Used funds from clients' tax escrow account to pay personal expenses
Date: January 23, 2020
Baltimore, Maryland – U.S. District Judge George L. Russell, III sentenced David Richison of Frederick, Maryland, to 48 months in federal prison for wire fraud and aiding in the filing of a false tax return. Richison, who owned and operated a payroll processing business, took funds from his clients' tax escrow account and used them to pay his own personal expenses. Judge Russell also ordered restitution and forfeiture in the amount of the victims' full loss, which will be determined after a restitution hearing.
The sentence was announced by Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office; Special Agent in Charge Timothy M. Dunham of the Criminal Division of the FBI Washington Field Office; and United States Attorney for the District of Maryland Robert K. Hur.
"After years of deceiving his clients for his own personal benefit, Richison is now feeling the consequences of his despicable actions," said IRS-CI Special Agent in Charge Kelly R. Jackson. "We will continue to work with the United States Attorney's Office to pursue justice of those who violate our tax laws, especially those who commit fraud at the expense of others."
According to his plea agreement, Richison owned and operated a Frederick-based payroll processing business, Period Financial, doing business as Period Payroll. Period Payroll provided payroll processing and payroll tax payment services to businesses in Maryland and Virginia, using special software specifically designed by Richison. In addition to printing paychecks for client employees, Period Payroll was responsible for calculating the employment taxes owed to federal and state taxing authorities by the client companies and those companies' employees, as well as preparing and filing the client companies' employment tax returns.
Period Payroll clients entrusted Richison with the authority to remove funds directly from their bank accounts to pay their federal and state taxes, as well as to pay fees to Period Payroll. Richison's practice was to send the clients a copy of the tax return to be filed and an accounting of the funds to be removed from their accounts and subsequently paid over. Funds removed from client accounts were placed into an escrow account, which Richison used to make electronic payments to the IRS, generating a unique number for each wire sent on behalf of a client.
Richison admitted that from at least 2012 through 2014, the tax forms prepared and filed by Richison on behalf of Period Payroll clients properly reported the amount of taxes owed, but a corresponding amount of tax deposits was not made with the IRS. Richison began taking money from the client escrow fund to pay for his own personal and business-related expenses, such as legal fees, rather than paying those funds to the IRS, as he represented to his clients.
For example, in July 2012, Richison transferred $53,000 from the client escrow account to his personal attorney to pay legal fees. Over the course of 2013 and 2014, the frequency with which Richison failed to pay over client funds to the IRS increased. When clients received notices from the IRS that their employment taxes had not been paid, Richison provided false explanations for the missed payments and falsely promised to make the payments and cover the penalties and interest. To further conceal the scheme, Richison used one client's escrowed funds to pay another client's debt, penalties, and interest, without informing either client that he was doing so. In addition, Richison sent e-mails to clients falsely stating that he had made payments to the IRS on their behalf and provided as proof the wire numbers of transfers that he had made on behalf of other clients. Between approximately February 2013 and December 2014, Richison used approximately $598,365 of client escrow funds to make payments to the IRS to cover the penalties and interest his clients had accrued in order to conceal the fraud and continue to deceive his clients into thinking that Period Payroll was solvent.
By the end of 2014, there were insufficient funds in the client escrow account to cover the mounting debts and Richison closed Period Payroll. By that time, the difference between the amount taken from clients and reported to have been paid to the IRS per the tax returns filed on behalf of clients, and the actual payments made as required by those returns totaled at least $1,622,481.56.