax evasion. According to her plea agreement, Ray worked for 34 years as the bookkeeper for several business entities owned by the “T” family in San Carlos, Calif. As a trusted long-time employee, she had complete and unfettered access to the business bank accounts of those business entities. Ray began embezzling from the businesses in the 1980s and continued until May 2009. Ray used a variety of methods over the years to facilitate the embezzlement, including writing checks from the companies’ bank accounts to several of her personal credit cards. She used her personal credit cards and wrote checks to herself. The checks she wrote to herself included some of her own legitimate payroll checks that she altered after the company owner signed them. To conceal her embezzlement, Ray falsified the books and records for the T-family business entities or created false inter-company transfers between the various T-family business entities. In addition, Ray manipulated the companies’ bookkeeping, records and bank statements almost on a daily basis to conceal the theft from the T-family and their Certified Public Account. According to her plea agreement, between 1998 and May 2009, Ray embezzled at least $4,758,107 from the T-family business entities. For the period of 2004 through 2009, Ray did not report any of the embezzled receipts as taxable income and intentionally did not tell her CPA about the embezzlement during the preparation of her personal income tax returns. During this six-year period, Ray gained a total of $3,785,773 in income, which was then concealed from the Internal Revenue Service.
California Woman Sentenced for Running Investment Scheme that Raised Nearly $7 Million
On October 24, 2011, in Los Angeles, Calif., Guadalupe Valencia was sentenced to 108 months in prison and ordered to pay $5.2 million in restitution. Valencia pleaded guilty in December 2010 to two counts of mail fraud, two counts of wire fraud and two counts of tax fraud. In her plea agreement, Valencia admitted to running a Ponzi scheme out of the Downey offices of companies she called Real Estate & Loan Consultants and R.E. Equity Group, Inc. that took in approximately $6.9 million from more than 150 victims. Beginning in 2001 and continuing through 2009, Valencia promoted two types of investment pools, with one purportedly funding loans to purchase real estate, and a second purporting to fund short-term loans to businesses. According to court documents, Valencia promised high rates of interest in both investment vehicles – from 8 percent to 20 percent in as little as 45 days. Valencia admitted that she falsely told investors that their investments were fully secured, backed by deeds of trust on valuable real estate, as well as promissory notes that equaled “money-back guarantees.” In addition, Valencia filed false tax returns with the Internal Revenue Service (IRS) for the tax years 2007 and 2008. Specifically, for the 2007 tax year, Valencia failed to report more than $280,000 to the IRS. For the 2008 tax year, Valencia failed to report more than $470,000 on the tax return that she filed.
Minnesota Man Sentenced for Stealing $8 Million from Investors
On October 19, 2011, in Minneapolis, Minn., Kenneth Hasse was sentenced to 24 months in prison for his role in a scheme to defraud investors out of $8 million. According to court documents, Hasse admitted that between October 2004 and February 2007, he conspired with David Hugh McCaffrey and others to defraud the Carlton Financial Corporation and others. Hasse was the president of ConServe Corporation, which provided electricity sub-metering services to apartment complexes. ConServe financed its operations, in part, by attracting investors to finance the installation of the sub-metering equipment. The Carlton Financial Corporation was one of ConServe’s primary investors, providing the company with millions in operating dollars. Hasse admitted that ConServe defrauded investors by representing that installation projects were in place or were going to be put in place, when, in fact, that was not the case. Based on those representations, however, investors provided financing. Hasse admitted that during the course of the fraud scheme, false invoices were created that reflected expenses connected to installations that were never done. Those invoices were then submitted to investors, including Carlton. To support the scheme, phony acceptance certificates were also created to “certify” the false installations. The total loss to investors from the scheme was approximately $8 million. Hasse also admittedly filed a false 2004 tax return, the estimated tax loss due to that false return being approximately $124,907. On December 9, 2010, McCaffrey, ConServe’s Chief Executive Officer, was sentenced to 30 months in prison for his role in the scheme.
Florida Ophthalmologist Sentenced for Filing a False Income Tax Return
On October 17, 2011, in Miami, Fla., David J. O’Brien, of Indian River County, Florida, was sentenced to six months in prison followed by six months of house arrest. O’Brien had previously pleaded guilty to filing a false 2005 federal tax return. According to court documents and statements, O’Brien was a practicing ophthalmologist with an office in Vero Beach, Florida, and was an employee and shareholder of the Florida Eye Institute (FEI). According to statements made in court, the defendant had agreed to have various personal expenses paid by FEI prior to any calculation of his income, thereby reducing his reported taxable income. O’Brien under-reported approximately $54,000 of income for 2005. In a plea agreement filed with the Court on June 16, 2011, O’Brien agreed that approximately $58,000 in additional tax payments are due, excluding interest and penalties, for tax years 2004, 2005 and 2006.
California Business Owner Sentenced for Filing False Tax Returns
On October 17, 2011, in Los Angeles, Calif., Frank Marshall, operator of Stormies Pest Control, was sentenced to 12 months and one day in prison, one year of supervised release, and ordered to pay $175,000 in restitution to the Internal Revenue Service (IRS). In addition, Marshall faces the possible loss of his State of California pest control license. On June 27, 2011, Marshall pleaded guilty to a one-count information charging him with subscribing to a false 2004 tax return. In addition to the unreported income for the 2004 tax year, Marshall admitted that he engaged in similar conduct for the 2003 and 2005 tax years. According to court documents, Marshall failed to report over $2 million in gross receipts from his business during the years 2003 through 2005.
Two Defendants Sentenced in Investment Fraud Conspiracy
On October 14, 2011, in Denver, Colo., Philip R. Lochmiller, Jr. and Shawnee Carver were sentenced to 96 months and 24 months in prison, respectively. In addition, Lochmiller and Carver will spend three years on supervised release. Lochmiller was convicted by a trial jury in July 2011 on charges of conspiracy to commit securities and mail fraud and money laundering. Carver pleaded guilty in December 2010 to conspiracy to commit securities and mail fraud. According to evidence presented at the trial and court documents, Valley Mortgage, dba Valley Investments, entered into the “affordable housing” real estate market by buying vacant land or existing mobile home parks, entitling the land so residential subdivisions could be built, and then selling lots with either a mobile home or a manufactured home on it. Valley Investments purchased land with financing provided by the sellers in a “owner-carry” arrangement. Valley Investments then began to solicit investment funds from the public, promising returns from 10 percent to 16 percent, and in some instances, as high as 18 percent. In exchange, investors were promised a promissory note and a recorded first “Deed of Trust” on individual lots. Both Philip Lochmiller, Sr. and Philip Lochmiller, Jr. represented to investors that Valley Investments used investor funds exclusively to acquire property and finance the development of the subdivisions Valley Investments owned. Both the Lochmillers further represented that Valley Investments generated large profits by selling manufactured homes together with lots within the subdivisions. Between 2000 and 2009, Valley Investments received over $30,000,000 from approximately 400 investor contracts. The Government’s expert forensic accounting analysis determined that investor funds were used by both of the Lochmillers for purposes other than what investors were told. Further, incoming investor funds were used to make interest and principal payments to existing investors. Once investor money started coming into Valley Investments, the funds went to personal expenses, family expenses and other non-business expenditures. Valley Investments did not own sufficient property or assets to secure the investments as represented. Shawnee Carver was hired in August 2005 and participated in providing false information to investors. Beginning in approximately 2007, Carver prepared documents for investors, and was fully aware that the specific real estate that was to secure the investments made by the investors was already encumbered despite representations to the contrary. Carver repeatedly reassured investors that Valley Investments’ business was doing well even when she knew that was not true.
Massachusetts Ophthalmologist Sentenced for Tax Evasion
On October 13, 2011, in Boston, Mass., Mark S. Hughes, a Brookline ophthalmologist was sentenced to 12 months and a day in prison, two years of supervised release, and ordered to pay a $60,000 fine. Prior to the sentencing, Hughes paid $1.75 million in restitution to the Internal Revenue Service (IRS). On July 18, 2011, Hughes pleaded guilty to tax evasion and obstruction of an IRS tax audit. According to court documents, Hughes diverted money that he was earning as a practicing ophthalmologist to Omega, a consulting firm he owned. Through Omega he made over $2 million in contributions to a defined pension benefit plan. Hughes knew that those $2 million in contributions were taxable income, but did not pay taxes on that amount, instead using those sums to make contributions to a defined pension benefit plan. In 2008, during an IRS audit of Omega’s defined pension benefit plan, Hughes obstructed that audit by communicating false information to the IRS about the nature of Omega’s business. Hughes evaded paying taxes on millions of dollars of income causing a tax loss to the IRS of over $800,000.
California Woman Sentenced for Failing to Report $3.8 Million in Income
On October 12, 2011, in Oakland, Calif., Ranni K. Hillyer was sentenced to 36 months in prison and ordered to pay $1,387,294 in restitution for tax evasion. According to her plea agreement, in 2002, Hillyer was the sole proprietor for Beyond CFO, a financial firm located in the San Francisco Bay Area. During that time, Beyond CFO had a consulting agreement with the chairman and chief executive officer of Ramsell Corporation, a public health service provider company in Oakland. In April 2003, Hillyer was hired by Ramsell Corporation as the CFO and was appointed as the COO. During 2002 through 2004, Hillyer was asked and agreed to be a financial investment advisor for the chairman/CEO and was given authority to handle his personal and business banking needs as well as having signatory authority over his bank accounts. During this period, while employed by Ramsell Corporation, Hillyer took funds from the chairman/CEO’s personal and business bank accounts totaling at least $3,880,862. She used these funds to pay vendors who worked on her personal residence, to pay off her line of credit, pay for expenses relating to her businesses, purchase real estate for herself and a family member, and loan money to third parties. In doing so, Hillyer evaded the assessment of income taxes on the $3,880,862 she took by failing to report those funds on her federal income tax returns for 2002, 2003 and 2004. There is additional tax due in the approximate amount of $1,387,294.
Administrator/Trustee of Retirement Trust Sentenced for Embezzlement and Tax Evasion
On October 12, 2011, in Newark, N.J., Steven M. Zavidow was sentenced to 18 months in prison, three years of supervised release and ordered to pay $425,104 in restitution, for embezzling from a retirement plan he established to benefit his employees and tax evasion. According to court documents, Zavidow, of Hillsdale, N.J., owned and operated 11 Burger King Restaurants in New York. In early 1984, Zavidow and his father, who is not named as a defendant, established the Zavco Industries Retirement Trust (the “Trust”) to provide retirement benefits to the employees of his Burger King restaurants. Zavidow was the Trust’s administrator and a trustee; as such, he was a fiduciary to the Trust, required to act solely in the interest of the Trust’s participants and beneficiaries and prohibited from dealing with the Trust’s assets for his own personal purposes. The Trust maintained a bank account, to which Zavidow was a signatory. Zavidow admitted that in March 2006, contrary to his fiduciary duties, he embezzled at least $263,000 from the Trust by issuing six checks, drawn on the Trust’s bank account, to himself. Zavidow also pleaded guilty to tax evasion, admitting that he filed and caused to be filed with the Internal Revenue Service a false Form 1040 for tax year 2006 on behalf of himself. On this return, Zavidow declared his taxable income for 2006 was $0, and the amount of tax due and owing was $0. Zavidow admitted this return did not include $256,000 in additional taxable income he had received in 2006. With this income, an additional tax of $49,493 was due and owing to the United States.
California Man Sentenced for Filing False Tax Returns and Illegally Obtaining Citizenship
On October 11, 2011, in San Francisco, Calif., Harjit Bhambra was sentenced to 37 months in prison and ordered to pay $242,533 in restitution for filing false tax returns and making false statements to obtain his U.S. citizenship. As part of his sentencing, the court ordered Bhambra to immediately surrender his Certificate of Naturalization. Bhambra was convicted by a trial jury in June 2011 of filing false federal income tax returns for himself and for assisting in the preparation and submission of false federal income tax returns for his elderly mother. Evidence at the trial showed that Bhambra failed to report all of the income earned by his trucking company, Bay Area Transportation, on his federal income tax returns. The evidence also showed that Bhambra assisted in the preparation and submission of federal tax returns for his elderly mother, who is not fluent in English, that falsely reported that Bay Area Transportation was her business. The tax loss to the government was in excess of $242,533.
Pennsylvania Woman Sentenced for Mortgage Fraud Scheme, Failing To File Tax Returns
On October 5, 2011, in Pittsburgh, Pa., Deborah Kitay, a resident of Leetsdale, Pa., was sentenced to 18 months in prison and three years of supervised release on her convictions for failing to file her income tax returns and wire fraud conspiracy. According to information presented to the court, Kitay participated in a mortgage fraud conspiracy in which she and other members of the conspiracy submitted false loan applications to lending institutions that overstated the borrowers' income and assets, among other misrepresentations. In addition, as part of the conspiracy, fraudulent appraisals were submitted to the lending institutions as well as fraudulent settlement statements that falsely represented how the proceeds of the loan were to be distributed. Kitay also used the money from the fraud scheme to support her lifestyle and the lifestyles of other members of the conspiracy, but failed to file income tax returns reporting as income her illegally obtained earnings.
Michigan Man Sentenced for Defrauding Investors
On October 5, 2011, in Detroit, Mich., Barry Sparks, of Allen Park, Michigan, was sentenced to 96 months in prison, three years of supervised release and ordered to pay over $1.3 million in restitution. In March 2011, Sparks pleaded guilty to wire fraud and money laundering. According to court records, during 2006 through 2009, Sparks made false representations to his nephew, Stephen Sparks, about certain investment opportunities. Based on those false representations, Stephen Sparks solicited over $1 million from family, friends and fellow church members as investors. Based on Barry Sparks promises, Stephen Sparks told these investors that his business, Global Points, could purchase a warehouse full of Chinese electronic equipment and sell it in the United States at a substantial profit, returning over five times the amount invested. Stephen Sparks also represented that Global Point was positioned for a second deal to acquire an assortment of CD and DVD players that had been seized in Chicago and were being sold for the payment of back taxes. Again relying on Barry Sparks’ representations, Stephen Sparks indicated that there would be a quick turn around and the profit would be twice the original investment. Court records reveal that when neither of the deals closed, Barry Sparks provided Stephen Sparks with fraudulent and false excuses for why the deals did not close, knowing that he had spent the investors’ monies on gambling and for other purposes. Stephen Sparks continued to solicit additional funds, claiming that the closings were imminent, and he knowingly failed to inform the investors that he gave most of their money to his uncle, Barry Sparks, who had past criminal convictions for fraud. On September 29, 2011, Stephen Sparks was sentenced to 24 months in prison and ordered to pay over $1.3 million in joint and several restitution.
Maryland Sports Manager Sentenced for Tax Evasion
On October 5, 2011, in Washington, D.C., Nathan A. Peake, of Silver Spring, Maryland, was sentenced to 36 months in prison after pleading guilty to one count of tax evasion and one count of conspiracy to commit bank and wire fraud. Peake will be required to pay restitution to the IRS, at an amount to be determined later by the court. The government has requested an order of restitution to the IRS of more than $1.4 million. Peake will also be required to pay restitution to the lending institutions harmed by his fraudulent conduct and forfeit $253,978 to the government. According to court documents, Peake has managed professional basketball players and boxers since 1999 under the name Peake Management Group Inc. (PMG). Peake did not file income tax returns for the years 2000 through 2007, despite earning significant amounts of income over that period of time. Between 2000 and 2007, Peake diverted approximately $5,836,940 in management and agent fees from his business to personal bank accounts or commercial bank accounts that he controlled in names other than PMG. Peake committed numerous affirmative acts of evasion, including misappropriating proceeds from a $3.5 million commercial line of credit that one of his client athletes guaranteed and ultimately paid off, paying himself and his wife out of those commercial bank accounts that he controlled in names other than PMG, using cash to pay personal and business expenses, withdrawing cash in amounts less than $10,000 (an amount greater would have required banks to file currency transaction reports), and paying personal expenses with business receipts.
Montana Man Sentenced for Filing a False Tax Return
On October 5, 2011, in Billings, Mont., William Barry Van Hook was sentenced to 6 months in prison, plus 6 months home arrest, and one year of supervised release. In addition, Van Hook was ordered to pay a $10,000 fine and $215,900 in restitution. According to court documents, Van Hook owns and operates Exploration Drilling in Sidney, Montana. During the course of another law enforcement investigation, Van Hook was interviewed regarding diesel fuel and other equipment that he was receiving from employees who were employed by Basic Energy. Van Hook stated that he bartered with the employees for goods and equipment. In determining the value of goods received by Van Hook, agents discovered that Van Hook substantially unreported taxable income. Van Hook diverted what should have been corporate receipts to himself and failed to report funds on his federal income tax returns which resulted in a tax loss of approximately $174,000. Specifically, for tax year 2006, Van Hook should have reported an additional $406,146 in other income received that year.