Date: March 10, 2020
St. Louis - David L. Downey of Indianapolis, Indiana, was sentenced to 72 months in prison for federal charges stemming from his scheme to defraud which caused losses of $9.4 million to clients of his payroll service business and the Internal Revenue Service. Downey appeared today in front of United States District Judge Catherine D. Perry.
Downey ran a payroll services business in Indianapolis under the name Time Payroll from 2013 to 2017. He had clients in Indiana, Illinois, Kentucky and Missouri. He had earlier admitted that he deflected money from his clients' accounts to his Charles Schwab brokerage accounts and failed to pay substantial amounts of those client funds to the IRS for the clients' employment taxes. Over the course of the scheme, he misapplied some $20 million into his day-trading accounts at Charles Schwab and returned only $11 million of those funds to the IRS for employment taxes. The government has stated that Downey effectively ran a Ponzi scheme with his client's money and funded exotic travel to destinations such as St. Bart's with the stolen funds. He admitted to a loss to the clients and to the IRS of $9,428,160.
The court ordered Downey to pay restitution to his clients in the amount of $8,780,118.
"David Downey's sentence proves employment tax fraud will be vigorously investigated and prosecuted to the fullest extent," said Karl Stiften, IRS Criminal Investigation Special Agent in Charge. "David Downy not only stole from the U.S. Government, he also stole from the businesses who trusted him to pay over their employment taxes."
Court records show that, after closing his business in late 2017, Downey cashed out his remaining brokerage and bank accounts and headed to California. There he attempted to get a U.S. passport using his brother's name and a recently-issued California driver's license showing his brother's name and Downey's picture. Special Agents from the IRS Criminal Investigation unit in St. Louis tracked Downey to California and, on November 16, 2018, arrested him at the Kimpton Shorebreak Hotel in Huntington Beach. Downey was in possession of $955,956 in cash at the time of his arrest. He had also used $53,990 in cash to purchase a 2018 Jeep Cherokee in California. The vehicle was bought in his brother's name. The cash and the vehicle were seized by the IRS Special Agents. The court ordered the cash and the car to be forfeited for the benefit of his clients.
One of Downey's clients was Health Facilities Rehab Services (HFRS) located in Sikeston, Missouri. HFRS initially lost $851,174 to Downey and, after suing him, was eventually paid $650,000 of that loss. HFRS will be entitled to restitution for the remainder of their loss.
The 72-month sentence includes a sentence for the passport fraud scenario in which Downey tried to obtain a passport in his brother's name in San Diego in the fall of 2018.
This case was investigated by Special Agents of Internal Revenue Service Criminal Investigation office in St. Louis and prosecuted by the James Crowe, Jr., of the U.S. Attorney's Office in St. Louis.