The following examples of general tax fraud investigations are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.

Owner of NASCAR’s Morgan-McClure Motorsports Sentenced for Tax Fraud

On April 28, 2009, in Abingdon, Va., Larry Allen McClure was sentenced to 18 months in prison, to be followed by one year of supervised release, and ordered to pay $59,852 in restitution.  McClure pleaded guilty on January 15, 2009, to filing false federal income tax returns for the years 2002, 2003, and 2004. Specifically, McClure did not report a total of $269,037 in cash payments that he received from an individual as payment for race services provided to the individual in the American Racing Club of America (ARCA) series. McClure also pleaded guilty to two counts of obstructing the investigation. According to court documents, in April 2006, Internal Revenue Service (IRS) investigators interviewed an individual in Florida relating to cash payments made by that individual to McClure. The individual confronted McClure about the agents’ questions.  On or about May 3, 2006, McClure spoke with the individual by phone to tell the individual he was going to pay the total amount of $325,000 and they would call it a loan repayment. McClure was interviewed on June 5, 2006 by IRS investigators and McClure falsely stated to the investigators that he had borrowed money from the individual three or four times while he was going through problems with Kodak and he recently paid the individual back by means of a $325,000 check written by his wife. The statement was false because there was no loan between the individual and McClure. The individual had paid McClure for racing services and McClure had not included those payments as income.  In addition to the sentence of imprisonment, McClure was ordered to make restitution to the Eastman Kodak Company in the amount of $59,852, pay a $40,000 fine, pay $25,000 in investigative costs to the IRS, and pay a $500 special assessment.

Maryland Woman Sentenced in $12 Million Contracting Fraud Scheme

On April 23, 2009, in Baltimore, Md., Georgette Richie, of Dillwyn, Va., was sentenced to 37 months in prison, to be followed by three years of supervised release, and ordered to pay $4,071,000 in restitution, including forfeiting several properties in Virginia and one in West Palm Beach, Florida.  Richie was sentenced for conspiring to commit mail fraud, money laundering and filing a false tax return, in connection with a scheme to defraud the company where her ex-husband worked of over $12 million.   AMPORTS, Inc. operated a national import/export car processing service for automobile manufacturers from five locations.  Georgette’s former husband, Phillip M. Richie, was AMPORTS’ director of engineering, responsible for receiving and analyzing bids from contractors for capital expenditures and maintenance of AMPORTS’ facilities. He approved invoices for payment once the contracts were completed. Phillip Richie was named as an alleged co-conspirator in the scheme, although he was never charged; he died in November 2004.  According to court document, Georgette and Phillip Richie created two companies, Webster General, Inc. and Geo Tech Systems, Inc., using the name and social security number of a dead man as the president of both companies, in order to conceal their ownership and control of Webster General and Geo Tech from AMPORTS. Court documents state that from September 2000 to July 2003, Phillip Richie awarded AMPORTS construction contracts to these companies. Geo Tech and Webster General received over $12 million which they used to pay various subcontractors who performed the actual work, and the Richies pocketed about $4 million in profits. As part of the scheme, Phillip Richie changed the scope of the contract work in discussions with subcontractors to reduce expenses. The Richies opened accounts with internet banks for which the purported “president” of Webster General and Geo Tech would not have to appear in person to establish the account. They hired employees for Webster General and Geo Tech to sit in a construction trailer located at AMPORTS in Baltimore to create the appearance that Webster General and Geo Tech were actual companies. Georgette Richie also prepared the 2001 and 2002 corporate tax returns for Webster General and Geo Tech which substantially understated their gross income. For 2001 and 2002, Webster General received $2,341,000 more than Richie reported to the IRS, creating additional income tax liability of $811,159 for the two years. For 2002, Geo Tech received over $3 million more than Richie reported to the IRS, creating additional income tax liability of $1,034,845.  In addition, Georgette Richie falsely reported her own income on her personal tax returns by willfully understating her gross income by $40,000 in tax year 2001 and $998,472 in tax year 2002. Her unreported income results in additional tax due of $370,075 for the two years.  The total amount of proceeds attributable to the scheme is $4,071,000.

President of Missouri Investment Firm Sentenced Involving Multi-Million Dollar Ponzi Scheme

On April 22, 2009, in St. Louis, Mo., Scott Luster, of Belleville, Ill., President of Rate Search, Inc. was sentenced to 70 months in prison on fraud and tax charges involving his scheme to divert customer funds. In addition to the prison sentence, Luster was ordered to pay restitution of $5,190,862. The bulk of this amount will go to the victims of the fraud scheme; $255,984 of the restitution will go to the IRS. Co-defendant Clark Schultz, President of Clayton Analytical Services, Inc., of University City, Mo., was sentenced to eight months in prison. Rate Search, Inc. was in the business of marketing, brokering and purchasing certificates of deposit (“CDs”) at financial institutions throughout the United States with investment moneys of its customers, and operated out of several offices in the St. Louis area. Clayton Analytical Services, Inc. was a Missouri corporation established in 1998, and engaged in the business of assisting in the running of the operations of Rate Search.  Luster marketed and brokered CDs through Rate Search to its customers, and directed the day to day activities of Rate Search. Between January 2000 and June 30, 2007, Luster and Rate Search participated in a scheme to defraud Rate Search customers of millions of dollars. Luster and Rate Search failed to purchase CDs for its customers, despite having received directions and funds from them to purchase CDs, and failed to advise them that their CDs had not been purchased. The customers’ money and funds were used instead for unrelated business purposes and for personal use. Additionally, Luster and Rate Search failed to “roll over” customer CDs when requested and failed to disburse funds received by Rate Search from the non “rolled over” CDs to the Rate Search customers. These funds were also used by Luster for unrelated business purposes and for personal use. Additionally, for the taxable years 2002 through 2006, Luster failed to report funds he received through Rate Search and other sources of approximately $807,911. Luster pleaded guilty in February to one felony count of mail fraud and one felony count of filing a false tax return.  Schultz, who pleaded guilty to related charges, was responsible for finding the rates for the bank CDs and placing the CDs for the customers of Rate Search.

Promoter of High-Yield Investment Scheme Sentenced to Federal Prison

On April 20, 2009, in Phoenix, Ariz., Dennis D. Cope, of Mesa, Ariz., was sentenced to 84 months in federal prison and also ordered to pay restitution to numerous victims for a total of $3,949,947. Beginning in June 1998 through July 2003, Cope and co-conspirator Edgar Mills Bias operated several businesses created for the purpose of soliciting individuals to invest in high-yield producing “trading programs.” The bogus programs involved the use of investor funds as collateral for the purchase and sale of purported medium-term bank notes offered by financial institutions located outside the United States. Investors were promised yields as high as 120%.Other investment opportunities offered by Cope and Bias included purported restaurant acquisitions and multi-national oil pipeline development projects.  Victims invested over $18.5 million, of which $8.6 million was paid to investors as seeming returns on their investments. This led investors to believe their investment was safe and earning the stated rate of return. The apparent success of the original investors convinced subsequent individuals to make their own investments, thus affecting a Ponzi scheme. Edgar Mills Bias, of Phoenix, was sentenced to 96 months in prison in December 2008.  

Three Defendants Sentenced for Submitting False Bills in Contractor Fraud Scheme

On April 17, 2009, in Pittsburgh, Pa., three defendants were sentenced for their role in a scheme to commit  fraud in connection with construction projects including PNC Park, the Petersen Events Center at the University of Pittsburgh, and the reconstruction of the Pentagon after the 9/11 terrorist attack. Thomas J. Cousar, the former president of Capco Construction Company, a defunct McKeesport, Pennsylvania, painting and interior construction contractor, was sentenced to 63 months in prison.  Catherine L. Bradica, the company’s former office manager, was sentenced to 41 months in prison. Daniel D. Monte, a Capco supervisor during the Pentagon job was sentenced to 21 months in prison.  Each defendant was also sentenced to three years supervision following release from prison and was ordered to pay restitution.  Cousar and Bradica were ordered to pay a joint total of $1.1 million in restitution for the three projects combined; Monte was ordered to pay restitution jointly with Cousar and Bradica, but relating only to the Pentagon project, in the amount of $800,000.  According to information presented to the court, the defendants defrauded the United States and the other victims by submitting false time and material bills for work performed by Capco.  The false bills overstated actual hours devoted to projects, and at the Pentagon, also overstated actual materials utilized.  In some instances, the falsely billed labor hours and materials represented work by Capco in 2002 performed instead on other projects, including a commercial complex adjacent to the Capco office in McKeesport constructed to house businesses to be owned by Cousar and Bradica.  At the Pentagon, Capco was permitted to bill on a time and material basis rather than under a fixed price between September 2001 and May 2002, because of the emergency circumstances that existed following the terrorist attack.  Special circumstances affecting the PNC Park and Petersen Events Center projects also triggered limited use of time and materials billing on those jobs, which the defendants exploited during the fraudulent scheme.

New Jersey Husband and Wife Sentenced for Stealing from Investors

On April 15, 2009, in Newark, N.J., Charles and Janet Neely, husband and wife, were sentenced for participating in a scheme to defraud investors out of nearly $2.5 million and to evade the payment of federal income taxes.  Charles Neely was sentenced to 20 months in prison; Janet Neely was sentenced to 97 months in prison.  Both husband and wife were ordered to forfeit approximately $2.5 million.  The Neelys pleaded guilty on November 6, 2008, to conspiracy to commit mail fraud, mail fraud and tax evasion. According to court documents, Janet Neely solicited clients, mostly tax-preparation clients, to invest money with Neely Associates under the false representation that their money would be invested in municipal bond funds, would be safe and earn tax-free interest. To further induce investors, the Neelys provided fabricated account statements that made it appear as if the investors’ money had been invested as promised. From about January 2002 through February 2008, the Neelys admitted that they defrauded approximately 47 investors of almost $2.5 million.  The Neelys gambled away some of the investors’ money at casinos in New Jersey and elsewhere, and spent some of the money on cruises, cars, tow trucks, collectibles, electronics and other personal items.

Washington State Man Sentenced to 10 Years in Prison for $2.4 Million Embezzlement from Lumber Mill

On April 10, 2009, in Tacoma, Wash., Brett M. Smith, of Puyallup, Washington, was sentenced to 10 years in prison, three years of supervised release and ordered to pay $2,476,913 in restitution. Smith was the leader of a scheme to embezzle $2.4 million from Manke Lumber Company. Smith and seven other people, including Smith’s brother, Bryan M. Smith, were indicted in June 2008, for mail fraud and conspiracy to commit money laundering. Brett Smith pleaded guilty January 9, 2009.  According to the indictment, in September 2004 Brett Smith became a “Scaler” for Manke. A scaler weighs, measures and inspects logs delivered to the lumber mill to determine their grade and value. Based on that information, Manke Lumber would mail checks to those people who were being compensated for the logs. Between November 2004 and July 2006, Smith and others entered into a scheme to create false records that prompted Manke to send checks to conspirators for logs that were never delivered to the mill. In his plea agreement, Smith admits he submitted false paperwork for more than 1,500 loads of logs worth more than $2.5 million. In all, Smith submitted false log intake information in at least twenty different names. More than a dozen additional defendants have been prosecuted and sentenced in connection with the scheme. The majority were charged with tax crimes for failing to report the income they took from the scheme.

Connecticut Woman Sentenced to Federal Prison for Stealing $816,129 from Employer

On April 9, 2009, in Bridgeport, Conn., Leslie Tavolacci, of Southbury, Conn., was sentenced to 27 months in prison, followed by three years of supervised release, for embezzling more than $800,000 from her former employer.  She was also ordered to pay her victim restitution in the amount of $816,129 and must pay the Internal Revenue Service (IRS) back taxes in the amount of $141,679, plus penalties and interest.. On April 3, 2008, Tavolacci pleaded guilty to one count of wire fraud and one count of income tax evasion stemming from the scheme. According to documents filed with the court and statements made in court, Tavolacci was a part-time employee of RZM Imports, Inc.  As part of her duties, Tavolacci opened and sorted incoming mail, and then deposited checks received by RZM Imports from customers into RZM’s bank account.  Tavolacci has admitted that she unlawfully took a large number of checks payable to RZM Imports and deposited them into other checking accounts she had opened under the RZM Imports Inc. name.  She then withdrew the money from these accounts, usually using bank debit cards, and used the funds for her own use and enrichment.  Through this scheme, Tavolacci embezzled approximately $816,129 between 1997 and 2004. She also failed to pay federal taxes on the embezzled funds.

Massachusetts Man Sentenced for Failing to Report Over $250,000 in Income

On April 8, 2009, in Boston, Mass., Rimba B. Handojo, of Westford, Massachusetts was sentenced to 24 months in prison on his conviction of conspiracy, mail fraud and tax evasion.  In addition to his term of imprisonment, Handojo was ordered to pay $283,144 in restitution to his employer and to pay $124,268 to the Internal Revenue Service (IRS), as well as a forfeiture of $283,144.  Handojo, a citizen of Indonesia, will be subject to deportation upon his release from prison. On June 6, 2008, Handojo was indicted on charges of conspiracy, mail fraud, and tax evasion.  According to court documents, Handojo was employed by Nortel Networks, Inc. (Nortel) from 1999 through 2004 to set up and test computer and telephone equipment.  While employed at Nortel, Handaojo stole computer equipment, valued at more than $250,000, and sold the equipment to a Nortel employee in Malaysia to resell.  According to the Indictment, Handojo received over $280,000 in income from this illegal business in 2002 and 2003, but omitted this income from his 2002 taxes, failed to file a return for his 2003 taxes, and sent a false Social Security number to one of his customer to prevent them from reporting his income accurately to the IRS.

Defendant Sentenced to 78 Months After Admitting to Stealing Millions of Dollars Worth of Equipment from Cisco Systems, Inc.

On April 8, 2009, in Portland, Ore., Steven Edward Miller was sentenced to 78 months in prison, followed by three years of supervised release, and ordered to pay $3,713,107 in restitution. Miller previously pleaded guilty on December 9, 2008 to charges of money laundering and mail fraud.  According to court records, Miller created PDX USA with the intention of providing telecommunication/internet services for residents. Between approximately August 2004 and November 2006, Miller used the entity names PDX USA, The New CB Shop, and others to interact with Cisco Systems, Inc., a leading manufacturer and seller of computer networking equipment and services based in San Jose, California. Miller rented office space for the two aforementioned entities in downtown Portland, Oregon. Miller devised a scheme to defraud Cisco Systems Inc. of more than $3.7 million in computer equipment and parts. He made false warranty claims to Cisco for replacement parts for computer equipment. Cisco shipped the parts to Miller at the Portland office space and to Miller’s residences in Everett and Marysville, Washington, expecting that Miller would return the defective parts he allegedly had. In reality, Miller did not have any defective Cisco computer parts. Once he obtained the new parts from Cisco, he sold them via the Internet and kept the proceeds for himself.

First of Eight Local Taqueria Arandas Restaurant Owners Sentenced for Filing False Income Tax Return

On April 8, 2009, in Houston, Texas, Carlos Garcia was sentenced to a year and one day in federal prison and ordered to pay $245,786 in restitution above the $700,000 already paid for filing false income tax returns for Taqueria Arandas No. 12 Inc., through which he operated a restaurant at 10403-A Gulf Freeway in Houston. Garcia pleaded guilty on October 24, 2008, admitting in pleadings filed that day that he had filed Corporate Income Tax Returns for Taqueria Arandas No. 12 Inc., for tax years 2001 through 2004 that under-reported sales by approximately $2,813,156. He also admitted that, as a result, he and his corporation underpaid income taxes by approximately $945,786. Prior to his sentencing, Garcia paid the Internal Revenue Service $700,000 in delinquent taxes. Under the terms of his plea agreement, Garcia remains subject to audit and further assessment of taxes, penalties and interest for tax years 2001 through 2004. Garcia is the first of eight local Taqueria Arnadas Restaurant owners to be sentenced. 

Arizona Man Sentenced to 18 Months for Filing False Tax Returns

On April 7, 2009, in Phoenix, Ariz., Lee B. Woodbury of Gilbert, Ariz., was sentenced to 18 months in prison and ordered to pay $97, 232 in restitution. Woodbury pleaded guilty on August 18, 2008, to willfully filing a false tax return. According to court documents, between 1998 and 2001, Woodbury engaged in a number of income producing activities. Until contacted by the Internal Revenue Service, Criminal Investigation Division, he had not filed returns for tax years 1998 through 2001. Woodbury willfully made and subscribed a 1998, 1999 and 2001 U.S. Individual Income Tax return, Form 1040, that under-reported his taxable income. In total, the tax loss as a result of Woodbury’s willfully filing false tax returns was $35,633.

Owner of Sonshine Tours in North Carolina Sentenced for Securities Fraud and Tax Evasion

On April 6, 2009, in Statesville, N.C. Paul Stephen Young, Jr. was sentenced to 24 months in prison, to be followed by three years of supervised release, and ordered to pay $527,987 in restitution to the victims of the scheme. Young owned and operated Sonshine Tours & Travel, Inc., a travel agency located in Mooresville, N.C. which operated from 1997 to August 2007.  Young pleaded guilty in May 2008 to charges of committing fraud upon investors and others in connection with the sale of securities, to wit: Sonshine Stock Sales Certificates and tax evasion for the 2005 tax year.  According to court documents and evidence brought forth at today’s sentencing hearing, through Sonshine Tours & Travel, Young provided travel agency services to, among others, senior citizen and church groups.  Information presented in court today showed that beginning about July 1999 and continuing through May 2007, Young advertised sale of Sonshine Stock to the public through mailings to clients and existing shareholders.  In these mailings, Young falsely promised that all shareholders would receive guaranteed dividends of 8% a year.  Young not only misled investors by claiming his business was profitable and growing when it was not, but when he received proceeds from the stock sale, he deposited the funds into Sonshine’s operating account and used the funds to continue to operate his failing business and pay his personal living expenses.  Information was presented in court indicated that Young collected more than $120,000 from investors during the course of the scheme.  Many investors failed to receive any dividends, and when Sonshine went out of business in August 2007, Young failed to return any investment principal to the individuals who purchased Sonshine stock.  As part of his plea agreement, Young agreed to provide full restitution to the victims harmed by his conduct, including those who purchased stock in the securities fraud scheme and customers who paid for travel packages that they never received.

Man Sentenced to 20 Years in Prison in $32 Million Scam that Bilked More Than 500 Victims in Coal Mines and a Secret Gold Transaction

On April 3, 2009, in Los Angeles, Calif., Henry Jones, a record company executive, formerly of Marina Del Rey, California, was sentenced to 20 years in federal prison having been found guilty in connection with a Ponzi-scheme. Two other defendants, Arthur Simburg, of Portland, Oregon, formerly of Los Angeles, and Robert Jennings, a pastor from Perris, California, were sentenced in November 2008 to 9 and 12 years in federal prison, respectively. The three men were convicted of defrauding more than five hundred investors out of more than $32 million through a bogus investment scheme. Jones was also ordered to pay $28 million in restitution.  Evidence at trial showed that Jones, Simburg, and Jennings solicited investors for a coal mine venture and an alleged international gold transaction that was highly secretive and allegedly involved the sale of 20,000 tons of gold between Israel and the United Arab Emirates. The solicitation of investments was accomplished largely through nightly call-in telephone conference calls in which investors were promised huge rates of return on the investments, as much as 200 to 300 percent within sixty days.  Despite their promises of profitable investments, Jones spent over $21 million of the victim-investors’ money on his own extravagant personal expenses and to fund his Marina Del Rey-based music business. In addition to his music business, Jones used the victim-investors’ money to purchase a house in Marina Del Rey, a condominium in Culver City, and Ferrari Spider and Porsche Cayenne automobiles. Simburg and Jennings also used victim-investors’ funds for personal expenses. The victim-investors ultimately lost more than $28 million to Jones,
Simburg, and Jennings.

Embezzler Sentenced to 366 Days in Federal Prison for Tax Evasion

On April 3, 2009, in Fairview, Ill., Kay Floarke, of Waterloo, Illinois, was sentenced to one year and one day in federal prison for tax evasion. Additionally, Floarke was sentenced to serve three years of supervised release following her release from prison.  Floarke was also ordered to pay $122,771 in restitution to a victim of the embezzlement and to pay $40,688 in restitution to the Internal Revenue Service.   According to court documents, Floarke was employed as the office manager for an insurance company and embezzled money from 2002 through 2006.  Additionally, as office manager, she prepared false W-2 earnings statements which covered her embezzled income.

Self-Employed Consultant Sentenced on Tax Charges

On April 2, 2009, in Atlanta, Ga., Maurice Delmar Edwards, II, was sentenced to 12 months and one day in prison, to be followed by three years of supervised release, and ordered to pay $88,551 in restitution to the Internal Revenue Service (IRS).  Edwards was indicted on eight counts of tax fraud in April 2008; he pleaded guilty to one count of tax evasion in January 2009.  The indictment states that Edwards was self-employed as an independent consultant for the orthopedic industry.  According to court documents, Edwards has not filed tax returns since at least 1994. During calendar years 2001-2004, Edwards earned income of $423,972, resulting in $88,551 in federal tax due and owing to the IRS.  He concealed his income from the IRS by giving a social security number used to generate Forms 1099-MISC and to open a checking account.  In addition, Edwards established a nominee business, Clinical & Surgical Solutions, to receive payment from Blackstone Medical, Inc.

Two Former Home Depot Employees Sentenced for Participating in Vendor Kickback Scheme and Filing False Tax Returns

On April 1 and 2,  2009, in Atlanta, Ga., Ronald K. Johnston and James P. Robinson were sentenced to federal prison on charges of conspiracy to commit wire fraud and filing false tax returns in connection with a scheme to defraud Home Depot.  Johnston was sentenced to serve 46 months in prison, to be followed by three years of supervised release and ordered to pay $1,785,115 in restitution. Robinson was sentenced to 63 months in prison, to be followed by three years of supervised release and ordered to pay $1,170,308 in restitution.  According to information presented in court, between 2005 and 2007, Johnston, a former Home Depot Merchant for Flooring, participated in a conspiracy to defraud Home Depot by taking kickbacks from foreign suppliers seeking to do business with Home Depot. He arranged for Home Depot to purchase items for resale on less than the most advantageous terms to the company.  Johnston filed false tax returns by underreporting approximately $186,000 in income for tax years 2005 and 2006.  Robinson, a former Home Depot Divisional Merchandising Manager for Flooring, also participated in the conspiracy to defraud Home Depot by taking similar kickbacks from foreign suppliers seeking to do business with Home Depot.  Robinson also filed false tax returns by underreporting his income by $765,879 for tax years 2005 and 2006.  In addition, Robinson has consented to forfeiture of more than $575,000 in relation to his criminal conviction. Johnston has consented to forfeiture of more than $219,376 in personal items and a forfeiture money judgment in the amount of $135,119.  Additional forfeiture was agreed upon. Another former Home Depot employee, Anthony Tesvich, who pleaded guilty last June to similar offenses, received millions of dollars in bribes from foreign suppliers and passed on to Johnson through kickbacks in the hundreds of thousands of dollars and also made payments to a home improvement company for work on Johnston's residence.  He also passed kickbacks to Robinson through hundreds of thousands of dollars and other items of value, including a luxury SUV. Tesvich is scheduled to be sentenced by on June 11, 2009.

Restaurant owners sentenced for tax evasion, conspiracy to harbor illegal aliens

On March 31, 2009 in Benton, Ill., Duo Chen and Justin Qiu, both of Herrin, Ill., were sentenced in federal court following their convictions for tax evasion and conspiracy to harbor illegal aliens. Chen was sentenced to serve a 16 month term of imprisonment, was fined $6,000, and was ordered to pay restitution to the United States in the amount of $228,238. Chen was also ordered to forfeit $78,000 to the United States. Following service of his term of imprisonment, Chen will serve a 3 year term of supervised release. Qiu was sentenced to serve a 5 year term of probation and 10 weekends in jail, was fined $10,000, and was ordered to pay restitution to the United States in the amount of $16,310. Qiu was also ordered to forfeit $45,000 to the United States. According to factual stipulations filed at the time of the pleas, Duo Chen owned and operated Kew Gardens Chinese restaurant located in Herrin, Illinois. Chen skimmed significant amounts of funds from Kew Gardens for his personal use and failed to report the income on his personal tax returns.  Chen shared in the ownership of Southern Grill, Inc., which operated as Wok N’ Roll in Marion, Illinois, with his brother-in-law, Justin Qiu. From approximately March 2004 through April 2006, Chen and Qiu conspired to defraud the United States by evading taxes. Chen and Qiu had an agreement that they would skim large sums of cash obtained from the operation of Wok N’ Roll, while concealing the receipt of that cash from the IRS and their accountants. For the tax years 2004 and 2005, Chen and Qiu caused others to prepare and file false tax returns with the IRS on behalf of Southern Grill, Inc.

Arizona Man Sentenced to Federal Prison for “Ponzi” Scheme

On March 26, 2009, in Phoenix, Ariz., Michael A. Dawes, a resident of Sierra Vista and Green Valley, Arizona, was sentenced to 24 months imprisonment, to be followed by three years of supervised release, following a guilty plea to mail fraud and money laundering.  In addition, the court will determine the amount of restitution Dawes must pay to each of his victims at a later date.  According to court documents, Dawes was an investment broker for a securities brokerage firm from 1998 to 2007. After Dawes lost money speculating in the options market in 1993, he began borrowing money from some of his brokerage clients in an effort to recoup his losses. Dawes told these clients they could earn an extremely high rate of return for loaning money to him for what Dawes described to some investors as being similar to an off-shore investment account for tax purposes. Investors tendered the money directly to Dawes. The promised interest rates ranged from 10 to 30 percent. Dawes did not tell his clients the “investment opportunity” was fictitious and did not exist. By primarily using new investors’ funds to pay old investors, Dawes operated a fraudulent scheme commonly referred to as a “Ponzi scheme.” From approximately 1998 to 2006, Dawes received approximately $4 million in loans from at least 80 investors. The estimated loss is $1.7 million. 

Pennsylvania Man Sentenced for Embezzling $3 Million from Employer and Evading Taxes

On March 26, 2009, in Philadelphia, Pa., Brian J. Rowland, of Gilbertsville, PA, was sentenced to 63 months in prison for embezzling more than $3 million from the Delaware County advertising firm where he worked as a bookkeeper.  Rowland pleaded guilty in December 2008 to one count of wire fraud and one count of tax evasion.  According to court document, the fraud scheme went on for more than 10 years, between 1994 and 2006, and consisted of Rowland writing checks to “Business Management Concepts”, a fictitious company.  Rowland would then deposit the checks into a bank account in the name “Brian Rowland T/A Business Management Concepts”.  Rowland would then use the money in that account for his own personal expenditures.  Additionally, between 2003 and 2006, Rowland evaded paying $343,506 in income tax on the proceeds of his embezzlement.

Louisiana Attorney Sentenced to Over 15 Years in Prison on Federal Charges Including Bank and Tax Fraud

On March 25, 2009, in New Orleans, La., James G. Perdigao was sentenced to 188 months in prison, to be followed by three years of supervised release, and ordered to pay $23,517,538 in restitution and a $3,000 special assessment. Additionally, while incarcerated, the defendant can only use a computer with internet access while under supervision. On October 31, 2008, Perdigao pleaded guilty to the Second Superseding Indictment on charges of mail fraud, bank fraud, interstate transportation of stolen funds, money laundering, income tax evasion, filing false income tax returns, obstruction of justice, unlawful computer intrusion and unlawful access to stored communications. Perdigao, a former partner at the law firm of Adams and Reese, provided legal services to companies in Louisiana’s gambling industry. He admitted to stealing checks belonging to Adams and Reese and depositing those checks into accounts he controlled. Further, Perdigao admitted to stealing a tax refund check in the amount of $485,000 payable to Horseshoe Entertainment, which was being acquired by Harrah’s. Once these checks were deposited, they became available for withdrawal and thus exposed the banks to the risk of civil liability and financial loss. In his plea agreement, Perdigao also admitted to concocting a fraudulent billing scheme whereby he would submit phony invoices to his clients including Pinnacle Entertainment, Inc. and Boomtown, causing them to remit millions of dollars in fraudulent payments. According to court records, during a one-week period in October 2004, Perdigao wired nearly $20,000,000 to a Swiss bank account that he controlled in Zurich, Switzerland. Additionally, Perdigao pleaded guilty to tax evasion and filing false tax returns for the tax calendar years 2000 through 2004. The tax due and owing by Perdigao exceeds approximately $5 million as indicated in the indictment. By failing to report substantial taxable income and utilizing fraudulent losses on these tax returns, Perdigao qualified himself for the earned income tax credit. The earned income tax credit is a refundable federal income tax credit for low-income, working individuals and families.

Attorney Sentenced in Mortgage "Rescue" Scheme

On March 24, 2009, in Richmond, Va., Colin C. Connelly was sentenced to 24 months in prison and ordered to pay $376,464 in restitution to the victims of his criminal conduct. According to court records, Connelly was involved with others in a mortgage fraud conspiracy that spanned from February through November 2007. During that time period, Connelly owned and operated Connelly & Associates, P.C., located in Chester, Virginia. Acting through that business, Connelly assisted representatives from Walkwood Properties, Inc., Midlothian, Virginia, in closing a number of housing transactions under Walkwood’s real estate purchase program. This program offered various home owners an opportunity to sell their home to someone associated with Walkwood Properties in an attempt to save the home from foreclosure. As Connelly has admitted, however, the real estate purchase program was executed without full disclosure of how each transaction worked and a significant portion of the equity in the victim’s homes was skimmed to Walkwood Properties and other entities. In executing the scheme, Connelly assisted representatives from Walkwood Properties in making a number of false representations in connection with the transactions to allow the loans to go through. In connection with his guilty plea, Connelly agreed that if the true nature of the transactions had been revealed to the mortgage lenders, the loans would not have been approved. Overall, Connelly agreed to his involvement in six different mortgage transactions resulting in a total loss of $376,464.

Three California Men Involved In Stealing Gold from Oakland Area Manufacturer Sentenced

On March 20, 2009, in Oakland, Calif., three men were sentenced for their roles in a gold stealing conspiracy. Carlos Coronado was sentenced to one year and one day in prison and ordered to pay $496,055 to his former employer, Systron Donner and $485,000 to the IRS. Coronado was charged on Auguast 14, 2008, in a Superseding Information with conspiracy, transportation of stolen goods in interstate commerce and making and subscribing a false tax return. He pleaded guilty on September 19, 2008. Also sentenced was Jerry Kahue who will spend one year in home confinement and was ordered to pay $80,000 to Systron Donner and $16,221 to the IRS. He pleaded guilty on November 21, 2008. David Siharath was sentenced to three years probation and ordered to pay $18,500 to Systron Donner. According to the Information, the men worked at automotive parts manufacturer Systron Donner. They stole gold used in the manufacture of stability control systems for high-end automobiles, and sold and shipped the gold to a business in New York. The defendants failed to claim the income from the gold on their tax returns.

Maryland Man Sentenced to Three Years in Prison for Filing False Tax Returns

On March 16, 2009, in Greenbelt, Md., Wayne Eric Matthews, of Bowie, Maryland, was sentenced to 36 months in prison, followed by three years of supervised release, and ordered to pay $231,560 in restitution. Matthews was convicted on December 10, 2008, on two counts of filing a false claim with the Internal Revenue Service (IRS). According to testimony at his trial, Matthews sent to the IRS a tax return for 2006 in the name of the “WAYNE MATTHEWS TRUST” and listed “Wayne Eric Matthews” as the fiduciary. Matthews claimed that the trust had income of $694,680 and a deduction of $694,680 for fiduciary fees. Matthews also claimed that $231,560 in federal income tax withheld had been paid to the IRS, and therefore that the Trust was owed a refund of $231,560. Matthews did not include any trust documents, designation of beneficiaries, proof of income, or proof of withholding with the return when he submitted it to the IRS, nor did the IRS have any evidence of income or withholdings for the Trust. Less than two months later, on May 15, 2007, Matthews filed an almost identical return for tax year 2005, also claiming a refund of $231,560. 

Niece of Leader in D.C. Property Tax Refund Fraud Scheme Sentenced to 9 Years in Prison

On March 16, 2009, in Greenbelt, Md., Jayrece Turnbull, of Bowie, Maryland, was sentenced to 108 months in prison, followed by three years of supervised release, and ordered to pay $24,521,720 and to forfeit three residences, a Mercedes Benz, designer handbags, fur hats, shoes, china, three plasma televisions, jewelry and monies held in 26 bank accounts. Turnbull is the niece of Harriette Walters, a former manager within the District of Columbia Office (DC) of Tax and Revenue. According to court documents, Walters embezzled money from the District of Columbia by preparing fraudulent property refund vouchers that listed entities created by Walters’ co-conspirators. Illegitimate property refund checks were then issued based on the fraudulent vouchers that were prepared by Walters. In October 2008, Turnbull pleaded guilty to receipt of stolen property, conspiracy to commit money laundering, tax evasion and mail fraud, in connection with a property tax refund scheme in which over $48 million was stolen from the DC Office of Tax and Revenue. In her plea agreement, Turnbull admitted that from January 2001 to April 2007, she deposited 82 fraudulent DC checks totaling $24,521,720 into accounts for which Turnbull had signatory authority. The deposits ranged from $74,299 to over $450,000.  During the course of the scheme, Turnbull also wrote personal checks totaling $226,000 to Walter Jones, then a Bank of America employee involved in the scheme. Also, Turnbull failed to file a tax return for 2007, failing to report the taxable income she gained from this fraudulent scheme. Other defendants sentenced in this scheme were Harriette M. Walters who received 20 years in prison; Ricardo R. Walters was sentenced to 78 months in prison; Richard Walters was sentenced to 51 months in prison; Robert O. Steven received 46 months imprisonment; Patricia A. Steven was sentenced to 70 months in prison; Walter Jones was sentenced to 78 months in prison; and Marilyn Yoon received 12 months and one day in prison. These defendants were also ordered to pay millions of dollars in restitution and to forfeit assets and currency gained from their illegal activity.

Accountant for Connecticut Trash Companies Sentenced to 29 Months in Federal Prison

On March 12, 2009, in New Haven, Conn., Christopher Rayner was sentenced to 29 months in prison, followed by five years of supervised release, for crimes he committed while serving as the accountant for companies formerly owned by James Galante of Danbury. Rayner was also ordered to forfeit $150,000 to the government and to pay a $7,500 fine. On August 28, 2008, Rayner pleaded guilty to one count of conspiring to violate the federal Racketeer Influenced and Corrupt Organizations Act (RICO), one count of conspiring to defraud the Internal Revenue Service (IRS), and one count of conspiring to commit wire fraud. According to statements made in court, Rayner was the principal accountant and de facto chief financial officer for 25 trash companies located in western Connecticut operated by James Galante, including Automated Waste Disposal (AWD), Diversified Waste Disposal (DWD), Superior Waste Disposal (SWD) and Transfer Systems, Inc. (TSI). Rayner admitted that he knew about the operation of the “property rights system,” which was an illegal agreement between various carting companies to fix prices for trash hauling services in Connecticut and New York, and efforts made by his co-conspirators to further the system. Rayner specifically admitted that, in 2005, he attempted to assist in fixing a bid for the operation of a transfer station in Connecticut. James Galante wanted to insure that the transfer station would be operated by a specific individual and directed several of his co-conspirators, including Rayner, to attempt to rig the bid. As for Rayner’s participation in the conspiracy to defraud the IRS, Rayner, Galante and others operated a multiple object scheme to defraud the IRS with respect to both Galante’s personal returns and certain corporate returns. In part, this scheme involved placing a number of no-show employees on the payrolls of trash hauling companies and deducting the expenses related to these employees, including their salaries, health care costs, and expenses associated with the use of free cars, on corporate tax returns.

Vermont Man Sentenced to 70 Months in Federal Prison on Charges of Tax Evasion, Money Laundering and Wire Fraud

On March 10, 2009, in Burlington, Vt., Kenneth MacKay was sentenced to 70 months in prison, to be followed by three years of supervised release, and ordered to pay over $5.3 million in restitution to his employer. The court also ordered MacKay to forfeit $4 million, his interest in the Williston residence, a condominium in Orlando, Florida, and approximately $240,000 seized from five 529 Qualified Tuition Plans that MacKay opened for his children and funded with some money obtained through his frauds.  MacKay pleaded guilty in September 2008 to charges of wire fraud, tax evasion, and money laundering in connection with a multi-million dollar embezzlement scheme.  According to court documents, beginning in or about 2000 and continuing until in or about February 2008, MacKay devised a scheme to defraud his employer, Willis Management (Vermont) Ltd., and its clients and affiliated companies by embezzling in excess of $5 million and using this money for his own personal benefit. Additionally, between 2002 and 2007, MacKay willfully evaded paying over $1.2 million in income taxes to the United States and he illegally engaged in numerous monetary transactions in criminally derived property using accounts he fraudulently opened at the Chittenden Bank as part of his scheme to defraud Willis Management.

City of Cleveland Retired Water Pipe Repair Supervisor Sentenced to 18 Months in Prison

On March 10, 2009, in Cleveland, Ohio, Oscar Wells, retired water pipe repair supervisor, was sentenced to 18 months in prison, three years of supervised release, and ordered to pay $40,000 in restitution to the city of Cleveland and a special assessment of $400. Wells was convicted in October 2008 by a jury on three counts of Hobbs Act bribery and one count of conspiracy to violate the Hobbs Act. Wells was at the center of two bribery schemes. In the first scheme, he demanded cash payments totaling approximately $35,000 to $40,000 from Liberator Noce in connection with Noce’s contracts to repair and replace fire hydrants for the city of Cleveland Water Division (CWD). The bribes were in exchange for Wells processing Noce’s invoices for payment, and in exchange for Wells giving Noce job orders under Noce’s contract with the CWD. In addition, Wells suggested that Noce inflate his invoices to the CWD to fund the bribe payments. The CWD paid Noce approximately $3.8 million during the period 2002 through 2004. In the second scheme, Wells solicited and received two bribes, one of $200 and one of $100, from a second hydrant contractor in 2004. Wells is the last of 13 defendants to be sentenced in the investigation of corruption in the city of Cleveland Water Division. The other defendants were sentenced from 60 months in prison to probation.

Ohio Man Sentenced to 57 Months in Prison; Failed to Report Over $390,000 in Income for Four Tax Years

On March 6, 2009, in Cleveland, Ohio, Flavio G. Varone, of Chester Township, was sentenced to 57 months in prison followed by three years of supervised release.  Varone was also ordered to pay $555,169 in restitution to the victims of his scheme. In December 2008, Varone had been found guilty by a trial jury of three counts of interstate transportation of stolen property and four counts of attempted income tax evasion. Varone was a financial representative, a broker-dealer and investment adviser registered with the Securities and Exchange Commissioner (SEC) and worked at several companies. According to the indictment, Varone promoted and sold investments that appeared to be through his broker-dealer firms. To induce clients to follow his money management recommendations, he falsely represented that client funds would be invested and used to purchase annuities and other investments. However, Varone used clients’ funds to pay his personal debts and expenses. At times, Varone used investor funds to make payments to earlier investors. According to the indictment, Varone underreported his income for tax years 2003 through 2006 by omitting approximately $397,140.

Mississippi Physician Sentenced for Filing False Federal Tax Returns

On March 5, 2009, in Jackson, Miss., Dr. Calvin Ramsey of Lexington, Mississippi, was sentenced to 27 months in prison, followed by one year of supervised release, and ordered to pay $232,117 in restitution to the Internal Revenue Service (IRS).  In addition, Ramsey was ordered to pay $7,547 for the government’s costs in prosecuting the case. Ramsey was indicted by a federal grand jury on November 7, 2007.  According to the indictment, Ramsey was charged with filing false returns, whereby he failed to report substantial gross receipts from his business for calendar years 2000 and 2001. On October 16, 2008, a federal jury convicted Ramsey of filing false tax returns for years 2000 and 2001.

Former Employee of Danbury Trash Companies Sentenced to 37 Months in Federal Prison

On March 3, 2009, in New Haven, Conn., Eric Romandi was sentenced to 37 months in prison, followed by three years of supervised release, and agreed to forfeit $75,000.  Romandi pleaded guilty in July 2008 to conspiring to violate the federal Racketeer Influenced and Corrupt Organizations Act (RICO) and conspiring to defraud the Internal Revenue Service (IRS).  According to documents filed with the court and statements made in court, Romandi formerly was the General Manager of companies owned and operated by James Galante, and most recently held the title of Route Supervisor at Automated Waste Disposal (AWD) and its affiliated companies based in Danbury.  Romandi admitted that he conspired to perpetuate a system, commonly called the “property rights system,” through which participating carters agreed not to service or compete for other carters’ customers.  The property rights system essentially destroys free enterprise, allowing the participating carters to artificially inflate their prices and leaving waste removal customers with no other options.  In this scheme, which was directed at commercial and municipal customers, participating carters agreed to quote inflated prices to customers controlled by other carters.  According to court documents, in the summer of 2005, the federal grand jury investigating the carting industry issued subpoenas to many AWD employees.  The investigation revealed that shortly after the subpoenas were issued, Romandi told a witness to provide untruthful testimony to the grand jury regarding cash payments that Galante provided to Matthew Ianniello.  Romandi also told the witness to deny knowledge of cash that Romandi and another individual gave to Galante on a weekly basis, as well as fraudulent expenses claimed by Galante.  This cash was a payroll kickback that was a material fact in the Government’s tax investigation.  Thirty-three individuals were charged as a result of the investigation.  All have pleaded guilty.

Father and Son Sentenced for Their Roles in a Fraudulent Credit Card Debt Elimination Scheme

On February 27, 2009, in Columbus, Ohio, Dan Wickline and his son, Chad Wickline, were sentenced for their roles in operating a Canal Winchester-based company that fraudulently advertised it could eliminate people’s credit card debt.  Dan Wickline was sentenced to 18 months in prison. Chad Wickline was sentenced to 30 months in prison. The defendants were also ordered to pay restitution to victims and to pay all federal income taxes owed, plus interest and penalties.  According to court documents, the Wicklines sold customers a product through their company, Liberty Resources, that they guaranteed would eliminate customers’ credit card debt if they paid a fee ranging from a few hundred to several thousand dollars.  If the product was purchased, the customers received a document claiming that they were relieved from their credit card debt. The debt elimination product was based on what they claimed was a “loophole” in the banking laws.  Liberty Resources defrauded 450 victims out of more than $2 million between 2002 and 2006.

California CPA Involved in Massive Fraud Against Financial Institution is Sentenced to 30 Months in Federal Prison

On February 27, 2009, in Los Angeles, Calif., Richard Po-Chun Wong, a former CPA, was sentenced to 30 months in prison and ordered to pay full restitution for tax evasion and wire fraud. In his 2006 guilty plea, Wong admitted that he caused approximately $46 million in losses to HSBC Business Credit (USA) in several elaborate schemes. Wong prepared false financial documents for his clients and helped them fraudulently obtain credit lines. During the years 1998 through 2001, Wong prepared false financial documents for Nikko Importer, Inc., dba Wing Shing Food Company, a San Gabriel Valley Asian food wholesaler that was operated by Co Tro “Sammy” Lam. As part of this scheme, Wong “re-did” the books and records for Nikko in order to make the company look more profitable when it sought lines of credit from HSBC. After HSBC issued $9 million worth of credit lines to Nikko, Wong assisted Nikko in continuing the fraud by regularly completing false reports that were required to be submitted to HSBC on a bi-weekly basis. Wong instructed Lam to sign blank reports, which Wong completed with false information that caused HSBC to extend further credit advances. Nikko ultimately defaulted on the full $9 million credit line. Wong also admitted to failing to report nearly $1 million in income, including a $400,000 payment he received after fraudulently securing the credit lines for Nikko. At Wong’s request, he was paid the $400,000 fee using multiple fictitious companies to make a series of smaller payments. Wong omitted these payments and other sums from his tax returns. In total, Wong failed to report more than $900,000 on his tax returns, and he attempted to evade the payment of more than $370,000 in income taxes.

Four Georgia Residents Sentenced in $5 Million Diesel Fuel Tax Credit Scheme

On February 26, 2009, in Albany, Ga., four defendants were sentenced for their participation in a fraud scheme involving the filing of fraudulent claims for refund based on fictitious diesel fuel tax credits.  Clinton Hughes was sentenced to 48 months in prison and ordered to pay $3,969,831 in restitution to the Internal Revenue Service (IRS); Pamela Hughes received 33 months in prison and ordered to pay $3,969,831 in restitution; and Robin and Rodger Bennett were each sentenced to 12 months in prison and ordered to pay $219,459 in restitution.  All defendants pleaded guilty to conspiracy to file false claims with the government.  In addition, the Bennetts pleaded guilty to filing false tax returns with the Internal Revenue Service (IRS) for the years 2001, 2002, and 2003. Sole proprietors and businesses who purchase diesel fuel on which federal excise taxes have already been paid (known as “undyed fuel”), and then use that fuel in off-highway business equipment, qualify for a tax credit for the excise taxes paid.  According to court documents, the claims for refund in this investigation were fraudulent because the defendants did not purchase, nor did they use, the undyed fuel in their off-highway business equipment.  The scheme was lead by Clinton and Patricia Hughes, who prepared the tax returns which contained the false claims to the IRS beginning in 1998 through 2003.  Hughes allowed the co-conspirators, all of whom claimed to be associated with the logging industry, to supply Hughes with false fuel invoices and driving logs to document the fuel that was either never purchased or was never used in the reported businesses.  Rodger and Robin Bennett, owners of B Tree Service & Stump Removal, participated in the scheme by claiming fuel tax credits for fictitious businesses called B Logging and B&B Forestry & Chipping.  The total amount of fraudulent claims in the scheme was approximately $5,190,000.

Real Estate Agent and Two Others Sentenced To Prison for Role in Mortgage Fraud Scheme

On February 26, 2009, in Phoenix, Ariz., Micah Bowens, of Henderson, Nevada was sentenced to 48 months in prison for his conviction in July 2008 for leading a mortgage fraud scheme in Phoenix, San Diego and Las Vegas. Jennifer Sellers, a real estate agent, of Las Vegas, was sentenced to 24 months in prison on February 23, 2009 and Alonzo Love, of San Diego, was sentenced to 14 months on February 17, 2009. Bowens pleaded guilty to 23 counts, Sellers pleaded guilty to two counts and Love pleaded to one count all related to mortgage fraud, including mail and wire fraud, false loan applications, money laundering, conspiracy and other offenses related to the use of a social security number belonging to someone else, all as part of a 37-count indictment.  The indictment indicates the defendants participated in a five-year conspiracy involving the purchase of 19 properties and 10 vehicles using fraudulent loan documents. From May 2002 through May 2007, Bowens, Sellers and Love fraudulently submitted mortgage loan applications, on behalf of straw buyers, under false pretenses, obtaining and disbursing the proceeds of fraudulently obtained loans, including directing portions of the proceeds to bank accounts controlled by the defendants. As a real estate agent and loan originator, Sellers prepared the mortgage loan applications misrepresenting salary, assets and liabilities. Bowens, Sellers and Love further submitted to lending institutions fraudulent W-2s, bank statements and employment verifications to purchase real estate and vehicles. The trio used the proceeds from the fraud to live a lavish lifestyle including purchasing several expensive homes, luxury vehicles, jewelry and other personal expenses. Lending institutions lost approximately $2.5 million as a result of the conspiracy.

Owner of Valley Technology Services Sentenced to 15 Months in Prison for Tax Evasion

On February 23, 2009, in San Jose, Calif., Huy Quoc Nguyen was sentenced to 15 months in prison and ordered to pay $549,000 restitution, plus interest and penalties for tax evasion. Nguyen, owner of Valley Technology Services (VTS), pleaded guilty in November 2008, admitting in his plea agreement that during an IRS audit, he told a  revenue agent that his business checking account was used strictly for business and that he had used that account to prepare his Schedule C (Profit or loss from business) for his 2000 tax return. Nguyen told the revenue agent that all deposits made to the business checking account were due to business income and that all checks from that account were for business expenses. Later in the process of conducting the audit, the revenue agent noted that there was numerous non-business checks that did not reconcile to any of the expense categories stated on the Schedule C. Nguyen admitted that those checks were for personal and not business expenses. Nguyen further admitted that he knowingly failed to report gross receipts, ordinary income and interest income from VTS. He also improperly deducted non-business expenses as well as mortgage interest payments and real estate tax payments for property that he did not own. Nguyen admitted that the total amount of tax loss arising from his false 2000 and 2001 personal income tax returns was $549,000.

Former Consultant to Catholic Religious Order Sentenced to Additional Two Years for Perjury

On February 20, 2009, in St. Louis, Mo., William Davidson, a former consultant to a Catholic Church religious order already serving a ten year sentence for fraud, money laundering and tax evasion, was sentenced to another two years imprisonment for perjury. According to the indictment, Davidson lied in an affidavit saying he had no money in a financial institution when he had $480,000. Davidson was involved in computer and other business consulting for the Vincentians beginning in 1995. The Vincentians are formally known as the Congregation of the Mission, Midwest Province, which serves Missouri, Colorado, Illinois, Kansas and Kenya. Davidson, a resident of St. Louis County, pleaded guilty in May 2008 to one count of conspiracy to commit wire and mail fraud, one count of bank fraud, one count of money laundering and one count of tax evasion. He was sentenced to ten years imprisonment and also ordered to make restitutions to the Vincentians for more than $700,000 and to the Internal Revenue Service for more than $653,000.

Maine Woman Sentenced for Income Tax Evasion

On February 9, 2009, in Portland, Maine, Shirley St. Pierre was sentenced to 27 months imprisonment, to be followed by two years of supervised release, and ordered to pay a $75,000 fine and approximately $5,100 of costs incurred by the government in conducting her trial. St. Pierre was convicted by a trial jury in October 2008 of tax evasion for the year 2002 and attempting to obstruct an Internal Revenue Service (IRS) audit of her and her company, the Staab Agency. St. Pierre was the sole owner of the Staab Agency, a Jefferson business that acts as an agent for out of state businesses and individuals registering vehicles and truck trailers in the State of Maine. According to evidence introduced during trial, St. Pierre failed to report approximately $1.2 million dollars of business income during a three-year period from 2000 through 2002. This resulted in her underpayment of about $511,000 of federal income taxes. The government also presented evidence that during the IRS tax audit, which led to the criminal investigation and trial, false documentation was presented to the IRS in an effort to conceal the understatement of income. The jury convicted St. Pierre of tax evasion for the 2002 tax year, and an additional charge of obstructing the IRS. She was acquitted of two other tax evasion charges relating to the 2000 and 2001 tax years. St. Pierre has repaid all back taxes and interest.

Las Vegas Minister and Conspirator Sentenced in Tax Evasion Scheme

On February 6, 2009, in Las Vegas, Nev., Minister Michael Haynes and David Jett were sentenced to 37 months in prison and five years probation, respectively. Haynes and Jett were also ordered to pay restitution of $834,000 and $150,000, respectively, to the U.S. Treasury. In September 2008, a jury convicted Haynes for conspiring to evade taxes through a scheme involving the fraudulent sale of One Voice Technologies, Inc. stock. Jett pleaded guilty to conspiracy in March 2008. According to the indictment and evidence presented at trial, Haynes and Jett orchestrated the fraudulent sale of $7 million in One Voice stock. Haynes and Jett used at least 10 stock certificates to generate the $7 million in gross proceeds; all of these stock certificates were in different nominee names. As part of the scheme, new stock certificates in the name of One Voice were issued to at least five nominees, two of whom testified at trial. With the assistance of the transfer agent for One Voice, Haynes had the nominees sign documents that stated they had lost their original stock certificates and assigned their rights to the stock. According to court documents and evidence presented at trial, Haynes directed the $7 million in stock proceeds to be deposited in a nominee bank account at the Bank of Nova Scotia. At Haynes’ instruction, the proceeds were transferred via checks and wire transfers to U.S. bank accounts in his and Jett’s control.  Jett and Haynes then used funds obtained from the sale of One Voice stock for their personal benefit. Haynes failed to report the proceeds of the stock sale on his personal income taxes.

Underground Cabling Company Owners Sentenced to Prison for Filing a False Partnership Tax Return

On February 5, 2009, in Oklahoma City, Okla., James E. Newman, Quanah K. Newman, and Glenda J. Robertson were sentenced to prison terms of 12 months, five months, and five months, respectively, for submitting a false federal partnership income tax return. All three defendants are former owners of Terra Tech, LLC, a company that installed underground cables for utilities and other businesses. In July 2008, they all pleaded guilty admitting that they caused a 2002 partnership return to be filed with the IRS, knowing that $5.1 million reported as Terra Tech’s gross receipts was false. The crime involved the diversion of certain gross receipts of Terra Tech into personal bank accounts and the exclusion of those gross receipts from both the partnership tax returns and the defendants’ personal tax returns. Newman was also ordered to pay $117,785 in restitution to the IRS. He remains subject to penalties and interest that may be imposed by the IRS. 

Former Liberty, Missouri Pathologist Sentenced for Failing to File Tax Returns

On February 5, 2009, in Kansas City, Mo., Pathologist Miles J. Jones was sentenced to 18 months in prison, fined $20,000, and ordered to pay $79,225 in restitution to the IRS for failing to file federal income tax returns. Jones pleaded guilty in August 2008 to two violations of failing to file federal tax returns for tax years 2002 and 2003. Jones was a medical doctor with his own practice, Consultative and Diagnostic Pathology, during those years. Jones earned $267,800 in 2002 and $271,000 in 2003. The taxes due and owing on his unfiled 2002 return were $63,498 and the taxes due and owing on his 2003 tax returns was $10,231.

Four Participants in Mortgage Fraud Scheme Sentenced to Prison

On February 4, 2009, in Columbus, Ohio, four people were sentenced for their roles in schemes that fraudulently secured more than $2.6 million in mortgage loans in 2003, 2004 and 2005. Donald F. Green was sentenced to 36 months in prison, followed by five years of supervised release, and ordered to pay $1,282,514 in restitution to Stillwater Capital Partners and 23 victim banks, jointly with his co-conspirators, and ordered to pay $230,376 in restitution to the Internal Revenue Service (IRS). Green pleaded guilty in April 2008 to one count each of conspiracy, income tax evasion, and bank fraud. George T. Jordan was sentenced to 12 months and one day in prison, followed by three years of supervised release, 416 hours of community service, and ordered to pay $1,182,691 in restitution to ABN Amro. Jordan pleaded guilty in April 2008 to one count of conspiracy and one count of money laundering. Aryeh M. Schottenstein was sentenced to 42 months imprisonment, followed by three years of supervised release, 416 hours of community service, and ordered to pay $3,740,173 in restitution to the victim financial institutions. Schottenstein pleaded guilty in May 2008 to one count each of conspiracy and money laundering. Jeffrey M. Lieberman was sentenced to 16 months in prison, followed by three years of supervised release, and ordered to pay $400,000 in restitution to Stillwater Capital Partners. Lieberman pleaded guilty in April 2008 to one count each of conspiracy and money laundering. Jordan is a real estate agent who generated a mortgage fraud scheme, selling houses at inflated prices and splitting the excess funds received from the mortgage lender with his co-conspirator, Griffin. Schottenstein and Lieberman solicited funds from private investors interested in renovating houses in distressed neighborhoods. A substantial amount of those funds was used to purchase houses from Green, who owned hundreds of houses in distressed areas of Columbus, at prices well in excess of their true values. Griffin helped locate “straw buyers” for those houses and also received funds for renovation purposes.

Florida Man Sentenced to 9 Years in Prison in Foreign Currency Investment Scheme

On January 30, 2009, in West Palm Beach, Fla., Frank DeSantis was sentenced to 108 months in prison, followed by three years of supervised release. Restitution will be determined at a later date. DeSantis pleaded guilty in August 2008 to charges of conspiring to commit mail and wire fraud and conspiracy to defraud the Internal Revenue Service (IRS). During his plea, DeSantis admitted his participation in operating, and having a financial interest in, several investment and telemarketing rooms throughout South Florida. To execute the scheme, DeSantis made, and caused others to make, misrepresentations of material investment facts to potential investors, in order to convince them to invest in foreign currency options known as “forex.” For example, investors were told that they could expect to make high profits with very little risk. DeSantis and others deliberately failed to tell the investors that more than 95 percent had lost money and that DeSantis had been previously barred by the national Futures Association from acting as a broker. Through this scheme, investors were defrauded out of millions of dollars during 2002 through 2005. In addition, DeSantis conspired with others to impede and obstruct the IRS by failing to report, account, and pay approximately $2,097,326 in income taxes during tax years 2002 through 2005. 

Dallas Restaurant Owner Sentenced to 14 Months in Federal Prison on Fraud and False Statement Conviction

On January 29, 2009, in Dallas, Texas, restaurant owner Gricelda Ramirez was sentenced to 14 months in prison following her October 2008 guilty plea to one count of fraud and false statements. Ramirez has been in federal custody since surrendering to federal authorities in June 2008. She is a U.S. citizen, but according to a detention order entered in the case, since 2003, she has lived in Mexico with her husband, a Mexican citizen, and her two children, who attend school in Mexico. According to the factual resume filed in the case, Ramirez admitted that she omitted reporting approximately $560,000 in her business’s 2005 gross receipts on her 2005 personal income tax return. Ramirez admitted that in 2005, her restaurant business had gross receipts of $1,056,201, when in reality, her business had gross receipts of at least $1,614,740. As part of her plea agreement with the government, Ramirez paid $170,532 in restitution. This is the amount of federal income tax that was remaining due for the 2004 and 2005 tax years. According to court documents, including a complaint for forfeiture and a detention order, federal agents seized approximately $1.4 million from a residence in Dallas, as well as financial records concerning Gricelda Ramirez and Taqueria El Paisano during a narcotics investigation in 2006. As a result of the seizure, law enforcement began investigating Gricelda Ramirez’s restaurant. The investigation of the seized financial records revealed that approximately $1.8 million in currency was deposited into three bank accounts. Photographs and testimony provided by employees at the bank indicated that both Gricelda Ramirez and a relative made these deposits. During this time, no single deposit exceeding $10,000 was made to any of the three accounts. In August and September 2006, $1,023,990 was seized from the three bank accounts during the execution of federal search warrants. According to the complaint for forfeiture, federal income tax returns filed by Ramirez for 2002 - 2005, indicate that she operated Taqueria El Paisano as a sole proprietorship and had no other income than that derived from the restaurants. The complaint for forfeiture further states that the total net profits reported on her 2002 - 2005 returns do not explain the large amount of currency seized in the case.

Former Oklahoma State Auditor Sentenced to Prison for Conspiracy to Defraud the United States

On January 26, 2009, in Muskogee, Okla., former Oklahoma State Auditor Jeff McMahan and his wife, Lori McMahan, were sentenced to 97 months imprisonment and 78 months imprisonment, respectively. The McMahans were found guilty in June 2008 by a federal jury of conspiring with each other and with others, to engage in interstate travel in aid of racketeering and conspiracy to defraud the United States. The defendants received bribes and gratuities in exchange for favorable treatment by Jeff McMahan. During Jeff McMahan’s campaign for Oklahoma State Auditor, Jeff McMahan, Lori McMahan and others, on McMahan’s behalf, received cash, jewelry, other items of value and straw contributions which far exceeded the legal limits of allowed contributions.

Illinois Business Owner Sentenced on Child Pornography and Tax Evasion

On January 21, 2009 in Chicago, Ill, James Mecca, a Melrose Park, Illinois businessman, was sentenced to 23 months imprisonment, followed by two years of supervised release and ordered to pay $30,999 in restitution to the Internal Revenue Service (IRS). Mecca owned and operated Casino Magic, a business which distributed slot machines in the Chicago area. In October 2008, pursuant to a plea agreement, Mecca pleaded guilty to tax evasion and other federal charges. According to the plea agreement, Mecca admitted that from 1999 through 2005, he sought to evade reporting his income and evade the payment of taxes on his income from Casino Magic. To conceal his income from the IRS, Mecca engaged in cash sales, using his nephew's bank account to pay personal expenses and using ATM machines to make cash withdrawals. Mecca purposely kept his name and social security number from being listed on the Casino Magic business account and also used that account to pay his personal expenses.

Owner of Tractor Trailer Training School Sentenced to Prison for Tax Evasion and Illegal Firearm Possession

On January 27, 2009, in Hartford, Conn., Charles Donald Lane, of Danbury, was sentenced to 21 months in prison, followed by three years of supervised release, and ordered to pay $229,000 to the Internal Revenue Service (IRS) in back taxes plus interest. On June 4, 2008, Lane pleaded guilty to one count of tax evasion and one count of being a previously convicted felon in possession of a firearm.  According to court documents and statements made in court, Lane owned and operated D & L Tractor Trailer Training School (D&L), which offered instruction to students seeking to obtain their Class A or Class B truck drivers' licenses. D&L also provided practical training to students, and charged them tuition to attend the school. From 1999 to 2003, Lane devised a scheme to skim a substantial amount of D&L’s cash receipts and failed to report this income to the IRS. In order to carry out his scheme to skim cash from D&L, Lane instructed employees to solicit cash payments from prospective students offering discounts on tuition to those students willing to make payments in cash. To ensure that cash receipts were not reported to the IRS, Lane ordered his employees to turn over all cash payments directly to him.  He further directed them not to deposit any cash into the bank account of the business without his authorization. As a result of this conduct, for the tax years 1999 through 2003, Lane failed to pay approximately $154,860 in taxes to the IRS.

Connecticut Man Who Ran Multi-Million Dollar Ponzi Scheme Sentenced to Four Years in Prison

On January 26, 2009, in New Haven, Conn., Dale L. Graybill was sentenced to 48 months in prison, followed by three years of supervised release, and ordered to pay $10,672,876 in restitution to the victims of his scheme and $93,293 to the Internal Revenue Service (IRS). As of this date, the court-appointed receiver has collected approximately $817,000 in funds that will be distributed to victims of Graybill's multi-million dollar Ponzi scheme in which he solicited funds for fictitious investment programs. According to court documents and statements made in court, Graybill falsely represented to investors that he had special access to exclusive, government-backed trading programs that were originally opened only to the very wealthy. Graybill held meetings at his former residence in Branford and solicited potential investors to invest in “trading programs.” He told investors that he would place their investment funds in safe, exclusive, offshore, high-yield bank debenture “trading programs” that would produce greater than market rates of returns of up to 25 percent per month at little or no risk. Graybill further told investors that their funds would be used to facilitate the purchase and sale of newly issued currency and fresh-cut bank debentures at a discount, and that the financial instruments would be sold at a substantial profit, which would generate high returns. However, after receiving the funds from investors, Graybill would divert the funds for his own personal use and benefit, including paying business expenses and making lulling payments to earlier investors. On June 15, 2005, Graybill pleaded guilty to one count of mail fraud and one count of making and subscribing a false 2002 tax return. Graybill failed to declare the funds he received from the Ponzi scheme as income on his tax return, resulting in a tax loss of $93,293 for the 2002 tax year.

California Businessman Sentenced For Filing False Tax Returns

On January 26, 2009, in Fresno, Calif., Michael Ray Gorden was sentenced to 15 months in prison for his conviction on one count of conspiring to defraud the United States and two counts of making and subscribing to false tax returns. He pleaded guilty in August 2008. Gorden, president and sole shareholder of Mike Gorden Software Solutions, Inc. (MGSS), caused MGSS to pay at least $339,792 of his personal expenses between 2001 and 2005. He then falsely concealed the true nature of the expenses and deducted them as business expenses on MGSS’s U.S. Corporation Income Tax Returns (Form 1120s) for tax years ending June 2002, June 2003, and June 2004. In addition, Gorden failed to disclose at least $266,454 in disguised personal income that was intentionally omitted from the income reported on his U.S. Individual Income Tax Returns (Form 1040s) for tax years 2001 through 2004, and thereby caused MGSS’s corporate income tax for the corporate tax years ending June 2002, June 2003, and June 2004 to be under-reported by at least $93,770. This also caused his individual income tax for tax years 2001 through 2004 to be under-reported by at least $117,525. Before his guilty plea, Gorden repaid approximately $500,000 to the IRS, consisting of restitution to the United States in the amount of $211,295, plus additional taxes, penalties, and interest due and owing based on the IRS’s civil audit of his tax returns for the 2001 through 2004 tax years.

Former New York Power Authority Employee Sentenced to 37 Months in Jail for Bribery and Fraud Scheme

On January 23, 2009, in Brooklyn, N.Y., Edward P. Goldblatt, a former employee of the New York Power Authority (NYPA), was sentenced to 37 months in prison and ordered to pay $253,836 in restitution and to pay a $5,000 criminal fine for his role in a kickback and bribery scheme. Goldblatt pleaded guilty on August 26, 2008, to conspiring to defraud NYPA in a bribery scheme where he accepted $167,000 in kickback payments from a vendor. Goldblatt also caused NYPA to pay approximately $86,000 in fraudulent overcharges. In addition, Goldblatt pleaded guilty to income tax evasion for failing to report as income any of the kickbacks that he received for the years 2005 through 2007. NYPA is a nonprofit energy corporation established by New York State for the public benefit of the citizens of New York by providing low-cost power to government agencies, municipalities and private entities. NYPA finances its projects through bond sales to private investors and does not use tax revenue or state credit. According to court documents, Goldblatt was responsible for purchasing and awarding contracts for millions of dollars in goods and services annually for NYPA’s plants and offices. In addition, Goldblatt was responsible for issuing purchase orders, reviewing and authorizing vendor invoices for payment, and monitoring warehouse stock levels. NYPA’s policies and procedures include a competitive bidding policy to which Goldblatt was expected to adhere.

Texas Couple Sentenced for Identity Theft and Filing False Tax Returns

On January 22, 2009, in Dallas, Texas, Levander Carlton McLean, and his wife, Rita Murphy McLean, of Garland, Texas, were sentenced to 60 months in prison and 51 months in prison, respectively, for conspiracy to unlawfully use identification documents and filing false tax returns. The McLeans were also ordered to pay $208,600 in restitution. According to court documents, in July 2001, Levander and Rita Murphy McLean convinced their nephew, a Texas Department of Public Safety driver’s license technician, to provide a fraudulent Texas driver's license and a Texas identification card in the names of two innocent people living in North Carolina and South Carolina. The McLeans used these identification documents, as well as a fraudulent Michigan driver's license that Rita McLean obtained in the name of an innocent Texas resident, to open several fraudulent bank accounts in Dallas, Michigan, and North Carolina. From 2002 through 2004, the McLeans deposited more than $200,000 in proceeds from more than 130 false federal income tax returns, which had been filed in the names of real taxpayers using stolen W-2s, into these fraudulent accounts. The couple was convicted at trial in September 2008.

Former City of Newark Technology Contractor Gets 60 Months for Defrauding Cisco Systems of Millions of Dollars

On January 20, 2009, in Newark, N.J., Michael Kyereme, aka Michael Appiahkyeremeh, a former information technology contractor for the city of Newark, was sentenced to 60 months in prison and ordered to pay $3,689,280 in restitution to Cisco Systems, Inc.  Kyereme pleaded guilty on July 2, 2008, to charges of mail fraud and tax evasion.  According to court documents, Kyereme fraudulently obtained Cisco replacement computer parts which he resold for millions of dollars. According to the Information to which he pleaded guilty, Kyereme, an independent contractor hired to provide information technology support to Newark, was responsible for assisting Newark employees when computer problems arose that required technical support. If it was determined that a computer-related problem could not be solved without outside assistance or a replacement part, Kyereme was authorized to contact Cisco Systems, Inc. for technical assistance and, if necessary, to request replacement parts. Kyereme admitted that between about August 28, 2002, and about March 2, 2007, he fraudulently requested and received Cisco replacement parts, after falsely claiming that certain components in Newark’s computer system had failed. Kyereme then resold them to a third party in California and kept the proceeds. Kyereme further admitted that on or about April 15, 2007, he filed a fraudulent personal tax return, with the IRS, which stated that his taxable income for the calendar year 2006 was approximately $81,494 and claiming a refund of approximately $4,034. In fact, Kyereme admitted, that tax return failed to include approximately $1,242,483 in additional taxable income. He admitted that an additional tax of approximately $429,826 was due the United States. In addition, Kyereme also admitted that his personal income tax returns for 2003, 2004 and 2005 also understated the amount of taxable income he received for those calendar years. Kyereme admitted that for tax years 2003 through 2006, a total additional tax of approximately $669,234 was due the United States.

Maryland Man Sentenced for Fraudulently Claiming $647,060 in Fuel Tax Credits

On January 16, 2009, in Greenbelt, Md., James Hallmon, of Ft. Washington, Maryland, was sentenced to 21 months in prison, followed by three years of supervised release, and ordered to pay $343,967 in restitution. Hallmon pleaded guilty in September 2008 to charges of mail fraud and filing a false claim with the Internal Revenue Service (IRS).   According to his plea agreement, for the tax years 2005, 2006 and 2007, Hallmon filed federal corporate tax returns in the names of J&J Masonry, Inc.; Big J Trucking, Inc.; Big Jim Trucking, Inc.; Sunshine Trucking, Inc.; Black Alley Trucking, Inc.; Hallmon 1 Construction; Hallmon 33 Transport; and HHTTL Freight Trucking; in which he fraudulently claimed a total of $647,060 in fuel tax credits. Neither Hallmon nor any corporation owned by him purchased any fuel on which the tax refund claims were based.

Michigan’s U.S. Signal, Inc. Director of Operations Sentenced to Prison for Scheme

On January 13, 2009, in Grand Rapids, Mich., Timothy Hall, director of operations for U.S. Signal, Inc., was sentenced to 46 months in prison and ordered to pay $4.7 million in restitution to U.S. Signal and $192,000 to the Internal Revenue Service (IRS). Hall pleaded guilty in August 2008 to mail fraud and filing a false tax return. According to court records, Hall, along with Barry Raterink, of Middleville, Michigan, and Douglas Lautenbach, of Caledonia, Michigan, were part owners of Turnkey Network Solutions, Inc. They participated in a scheme to illegally sell property stolen from U.S. Signal, Inc. and submitted false construction and maintenance billing invoices from Turnkey Network Solutions, Inc., to U.S. Signal, Inc. The maintenance work was not being performed and the contract prices for the construction work were artificially inflated by using Hall’s “insider” knowledge within U.S. Signal, Inc. Hall was instrumental in these schemes, as he was in a fiduciary position with U.S. Signal to provide final approval on the fraudulent contracts provided by Turnkey Network Solutions. The fraudulent schemes caused U.S. Signal to lose more than $4.7 million. Also, according to court records, Hall filed a false 2006 tax return, on which he omitted over $210,000 in taxable income. On January 6, 2009, Raterink was sentenced to 60 months imprisonment and ordered to pay $4.88 million in restitution with over $200,000 of it to be paid first to the IRS. Lautenbach pleaded guilty in August 2008, to mail fraud and filing a false tax return. He is scheduled to be sentenced in late January 2009.

Nursing “Temp” Agency President Sentenced to 18 Months for Filing False Tax Returns

On January 9, 2009, in San Francisco, Calif., Digna Roldan Garrett was sentenced to 18 months in prison and ordered to pay a $4,000 fine and $138,784 in restitution for filing false tax returns. Garrett pleaded guilty in October 2008 to five counts of filing a false tax return. According to her plea agreement, Garrett admitted that as president of Friendly Available Service Today (FAST) Corporation, a nursing “temp” agency, since 1993, she under-reported $1.1 million in corporate gross receipts. A tax audit of Garrett’s corporate tax returns revealed that Garrett treated some of her employees as contractors to avoid the related payroll taxes. In an attempt to hide the payments to employees, Garrett altered corporate ledgers and cancelled checks and presented the altered documents to an IRS revenue agent. As a result of the audit, Garrett amended her 2002 and 2003 corporate tax returns, but continued to hide income from the IRS. She deposited cash and checks from clients into her personal bank accounts. With some of the money she diverted from the company, she purchased luxury items such as an automobile, purses, shoes, clothes and trips to Las Vegas, Nevada and the Philippines. Most of the diverted funds were used to pay employees under-the-table.

Indiana Man Sentenced to Prison for $221,000 Income Tax Fraud

On January 6, 2009, in Muncie, Ind., Steven R. Kreps was sentenced to 24 months imprisonment, ordered to file and pay his taxes, and fined $10,000 for filing false federal income tax returns. Kreps, owner and operator of Best Heating and Cooling (“Best”), pleaded guilty to the charges earlier. According to court documents, he admitted to preparing false Forms W-2, purported to have been issued to him from Best and submitting the fraudulent Forms W-2 to his tax return preparer for use in preparing his income tax returns. The false W-2s reported employee wages and income tax withholdings regarding Kreps that were not actually paid and withheld. As the owner of Best, Kreps was not an “employee.” During the same time, Kreps also prepared false Forms W-2 for four other individuals employed by Best, which also purported to have been issued from Best. The false Forms W-2 reported inflated wages and federal income tax withholding. Kreps prepared written draft income tax returns for each of these individuals using the false Forms W-2. Kreps then accompanied three of these individuals when they had their returns prepared. Kreps referred the fourth individual to H&R Block for return preparation. The false Forms W-2 were used by the tax preparers to prepare the income tax returns. Kreps received kickbacks from these individuals by charging them a portion of their falsely inflated tax refunds for his services.

Ohio Accountant Sentenced on Filing False Returns

On December 19, 2008, in Cleveland, Ohio, Paul E. Sabatino was sentenced to 18 months in prison, followed by three years of supervised release.  Conditions of the supervised release include performing 150 hours of community service, continuing to participate in out-patient treatment for his gambling addiction, and cooperating with the Internal Revenue Service (IRS) in the determination and payment of his taxes.  According to court documents, during 2002 through 2005, Sabatino embezzled approximately $1,676,247 from a client of the CPA firm where he worked as an accountant, by causing checks to be written for his benefit and use on a bank account of the client. During that period Sabatino incurred gambling losses exceeding the amount of the embezzlement and he used most of the embezzled funds directly to pay his gambling expenses. During the years 2002 through 2004, Sabatino deposited approximately $1,184,029 of the embezzled funds into a bank account he maintained in the name of a non-existent landscaping business, Northcoast Landscape Design. He reported only $228,200 of those funds on his tax returns, by showing them as Schedule C business receipts of the purported landscaping business. Starting in May 2005, Sabatino began laundering the embezzled funds by providing checks to his friend, Jonathan S. Solonche, either payable to Solonche or payable to a defunct business of Solonche’s. At Sabatino’s direction, Solonche deposited the checks and provided most of the deposited funds back to Sabatino, keeping approximately $37,517 for his own use. Solonche was sentenced on July 14, 2008, to two years probation and ordered to make restitution to the IRS.

Former Owner of Sign Company in Dallas Sentenced To Federal Prison on Tax Conviction

On December 18, 2008, in Dallas, Texas, Dong Choi Kim, the former president of Giant Sign Corporation, was sentenced to 12 months and one day in prison for making a false statement on an income tax return.  According to the factual resume filed in Court, from 2001 through 2003, Kim would use check cashing stores to cash customers’ checks in order to obtain cash and convert it to his own use, omitting proceeds from the reported gross receipts of his business. As a result of this scheme, Kim was able to avoid the full payment of his taxes based on the true total income derived from his sign business for calendar years 2001, 2002 and 2003, resulting in total taxes due and owing of $81,181.

California Man Sentenced to Prison for Tax and Firearms Violations

On December 18, 2008, in Los Angeles, Calif., Guy Richard Moore was sentenced to 12 months and one day in prison, to be followed by three years of supervised release, and ordered to pay $400,000 in restitution to the Internal Revenue Service (IRS) and a $6,000 fine.  According to court papers, Moore failed to report on his 2001 Form 1040 over $543,000 in taxable income he received from a family investment which resulted in a tax due of approximately $217,000.  Court papers detailed that Moore agreed that he owed the IRS a total of approximately $400,000 in tax for the years 1999 through 2002.  The tax owed by Moore was based upon over $1.2 million in income Moore failed to report to the IRS on his 1999 through 2002 tax returns.  In addition to the tax charge, Moore pleaded guilty to being a previously convicted felon in possession of a firearm. 

Former Director of Archives of the Mariners' Museum and His Wife are Sentenced

On December 17, 2008, in Newport News, Va., Lester F. Weber and his wife, Lori E. Childs, were sentenced for their roles in a scheme related to the theft and subsequent sale of property from The Mariners’ Museum in Newport News, Virginia.  The Mariners’ Museum, which receives annual federal funding, collects, preserves and displays maritime related objects and documents.  Weber was sentenced to 48 months in prison, followed by three years of supervised release, and ordered to pay $172,357 in restitution.  Childs received 15 months in prison.  Weber pleaded guilty on June 10, 2008 to mail fraud, making and subscribing a false tax return, and theft from an organization receiving federal funds.  Lori E. Childs pleaded guilty on September 4, 2008, to making and subscribing a false tax return for the 2005 tax year.  According to court documents and proceedings, Weber was employed by The Mariners’ Museum as an archivist from 2000 through September 2006.  Weber was promoted to Director of Archives in March 2006.  In such capacity, Weber had archival and custodial duties for various types of historical nautical materials, including brochures, documents and pictures.  From approximately 2002 through September 2006, Weber and Childs, operated a home based business that sold approximately $172,357 in maritime merchandise and other collectible items on the eBay auction website.  Weber and Childs received the proceeds of the eBay sales by check, PayPal transfer, money order and Western Union; however, they failed to list on tax returns any of the receipts earned through the sale of items on the eBay website.

Texas Man Sentenced for Defrauding Hundreds of Victims in Investment Scheme and for Filing a False Tax Return; Ordered to Pay Approximately $2.6 Million Restitution

On December 17, 2008, in Dallas, Texas, Ronald Keith Owens, of Mineral Wells, Texas, was sentenced to 63 months in prison and ordered to pay a total of $2,582,376 in restitution to the hundreds of victims of his crime.  In addition, once (if) that is paid off, Owens must pay $550,304 to the Internal Revenue Service (IRS).  Owens operated an investment business known as Executive Investors, Inc. (EII), which was also known as Newlife Trade Group (NTG).  According to court documents, through EII, NTG, and individually, Owens solicited money from individuals throughout the U.S. to invest in offshore “Bank Credit Instrument Trading,” supposedly located in Nassau, Bahamas, Germany and Switzerland; however, those financial instruments did not exist.  Owens ran his scheme from approximately March 2000 through September 2007.  As part of the scheme, he created promotional literature for buying and selling bank credit instruments that fraudulently reflected high investment returns, such as a 30% monthly return, with 10% of the return paid each month with the remaining 20% added to the principal investment and compounded.   He also promoted investments in the offshore programs through group leaders who recruited investors and formed joint ventures to make investments.  To keep his scheme going, he created and sent more than 200 lulling emails to investors about his supposed efforts to liquidate investments in foreign bank credit instruments and return principle and interest amounts to investors, well knowing the emails contained false information.  As a result of Owens’ scheme, investors lost a total $2,471,267.  Owens also admitted that he filed a false income tax return in 2003, reporting that he had $107,877 of gross income in 2002 when in fact he had approximately $1,142,322.

Arizona Businessman Sentenced to 18 Months in Prison for Filing a False Tax Return

December 15, 2008, in Phoenix, Ariz., Thomas Rikki Farr, of Scottsdale, Ariz., was sentenced to 18 months in prison for willfully filing a false income tax return. Farr will also be placed on one year of supervised release upon his release from federal custody.  When Farr pleaded guilty in June 2008, he acknowledged that on his 2004 U.S. Individual Income Tax Return he reported $3,820 for total income when in fact he had received $743,346 in additional commission income from his association with Zylux Acoustic, Hong Kong, China. Farr also acknowledged that during 2005, he received $385,356 in additional commission income from his association with Zylux Acoustic which should have been reported on his 2005 U.S. Individual Income Tax Return.

Investment Fraud Scheme Promoter Sentenced to 6 ½ Years in Federal Prison

On December 15, 2008, in Los Angeles, Calif., Deandre Marcel Lawrence, the owner of American Growth fund LLC, was sentenced to 78 months in prison, three years of supervised release, and ordered to pay $1,826,971 in restitution for wire fraud and structuring of cash transactions related to his scheme that defrauded a victim- investor out of approximately $1.8 million.  According to court papers, Lawrence admitted that he contacted his victim-investor and falsely represented that he was an investment advisor.  Beginning in late 2002 and continuing into 2007, Lawrence induced his victim to send him money by telling her that he had successfully invested her money and had already earned large profits when he had not done so.  Lawrence made many false representations to his victim, including claiming that he had been a licensed Wall Street stock broker and that he had over 100 clients investing with him.  Further, Lawrence misrepresented to his victim that he had made over $100 million in profits investing her money when, in truth, Lawrence used virtually all of the money he received from the victim for personal purposes, including gambling in casinos. In an effort to avoid the cash transaction reporting requirements that banks are required to follow, Lawrence structured cash withdrawals, in amounts less than $10,000, from the American Growth Fund LLC bank account he controlled.  Specifically, in September 2007, Lawrence structured a series of cash withdrawals to avoid these transaction reporting requirements.  Lawrence admitted that he withdrew virtually all of his victim’s money sent to him in a similar fashion from the American Growth Fund LLC account.

Maryland Home Improvement Contractor Sentenced for Tax Evasion; Failed to Report More Than $1.4 Million

On December 15, 2008, in Greenbelt, Md., Jeffrey Sarris, of Bethesda, Maryland, was sentenced to 12 months and one day in prison, to be followed by three years of supervised release, for tax evasion.  According to his plea agreement, since 2000, Sarris operated Bethesda Home Improvement Corporation (BHIC), a home improvement/contracting company.  Sarris cashed BHIC customers’ payment checks at a restaurant in Rockville, Maryland, negotiating more than $884,000 in checks in 2002, more than $957,000 in 2003 and more than $1,246,000 in 2004.  Sarris saved large amounts of cash in a safe deposit box and did not maintain a personal bank account.  Sarris frequently used cash in the day-to-day business activities of BHIC, including paying employees in cash, using cash to pay all or a portion of subcontractors’ bills, to purchase building materials from suppliers, and to reimburse his family for obtaining credit for BHIC.  Court documents indicate that Sarris failed to file individual income tax returns for 1994, 1995 and 1997 through 2003 and failed to file employment tax forms for BHIC until 2002.  Sarris did not respond to IRS notices of tax delinquencies and deficiencies relating to his personal and business employment tax returns from 1988 through 2003.  In May 2005, during an interview with an IRS Revenue Agent, Sarris made several false statements, including denying that he had accumulated cash savings, denying cashing checks at the restaurant in Rockville, and claiming that he deposited all checks into his business bank account.  After meeting with the IRS, on September 19, 2005, Sarris removed the cash from his safe deposit box and purchased checks, which he used to pay $900,000 of his personal and BHIC’s employment tax liabilities (including interest and penalties on both) and an estimated tax payment for 2005. Sarris admitted that for the years 2000 through 2004, he failed to report $1,424,754 in income and was responsible for a total tax loss of $981,549.

Former Chief Financial Officer of Catholic Diocese of Cleveland Sentenced for Tax Crimes

On December 11, 2008, in Cleveland, Ohio, Joseph H. Smith, a CPA and attorney, was sentenced to 12 months and a day in prison for his participation in a scheme to defraud the Internal Revenue Service (IRS). Following a six-week trial, a jury in Cleveland convicted Smith of one count of conspiracy to defraud the United States and IRS, four counts of filing false tax returns, and one count of corruptly endeavoring to impede the IRS. According to court documents and evidence presented at trial, Smith was the treasurer, chief financial officer, and eventually the financial and legal secretary for the Catholic Diocese of Cleveland. Co-conspirator Anton Zgoznik, a former diocese employee, owned and operated several corporations that provided accounting, tax, financial and computer technology services for the diocese on an outsourced basis. During trial, it was shown that Smith and Zgoznik entered into a scheme to defraud the IRS. Entities that Zgoznik owned and controlled paid Smith more than $784,000 from 1997 to 2003. Smith and Zgoznik disguised these payments as compensation earned for "consulting" or "legal" services that Smith purportedly provided for the Zgoznik entities. Smith failed to report, and improperly reported, a portion of the payments on his income tax returns. In addition, Smith received $270,000 of unreported income from the diocese by means of two checks in 1996 and 1997, which were deposited into a brokerage account he controlled in the name and tax identification number of the diocese. Evidence at trial established that Smith also failed to report dividends and capital gains he earned on the investments in that account. Zgoznik was convicted, in October 2007, in a separate trial on counts of conspiracy to commit mail fraud and mail fraud (related to a scheme to defraud the Diocese of Cleveland), the corrupt endeavor charge described above, and four counts of aiding and assisting in the preparation of a false return. A sentencing date for Zgoznik has not yet been set.

Nebraska Business Owner Sentenced for Avoiding Cash Reporting Transactions

On December 10, 2008, in Omaha, Neb., David E. Wortman was sentenced to 30 months imprisonment, ordered to pay $200,903 in restitution and to forfeit $236,728 for harboring illegal aliens and structuring financial transactions to evade currency reporting requirements. Wortman, who owned Cloudburst Underground Sprinkler Systems, admitted to hiring undocumented workers who were unlawfully present in the United States. He also admitted in his plea agreement to cashing customer checks written to his company in such a way as to avoid triggering federal cash transaction reporting requirements. Wortman cashed groups of customer checks, ranging in number from 22 checks to 108 checks, in amounts always totaling more than $9,000 but never more than $10,000. Wortman used cash to pay his undocumented workers and paid his documented employees with check.

Maui Real Estate Agent/Broker Sentenced for Tax Offenses

On December 8, 2008, in Honolulu, Hawaii, Bruce Robert Travis was sentenced to 24 months in prison for obstructing and impeding the lawful administration of the tax laws by the Internal Revenue Service (IRS) and filing a false amended federal individual income tax return for the calendar year 2000. Travis, a Kihei, Maui resident, was also ordered to pay $14.958 in restitution to the IRS, as well as $17,828 for the costs of prosecution and a $5,000 fine.  According to the July 2007 Indictment, Travis, who worked as a real estate agent and broker, conducted his real estate business on Maui through Americorp International Limited, incorporated in the State of Hawaii, for which Travis was the owner, president, treasurer and director before its dissolution around 2004. Also around 2004, Travis became president, partner and manager of Americorp International LLC, through which he continued to conduct his real estate business.  The indictment states that Travis signed and filed Form 1040 tax returns for 2003 and 2004 wherein he falsely claimed charitable deductions for payments he made to two entities belonging to or operated by Royal Lamarr Hardy, who was convicted of tax crimes in 2005 in Honolulu.  According to the plea agreement, Travis, while an IRS audit of him was ongoing, also signed and filed false amended individual income tax returns wherein he improperly claimed itemized deductions equal to the adjusted gross income he previously reported on his original Form 1040 tax returns. As a result, Travis falsely claimed that he owed no income taxes for each of the years under audit; which were 1996 through 2000.  Beginning around March 2004, he sought and obtained a fraudulent arbitration award from the Western Arbitration Council in the amount of $300,000 against both the IRS and the IRS employee who conducted the aforementioned audit. Travis obtained the fraudulent arbitration award in an attempt to hinder IRS collection efforts.  Travis’ sentence was based on information produced for the court that the tax loss to the United States for the years 1996 through 2004, without any interest or penalties, totaled over $400,000.

North Dakota Attorney Sentenced for Tax Evasion & Mail Fraud

On December 8, 2008, in Bismarck, N.D., Douglas D. Sletten was sentenced to 41 months in prison and ordered to pay $614,247 in restitution for income tax evasion and mail fraud. In his August 2008 plea agreement, Sletten admitted that he failed to file tax returns in 2005, 2006 and 2007, and that he owed more than $70,000 in unpaid taxes. In addition, Sletten raided his law office’s trust account to pay for daily living expenses, college tuition for his children, travel, and other personal expenses. Sletten mailed letters containing false and misleading information to his clients, whose funds were deposited in the trust account, which resulted in the mail fraud charge.

California Man Sentenced To Prison for Tax Evasion and Ordered to Pay $311,587 in Back Taxes

On December 8, 2008, in Oakland, Calif., Richard Wayne Cutshall was sentenced to 12 months and 1 day in prison and ordered to pay restitution of $311,587 for income tax evasion. Cutshall pleaded guilty on June 25 to two counts of tax evasion and admitted in his plea agreement he intentionally did not file tax returns on income he received as an independent consultant/contractor for General Automation (GA Express) in Irvine, Calif. To hide his income and assets from the IRS, Cutshall arranged for his compensation to be paid to “LVR Holdings,” a limited liability company. Some of the cashier’s checks were deposited into a bank account held by LVR Holdings, which he and his wife had control over. Cutshall failed to report receipts of $1,467,290 and thereby evaded tax due and owing of $311,587.

Las Vegas Lawyer Sentenced to 15 Months in Prison for Tax Evasion

On December 1, 2008, in Las Vegas, Nev., Attorney Mark A. Lobello was sentenced to 15 months in prison and ordered to pay $141,667 in restitution to the Internal Revenue Service (IRS) for tax evasion and willfully failing to file federal income tax returns. Lobello was indicted in November 2006 and later pleaded guilty to failing to pay taxes for five years. According to court filings, Lobello earned more than $600,000 in income between the years 1997 and 2001, but willfully failed to file federal income tax returns or pay any federal income taxes for the those years, even though he owed the IRS over $140,000. Lobello also attempted to conceal his income from the IRS by dealing in cash; mixing business funds with personal funds; using multiple taxpayer identification numbers; holding assets in the names of nominees; filing frivolous motions to quash IRS requests for his records; and demanding that clients withdraw IRS paperwork indicating he had earned taxable income.

Florida Man Sentenced to Three Year Prison Term for Failing to Report $1.6 Million in Internet Pharmacy Income

On November 25, 2008, in Cedar Rapids, Iowa, Alexis Avello, of Coral Gables, Florida, was sentenced to 36 months in prison and ordered to pay $558,566 in restitution to the Internal Revenue Service (IRS) for failing to report more than $1.6 million in income. Avello, an officer of an Internet pharmacy business, pleaded guilty on June 6, 2008. At his plea hearing, Avello admitted he falsely filed a federal income tax return in 2005 in which he claimed his taxable income for 2004 was $5,929 when his actually income was really $1.66 million. Avello agreed as part of the plea agreement to litigate the civil forfeiture of more than $3.8 million he received from Pharmacom, an Internet pharmacy business for which he was a corporate officer until early 2004.

Owner of California Supper Club Sentenced to 46 Months for Tax Fraud

On November 21, 2008, in Santa Ana, Calif., Rene Boudewijn Kohler was sentenced to 46 months in prison, to be followed by one year of supervised release.  According to court documents, Kohler was the owner of Ozz Supper Club bar and restaurant in Buena Park, California from 1990 to 2005.  He was convicted in May 2008 by a trial jury on five counts of submitting false tax returns to the Internal Revenue Service (IRS), for tax years 1999 through 2003.  Kohler failed to report over $2 million in cash revenues generated by the door fee Ozz Supper Club charged patrons to enter the premises.  According to court documents, Kohler maintained records of the daily revenues generated by Ozz Supper Club that included the door fees.  According to Kohler’s bookkeeper, monthly income ledgers were prepared that contained, among other things, a column that detailed the door income.  At Kohler’s request, monthly profit and loss statements were prepared that also reflected the door income.  In addition to preparing the profit and loss statements that showed the door income, Kohler also asked his bookkeeper to prepare year-end profit and loss statements that left blank the door income figure.  Kohler provided his tax preparer the profit and loss statements that did not include the door income. 

Seven Defendants Sentenced to Prison for Filing Fraudulent Claims for Fuel Tax Credits

On November 21, 2008, in Valdosta, Ga., the United States Attorney announced that seven defendants were sentenced for defrauding the Internal Revenue Service (IRS).  The defendants participated in a fraud scheme involving the filing of fraudulent claims for refund based on fictitious diesel fuel tax credits.  When businesses purchase diesel fuel on which federal excise taxes have already been paid (known as “undyed fuel”) and use that fuel in off-highway business equipment, the businesses qualify for a tax credit for the excises taxes paid.  However, the claims for refund in this investigation were fraudulent because the defendants did not purchase, nor did they use, the undyed fuel in their off-highway business equipment.  The seven defendants sentenced were collectively responsible for fraudulent claims for federal income tax refunds totaling $3,214,231.  The defendants were sentenced as follows:

• Dana K. Swain was sentenced to 36 months in prison, three years of supervised release, and ordered to pay $1,597,809 in restitution.
• Mason E. Coddington was sentenced to 24 months in prison, three years of supervised release, and ordered to pay $414,440 in restitution.  
• Misty Kelly Linn was sentenced to five months in prison, five months of home confinement, three years of supervised release, and ordered to pay $118,356 in restitution.
• Lonnie Cason was sentenced to twelve months of home confinement, five years probation and ordered to pay $460,218 in restitution.
• Rev. Marvin W. Swain was sentenced to one year home confinement, five years probation, and ordered to pay $309,835 in restitution. 
• Linda Cason was sentenced to six months home confinement, five years of probation, ordered to pay $349,023 in restitution.
• Rachel K. Swain was sentenced to five months in prison, five months home confinement, one year of supervised release and ordered to pay $528,284 in restitution.

The defendants filed the false claims with the IRS through the tax preparation services of Clinton Basil Hughes and Pamela Hughes who are currently awaiting sentencing. 

Louisiana Man Sentenced for Tax Fraud

On November 20, 2008, in New Orleans, La., Alvin Gautreaux, Jr., a resident of Hammond, Louisiana, was sentenced to 15 months in prison, to be followed by three years of supervised release, and ordered to pay $73,565 to the Internal Revenue Service (IRS). According to court documents, Gautreaux admitted that on his 2003 tax return, he claimed that he had an overpaid tax withheld and was entitled to a refund. To substantiate this overpayment, Gautreaux admitted that he prepared a false Form W-2 which was submitted along with his tax return to the IRS.

Two Men Sentenced in $32 Million Scam that Bilked more than 500 Victims

On November 19, 2008, in Los Angeles, Calif., Pastor Robert Jennings was sentenced to 12 years in prison for his role in an investment scam that led more than 500 victims to lose over $28 million after being told they could make money in coal mines and a gold transaction. A second man involved in the scheme, Arthur Simburg, of Portland, Oregon, was sentenced on November 17, 2008, to nine years in federal prison. The two were ordered to pay $28 million in restitution. While the scheme collected more than $32 million, some of the money was returned to investors as part of the Ponzi scheme. A third defendant involved in the plot, Henry Jones, a record company executive, will be sentenced at a later date. Jennings was found guilty in July following a three-week jury trial. The evidence at trial showed that Jones, Simburg and Jennings solicited investors for a coal mine venture and an alleged international gold transaction that purportedly involved the sale of 20,000 tons of gold between Israel and the United Arab Emirates. They duped investors largely through nightly conference calls in which investors were promised huge rates of return on their investments – as much as 300 percent within 60 days. Most of the conference calls included group prayer, during which investors were told that the gold transaction was “divinely inspired” and that it was God’s will for it to come to fruition. Jones spent more than $21 million of the victims’ money on his own extravagant personal expenses and to fund his music business.

Minnesota Man Sentenced for Defrauding Elderly Couple

On November 12, 2008, in Minneapolis, Minn., Joseph William Hughes was sentenced to 46 months in prison and ordered to pay $456,970 in restitution to a financial services company for his role in a scheme to defraud and obtain money and property from an elderly and vulnerable Elkton, Minn. couple. Hughes was indicted on April 23 and pleaded guilty on July 8 to one count of mail fraud and one count of tax evasion. According to his plea agreement, from May 2004 through December 2006, Hughes was a registered representative of financial services company, AXA Advisors LLC. AXA sold insurance and investment products, and retirement planning services. An elderly couple became clients in June 2005 after the husband suffered a stroke that impaired his ability to manage the family’s finances. After the stroke, the couple provided more than $400,000 to Hughes for investment in AXA investment accounts. In June 2005, Hughes began executing a scheme to embezzle over $400,000 by diverting funds from the couple’s AXA accounts for his own use and benefit. In furtherance of the scheme to defraud, on June 29, 2005, Hughes mailed a letter containing a $33,000 check from the victims to AXA’s offices in New York, which he then diverted to his own use and benefit. The funds embezzled by Hughes were income that he was required to report on his income tax returns. However, Hughes willfully attempted to evade and defeat a large part of the income tax due and owing by preparing false and fraudulent income tax returns.

Ohio Man Sentenced to Prison for Tax Evasion

On November 5, 2008, in Cleveland, Ohio, Joseph Michael Cahlik, formerly of Garfield Heights, Ohio, was sentenced to 46 months in prison, followed by two years of supervised release for tax evasion. Cahlik pleaded guilty to two counts of tax evasion on August 19, 2008. According to the indictment filed on April 2, 2008, Cahlik received taxable income of approximately $899,610 during the years 2001 and 2002. During those years Cahlik attempted to evade income taxes due and owing of approximately $275,740 by concealing from the IRS his true and correct income through the use of nominee bank accounts and extensive use of currency.

Operator of Online Pharmacies Net Doctor and Male Clinic Sentenced for Tax Fraud

On November 4, 2008, in Los Angeles, Calif., Roy Colina Alivio, an online pharmacy operator who specialized in distributing Viagra, was sentenced to 21 months in prison after having been found guilty of tax fraud earlier this year. A jury convicted Alivio on six counts of subscribing to false federal income tax returns that he filed with the Internal Revenue Service (IRS). According to court documents, Alivio filed tax returns with the IRS for his businesses, Net Doctor and Male Clinic, as well as for himself, for the years 1999 and 2000. When Alivio filed his 1999 business tax return for Net Doctor with the IRS, he failed to include over $1.1 million in sales receipts as income on the return. Additionally, when Alivio filed his tax year 2000 partnership return for Net Doctor, he failed to include over $1.7 million in sales receipts. The returns Alivio filed for his other business, Male Clinic, failed to include over $661,000 and $792,000 in sales receipts for the tax years 1999 and 2000, respectively. On each of the returns filed for his businesses, Alivio reported zero gross receipts from sales. Alivio’s net profits from the operation of his two business entities for the years 1999 and 2000 totaled over $800,000. Alivio was also convicted for subscribing to false 1999 and 2000 personal tax returns as well. According to the indictment, Alivio reported on his 1999 tax return $3,471 in income, when the total income he knew he received in 1999 was at least $324,720. Further, for the 2000 tax year, Alivio reported total income of $4,357, when the total income he knew he had received was at least $568,667. Alivio did not pay approximately $230,000 in income tax to the IRS for the 1999 and 2000 tax years.

Former General Services Administration (GSA) Contractor Employee and Four Subcontractors Sentenced in Kickback Scheme

On October 31, 2008, in Washington, DC, Charles Anthony Wehausen, a former General Services Administration (GSA) contractor employee, was sentenced to 33 months in prison, to be followed by three years of supervised release. In addition, Wehausen was also ordered to pay $188,941 in restitution to the GSA and $55,260 for unpaid taxes to the Internal Revenue Service (IRS). The sentence also included an order of forfeiture in the amount of $188,941. Wehausen pleaded guilty in February 2008 to a charge of conspiracy to commit mail fraud and a charge of income tax evasion. According to the government's evidence, from 2000 through mid-2003, Wehausen was a chief engineer and project manager at the Washington, DC office of PM Services, Inc., a building maintenance services company, which provided building maintenance services for the GSA at several federal buildings in Washington, DC.  Wehausen's job duties included locating subcontractors to perform more extensive mechanical work outside of the routine maintenance handled by PM Services. He was also responsible for preparing the paperwork necessary to hire and pay the subcontractors. After paying subcontractors for their work, PM Services would obtain reimbursement from GSA. Wehausen conspired with four subcontractors to artificially and fraudulently inflate job costs listed in purchase orders and invoices. These fraudulent documents were sent to the headquarters office of PM Services where company officials sent payments to the subcontractors. The subcontractors, in turn, gave a portion of the payments to Wehausen as kickback payments. The total amount of fraudulent payments as a result of the conspiracy was approximately $384,500, a loss suffered by the GSA. Wehausen also evaded the reporting and payment of federal income taxes on the payments he received from the subcontractors, resulting in losses to the taxpaying public of $55,260. Earlier in the year, four co-conspirators were sentenced to terms ranging from 60 days in prison to six months home confinement to five years probation. Together they were ordered to pay a total of $198,942 in restitution.

Florida Boiler Room Trader Sentenced to 48 Months on Tax and Fraud Charges

On October 31, 2008, in Miami, Fla., Jeffrey Jedlicki, of Delray Beach, Florida, was sentenced to 48 months in prison and ordered to pay $6,029,279 in restitution. In August 2008, Jedlicki pleaded guilty to an Information charging him with conspiring to commit mail and wire fraud and to defraud the United States. According to court documents and statements made in court, while working at multiple boiler rooms throughout South Florida, Jedlicki misled investors into investing in foreign currency options. Jedlicki falsely told investors that they could expect to make high profits while being exposed to little risk. Jedlicki, however, knowingly failed to tell the investors that over 95 percent of those who had invested with him had lost their money and that he had been previously barred from acting as a broker by the National Futures Association.  In addition to misleading investors, Jedlicki failed to report to the Internal Revenue Service nearly $1 million in income he had earned during tax years 2003 and 2004.  Jedlicki would divert his salary and commissions to a newly created corporation, and then falsely deduct as business expenses his personal expenses, including payments for his car, credit card bills, and meals.

Wyoming Man Sentenced to 24 Month Prison Term for Tax Fraud

On October 28, 2008, in Casper, Wyo., Rudy Marn was sentenced to 24 months in prison and ordered to pay $618,938 in restitution. According to court documents, Marn filed a false tax return in 2003. He reported that his income on the tax return was $169,888 when he knew that his income was substantially more. Marn’s unreported tax income resulted in a tax loss to the government of approximately $239,847.

Business Owner Sentenced to Prison for Tax Evasion

On October 28, 2008 in Madison, Wis., Godofredo Macapugay was sentenced to twelve months plus one day in prison and ordered to cooperate with the Internal Revenue Service (IRS) in filing and paying his unpaid income taxes. Macapugay pleaded guilty in August 2008 to filing a false Form 1040 for tax year 2004 that substantially underreported his joint income with his wife. According to the government, Macapugay and his wife underreported $367,918 in income earned from their business, Midwest Heating and Air Conditioning, for the tax years 2001 through 2004. The defendants evaded $110,067 in federal income taxes. Macapugay’s wife, Elizabeth, pleaded guilty to income tax evasion and was sentenced to 36 months probation. She also faces deportation.

Utah Roofing Company Owner Sentenced for Tax Evasion

On October 27, 2008, in Salt Lake City, Utah, David Roger Hemmert, was sentenced to twelve months and a day in prison and ordered to pay $134,614 in restitution for federal income tax evasion. Hemmert, owner and operator of Northwind Roofing, Inc. (Northwind), pleaded guilty in August 2008 to one count of tax evasion. He deposited third party checks from Northwind's customers into a bank account and received cash back, ranging from $1,000 to $9,500 per deposit. Hemmert acknowledged the he knowingly and willfully failed to report some of that cash as taxable income on his personal federal tax returns.

Missouri Man Sentenced for Filing False Tax Returns

On October 24, 2008, in St. Louis, Mo., Royal Adams was sentenced to 18 months in prison and ordered to pay $252,219 in restitution to the Internal Revenue Service (IRS) for filing false tax returns. Adams pleaded guilty in June 2008 admitting that he created a corporate entity, Royal Personnel in 1990. In 1998, he entered into an informal agreement with David Icke, a British author and public speaker to split the net profits from the sale of Icke’s books, with 75 percent going to Icke and 25 percent going Adams. In 2005, Icke and Adams ceased doing business together and Icke sent Adams a Notice of Termination to terminate their verbal agreement. For the years 2001, 2002, and 2003, Adams understated his income and overstated his deductions on his tax returns. The IRS identified income not reported on his personal tax returns for the years 2001 through 2003 in the amount of $581,868. A substantial portion of these proceeds were generated by the sale of Icke’s books. The IRS calculated the total tax loss for those years as $252,219.

Illinois Man Sentenced to 89 Month Prison Term for Ponzi Scheme

On October 22, 2008 in Chicago, Ill., Brian Jines was sentenced to 89 months in prison and ordered to pay $4.9 million in restitution for mail fraud and structuring cash transactions. Jines was charged in a 20 count indictment in March 2007 for his role in a Ponzi scheme. In February 2008, Jines pleaded guilty, admitting that he and a co-defendant used false and fraudulent statements to persuade investors to invest in a business called Bank Watch. Jines falsely claimed that investor funds would be invested in CDs at FDIC insured institutions. However, investor funds were converted to cash by transferring and withdrawing the money in amounts under $10,000 to avoid the creation of cash transaction reports that are required to be sent to the government. In furtherance of the fraudulent scheme, Jines placed advertisements for Bank Watch in newspapers across the country, targeting areas populated by "baby boomers."  Additionally, Jines opened bank accounts in nominee names in several states to further the fraud scheme. The court ordered forfeiture of $831,547 in 16 bank accounts and three other sources.

Nevada Resident Sentenced in Ohio for Tax Fraud

On October 21, 2008, in Cleveland, Ohio, Fayez Damra, aka Alex Damra, was sentenced to 21 months in prison and ordered to pay $274,389 in restitution to the IRS. Damra, a Henderson, Nevada resident, was convicted by a jury on May 4, 2007, of conspiring to defraud the United States in an alleged conspiracy in which he distributed funds from his computer software design corporation, known as Applied Innovation Management, Inc. (AIM), to members of the Damra family, then deducted those funds as AIM expenses. Fayez was also convicted of a violation for attempting to evade and defeat approximately $184,788 in corporate income tax due from AIM for its 1999 tax year.

Arizona Physician Sentenced to 51 Months in Prison on Tax and Fraud Charges

On October 21, 2008, in Phoenix, Ariz., Carlin Grant Bartschi, M.D. was sentenced to 51 months in prison and ordered to cooperate with the Internal Revenue Service (IRS) in paying more than $570,000 in taxes, interest and penalties. Bartschi was found guilty in June 2008, of 18 felony counts relating to tax evasion and mail fraud. Trial evidence showed that Bartschi created and presented five different fictitious financial obligations for payment of federal tax assessments. The fictitious obligations were prepared to appear as if they were drawn upon a nonexistent account at the U.S. Department of Treasury. In submitting the fictitious obligations to the IRS and the District Court, Bartschi was found to have used the U.S. Postal Service in attempting to execute a scheme to defraud. From 1995 through 2003, Bartschi was employed as an independent contractor and emergency room physician for hospitals in Globe and Phoenix, Ariz., and regularly earned well over $100,000 per year.  

Georgia Businessman Sentenced to 60 Months in Federal Prison

On October 16, 2008, in Macon, Ga., George McKinnon was sentenced to 60 months in prison, followed by three years of supervised release. In addition, McKinnon was ordered to make restitution in the sum of $4,000,050 to United Agri Products (UAP) of Moultrie, Georgia. He was also ordered to pay $1,357,572 to USDA Farm Services against which $369,059 has been offset by the Tobacco Transition Payment Program leaving a balance of $988,512. The defendant will be credited against that balance by future installment payments by tobacco payments. The court stated that the defendant will pay $988,512 to the Farm Services Agency in Douglas, Georgia. In February 2008, McKinnon pleaded guilty to conspiracy to commit an offense against the United States, wire fraud, money laundering and making a false, fictitious or fraudulent claim. According to court documents, McKinnon conspired with Nolan Ross, a former manager of UAP, to exploit a weakness in UAP’s electronic inventory ordering system’s internal controls to divert UAP products. Ross provided the stolen inventory to McKinnon, who then sold the inventory to unauthorized third parties.  In an attempt to hide the scheme from UAP, Ross charged some of the sales to accounts of other UAP customers without their knowledge. Ross was sentenced in June 2008 to 42 months in prison.

Rhode Island Business Owner Sentenced for Tax Fraud Related to a Kickback Scheme

On October 16, 2008, in Hartford, R.I., Louis G. Xifaras, of Bristol, Rhode Island, was sentenced to 12 months and one day in prison, followed by one year of supervised release in home confinement under electronic monitoring. Xifaras was also ordered to pay a $50,000 fine and $222,078 in back taxes within 30 days, as well as pay to the Internal Revenue Service (IRS) $166,558 in penalties and $164,142 in interest.  On May 2, 2008, Xifaras pleaded guilty to one count of filing a false income tax return.  According to documents filed with the court and statements made in court, Xifaras formerly owned and operated Innovative Network Solutions (INS) of Pawtucket, Rhode Island, a company that provided computer Internet services including server installations. In 1999, an employee of Southwestern Bell Communications (SBC) approached Xifaras with a proposal that he would ensure INS received subcontracting work from SBC in exchange for kickbacks being paid to the SBC employee. The method by which the kickbacks were paid to the SBC employee was to put his wife on INS’ payroll as a “no-show” employee. INS was an S Corporation which means that the company’s income and expenses were reported on the owner’s income tax return. In 2002, Xifaras reported income of $968,070, deducting $272,882 that INS paid to the SBC employee’s wife. However, kickbacks disguised as salary for a no-show job are not deductible business expenses, so Xifaras should have reported taxable income of $1,240,952.

Minnesota Man Sentenced for Mail Fraud, Wire Fraud, and Failing to File Tax Returns

On October 16, 2008, in Minneapolis, Minn., Neulan Midkiff was sentenced to 180 months in prison and ordered to pay $18.9 million in restitution following his August conviction on mail fraud, wire fraud, conspiracy to commit mail fraud, and failure to file tax returns. Midkiff was sentenced for defrauding 519 people out of approximately $30 million in an investment scheme. He promised investors a 6 to 8 percent per month return on their investment and told them that other investors were obtaining high rates of return on their investment, when he knew that the investment was not producing any interest payments. Midkiff’s company, “Central Financial Services of Minnesota,” entered into an agreement to invest money that he and his co-defendant collected from investors with West Wing Financial. Midkiff provided West Wing $1 million, and in exchange, West Wing promised to pay a minimum of 8 percent interest per month for 14 months. Later, Midkiff learned that most of the $1 million they sent to West Wing had been stolen by West Wing. Midkiff did not inform investors, but concealed the disappearance by paying investors’ monthly “interest” payments. Midkiff and his co-defendant solicited new investors and used their money to fund monthly payments to previous investors. Midkiff paid himself or otherwise used for personal expenses in excess of $2.5 million out of the funds provided by investors.

Connecticut Man Sentenced for Filing False Tax Returns

On October 14, 2008, in New Haven, Conn., Bernard Rynecki, Jr., of Simsbury, was sentenced to 12 months and one day in prison, followed by three years of supervised release, and ordered to pay $47,265 to the Internal Revenue Service (IRS) in back taxes and interest. Rynecki pleaded guilty on June 13, 2008, to making false claims for tax refunds. According to documents filed with the court and statements made in court, Rynecki filed five false tax returns for tax years 2002 and 2003. The tax returns falsely claimed that Rynecki and two of his children received income from an entity known as “Research and Measurements,” had taxes withheld, and were entitled to refunds.  Rynecki also altered genuine IRS W-2 Forms received by one or more of his children and submitted that false information with some of the five false tax returns.

Missouri Businessman Sentenced for Filing False Tax Returns

On October 15, 2008, in St. Louis, Mo., Eddie Hasan was sentenced to 12 months and one day in prison for filing false tax returns. Hasan operated MOKAN CCAC, and provided consulting services for minority owned businesses, minority business training, and monitored minority participation in construction contracts, including construction contracts entered into by the St. Louis Public School District. Hasan opened a bank account at Gateway Bank in the name of MOKAN Public Schools, separate from MOKAN's ordinary operating accounts so that the money paid by the school district to Hasan through MOKAN would not be reported on his W-2 Wage and Tax Statement. Hasan also jointly owned and operated MOKAN/ADECS, a separate entity which was also paid to monitor minority participation in construction contracts in the city of St. Louis. Hasan admitted that he failed to report approximately $470,144 in income from MOKAN for tax years 2001 through 2005, leaving tax due of approximately $105,996. According to the U.S. Attorney, Hasan did not file an income tax return for tax years 2004 and 2005 even though he earned income during those years.

Alabama Bookkeeper Sentenced for Tax Evasion

On October 8, 2008, in Montgomery, Ala., Dina Michelle Starnes was sentenced to 24 months in prison.  After her release from prison, Starnes will serve three years of supervised release, during which she will be required to make restitution payments to the Internal Revenue Service.  In June 2008, Starnes pleaded guilty to the tax evasion.  According to court records, from December 2003 through August 2007, Starnes was employed as a bookkeeper at an accounting firm in Opelika.  From 2004 through 2007, Starnes embezzled approximately $529,000.  At first, Starnes would write payroll checks to herself (using variations of her actual name) and would then either deposit or cash the checks.  Later, Starnes began writing checks for much larger amounts, covering her illegal activities by making entries in the books to make it appear as if the checks had been written to legitimate vendors.  Starnes did not file a federal income tax return for 2004, and she filed tax returns for 2005 and 2006 that failed to declare the embezzled $529,000 as income.  The total tax evaded from 2004 through 2006 was approximately $115,159.

Minnesota Man Sentenced for Filing False Tax Returns

On October 8, 2008, in St. Paul, Minn., Kevin J. Morse was sentenced to 30 months in prison and one year of supervised release on five counts of filing false tax returns for tax years 1996-2000. Morse was convicted by a federal jury in February 2008 following a five-day trial. He had previously been convicted in 1999 of filing false tax returns for tax years 1991-1994. Morse, a farmer, filed returns showing no taxable income or tax owing for four of the five years, and less than $1,000 in taxes owing for 2000. Trial evidence showed that between 1996 and 2000, Morse netted more than $680,000 on more than $1 million in revenue from farming, interest and dividends, government farm subsidies and rental of his land to other farmers. A tax preparer who prepared returns for Morse in 2002 testified that he calculated Morse would owe more than $100,000 in back taxes. But instead of filing those returns, Morse filed returns in which he deducted all of his income using an irrelevant section of the tax code, and thereby claimed to owe virtually no taxes. The court concluded that Morse owed more than $120,000 in taxes for the years involved.

Florida Construction Business Owner Sentenced for Understating Gross Receipts on Tax Returns

On October 2, 2008, Jacksonville, Fla., Joseph Barney Wainwright, Jr., was sentenced to 18 months in prison, to be followed by one year of supervised release, and ordered to pay the Internal Revenue Service (IRS) for all under-reported gross receipts for the years 2000 through 2007, plus interest and penalties. Wainwright’s total tax bill will be more than $600,000. Wainwright pleaded guilty on September 13, 2007 to filing false federal income tax returns. In his plea agreement, Wainwright admitted that he knowingly and willfully filed false federal income tax returns for the years 2000 and 2001. On the false returns, Wainwright substantially understated gross receipts from his business, Wainwright Construction. For the year 2000, Wainwright's tax return understated gross income from his business by more than $1 million. Likewise, for the year 2001, his tax return understated gross receipts by more than $600,000. There were also other false entries on his tax returns for both years.

Oklahoma School Superintendent Sentenced to Prison for Embezzlement and Filing a False Tax Return

On October 1, 2008, in Muskogee, Okla., former school Superintendent Larry Duane Couch was sentenced to 24 months in prison and ordered to pay $4,000 for embezzlement of government funds and making and subscribing a false tax return and forfeiture of $979,000. Couch admitted that while working as the superintendent of the Marble City School District, he embezzled and converted to his own use, property over the value of $5,000. He also admitted to filing a false individual income tax return on which he claimed an adjusted gross income of $24,062, while his actual adjusted gross income was $142,312. Couch was ordered to forfeit $979,000, which represented the money the defendant embezzled from government funds.

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