Date: June 17, 2020
NEWARK, N.J. – A Florida man made his initial court appearance today in connection with charges that he evaded over $61 million in income taxes from 2016 through 2018.
Alfred Teo of Boca Raton, Florida, is charged by complaint with one count of tax evasion. He made his initial appearance by videoconference before U.S. Magistrate Judge Edward S. Kiel, who sent bond at $20 million.
According to documents filed in this case and statements made in court:
Teo was the majority shareholder of multibillion-dollar plastics manufacturing holding company Alpha Industries Management (Alpha). Teo also traded heavily in the securities markets. Between January 2016 and December 2018, Teo diverted $600 million from Alpha's line of credit directly into his brokerage accounts to trade and to pay off margin calls.
Teo returned a portion of the $600 million to Alpha, but he did not report the remaining outstanding amount as income on his personal tax returns. Instead, $167 million was recorded as income to AAST Holding Corp. (AAST), another Teo-owned entity that was unrelated to his plastics business, and which Teo used as a vehicle to hide personal income.
Alpha did not provide AAST with the $167 million that AAST claimed as income from Alpha in 2016, 2017, and 2018. The money Alpha recorded as salary to AAST was instead money provided for the benefit of Teo and included money that Alpha sent directly to Teo's trading accounts.
Instead of reporting the $167 million of income from Alpha on Teo's personal tax returns in 2016, 2017, and 2018, and paying taxes on that income, the income was reported on AAST's corporate tax returns. Teo then provided false deduction information to his tax preparer in the form of fictitious "cost of goods sold" to artificially reduce his income and evade the income taxes owed.
AAST was organized for purposes of being a holding company, not for selling goods. The company's principal place of business and mailing address was a Florida residence that Teo owned. AAST's bank account records do not show purchases of material, equipment, inventory, or other purchases consistent with the sale of goods or products. AAST's bank account records do not include deposits that would reflect the millions of dollars in receipts that AAST reported on its tax returns for those three years.
In 2016, 2017, and 2018, Teo's tax preparer provided draft AAST corporate tax forms for Teo's review. Teo then returned the corporate tax forms with handwritten notes that indicated AAST had tens of millions of dollars of cost of goods sold. Teo did not provide any support to his tax preparer for these claims.
Teo's tax preparer used the information that Teo provided to report AAST's cost of goods sold on AAST's corporate tax returns in the amounts of approximately $26 million, $51 million, and $87 million for 2016, 2017, and 2018, respectively.
By submitting fraudulent cost of goods sold expenses to his tax preparer for inclusion on AAST's corporate tax returns, Teo used AAST to avoid paying tens of millions of dollars of income taxes. He reduced AAST's net business income by approximately $165 million for tax years 2016, 2017, and 2018 combined.
TEO's personal IRS Forms 1040 for 2016, 2017, and 2018 included AAST's net business income – as reduced by the approximately $165 million in AAST's false cost of goods sold – as income to TEO. As a result, Teo understated his personal income for those years by approximately $165 million.
Because Teo's personal tax returns for 2016, 2017, and 2018 included AAST's net business income, Teo's fraudulent reduction of AAST's net business income with purported cost of goods sold expenses resulted in a tax loss of approximately $10 million, $20 million, and $31 million in 2016, 2017 and 2018, respectively, for a total tax loss of approximately $61 million.
The tax evasion charge carries a maximum potential penalty of five years in prison and a $250,000 fine.
Special agents of IRS-Criminal Investigation, under the direction of Special Agent in Charge Michael Montanez in Newark, conducted the investigation leading to today's charges.
The government is represented by Assistant U.S. Attorneys Ari B. Fontecchio and Vijay Dewan of the Economic Crimes Unit in Newark.
The charge and allegations contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.