THREE TAX SHELTER PROMOTERS INDICTED

WASHINGTON. – A federal grand jury in Grand Rapids, Mich., returned a five-count indictment yesterday, charging three tax shelter promoters with conspiring to promote, market and sell fraudulent tax shelters over a ten-year period. Two of the promoters were also charged with the attempted income tax evasion of a client from Michigan, who purchased the fraudulent tax shelter.

Richard T. Morrison, Acting Assistant Attorney General for the Justice Department’s Tax Division; Charles R. Gross, U.S. Attorney for the Western District of Michigan; and Maurice M. Aouate, Special Agent in Charge, Criminal Investigation, Internal Revenue Service (IRS), Detroit Field Office, announced the indictment today.

The indictment charged that beginning in 1995 and lasting through the date of indictment, Peter J. Peggs of Prides Crossing, Mass., and Robert D. Larsen of Winter Park, Colo., were involved in a criminal conspiracy, along with Craig M. Stone, age 63, of Fort Pierce, Fla., who joined the conspiracy in 1999, to defraud the United States by promoting, marketing and selling a fraudulent tax shelter called a loss-of-income (LOI) insurance policy. These policies were issued through Caduceus Life Insurance Company which was located in the United States Virgin Islands. In 1999, Caduceus changed its name to Security Trust Insurance Company, and has since gone out of business.

According to the indictment, Peggs and Larsen, both officers and directors of Security Trust, promoted and sold LOI policies to wealthy clients in order to generate illegal tax deductions. The indictment alleges that Peggs and Larson took steps to conceal from the IRS the fact that these policies were fraudulent.

According to the indictment, Stone, who was associated with NASCO Corporate Finance Inc., along with an unindicted attorney who was a partner in the Kalamazoo office of a Michigan law firm, joined Peggs and Larsen in the scheme to sell these policies to American taxpayers. During the duration of the conspiracy, the defendants sold LOI policies for more than $12 million in premiums, but directed the premiums less their fees back to the purchasers in a manner concealed from the IRS.

The indictment also charges Peggs and Larson for their role in the attempted income tax evasion by a client from Hickory Corners, Mich., who purchased LOI policies. According to the indictment, this taxpayer improperly deducted approximately $3.9 million in insurance premiums paid by his companies. The false deductions had the effect of reducing his individual income taxes. The indictment further alleges that as part of this scheme, the co-conspirators improperly disguised the $3 million repayment of funds to this Michigan client as offshore funds available to the client in the form of loans.

As part of this scheme, the indictment alleges that Peggs, Larsen, and others lied to the IRS during an audit of that Michigan client. They are alleged to have also materially misrepresented the facts underlying this scheme to the Michigan client’s tax attorney. The indictment alleges that Peggs and Larson engaged in similar conduct with other clients in Massachusetts and Kentucky. In May 2007, Bruce M. Cohen of Louisville, Ky., pleaded guilty to conspiracy in the federal court in Cincinnati, Ohio for his role in this scheme.

Conspiracy to impede the IRS and tax evasion each carry a maximum punishment of five years imprisonment and a fine of up to $250,000. Acting Assistant Attorney General Morrison and U.S. Attorney Gross commended the investigative efforts of the IRS agents in the case, as well as Justice Department Tax Attorneys Richard Rolwing and Patrick J. Murray, and Assistant U.S. Attorney Don A. Davis, who are prosecuting the case.

An indictment is only a charge and is not evidence of guilt. The defendants are entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.

Additional information about the Justice Department’s Tax Division and its enforcement efforts may be found at http://www.usdoj.gov/tax.

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