Carrick Mollenkamp of the WSJ has an excellent piece here about the widening UBS tax scandal and the use of Hong Kong shelf corporations to facilitate the fraud. Now that the bank has agreed to hand over more names of U.S. taxpayers and increasing numbers of those taxpayers are running to confess to the DOJ, expect new revelations to come in at a fast and furious pace. The article is notable for its intelligent use of plea-related documents filed in U.S. v. John McCarthy. McCarthy is a California-based UBS client who pled guilty on Friday in the Central District of California.
You are currently browsing the archive for the Tax Fraud category.
The NYT reports here on an Israeli-U.S. tax fraud ring. Charges were unveiled earlier today in Tel Aviv and Chicago. The perpetrators allegedly filed false tax refund requests using the names of unsuspecting U.S. prison inmates. Looks like protective custody may be in order.
The Washington Post editorializes here for a compromise in the U.S.-Switzerland cold war over UBS’ reluctance to release more names of purported American tax cheats to IRS and DOJ. I understand the Swiss position. It’s tough to be a grown up nation in the 21st Century when a key segment of your economy is devoted to facilitating tax fraud…..Andrew Cuomo is talking to Chuck but in a nasty way, according to this WSJ article. In a Friday letter, the New York AG threatened to sue Charles Schwab & Co. for fraud in connection with its marketing of auction-rate securities. Cuomo is open to a settlement, however, if Schwab buys back the securities from its investor clients. Schwab adamantly denies wrongdoing. Cuomo’s letter provides examples, allegedly supporting his fraud theory. They look pretty weak to me. Let’s see if Andy is as tough on recently departed Auto Task force Chief, and Democratic Party mega-money raiser, Steven Rattner. Fox News reported on his departure, here, last week…..Meanwhile, in the surprise of the century, Neil Barofsky, “the special inspector general overseeing the government’s financial rescue program,” reports that many of the banks receiving TARP money have used those funds for things other than lending! The uses include, investing, repaying debt, and buying other banks. About 80% of the banks spent at least some of their TARP funds in connection with new lending. Barofsky’s report comes out today, according to this Washington Post article. I have an idea to increase employment and reduce waste and fraud. Every company should be required to hire its own special inspector general at inception. Then, after the first special inspector general’s report is issued, the company should be forced to fire the special inspector general on trumped-up charges. We can keep a lot of people employed this way, and generate plenty of news stories about waste and abuse. We should also make every person hire a special inspector general at birth. Then we can ignore virtually every warning the special inspector general gives us and later suffer the consequences. Oh wait–I’ve already done that with Mom and Dad.
James B. Stewart of the Wall Street Journal has no sympathy here for UBS, the Swiss Government trying to protect it, or super-wealthy American taxpayers who parked cash in secret UBS accounts in order to defraud the IRS. The particular tax program that got UBS into trouble was implemented while the bank was purportedly cooperating with the IRS. Stewart implies that UBS, in refusing to turn over more depositor names to the United States, is reneging on a prior agreement. That isn’t true. UBS agreed to turn over some names as part of its plea deal with the United States, but the parties agreed to disagree regarding more extensive disclosures. Stewart also exaggerates the U.S. banking system’s privacy protections. Federal grand juries have virtually unfettered power to subpoena U.S. bank accounts and, in many cases, can order the banks not to disclose the subpoena to the customer whose accounts are being examined. Still, it is hard to argue with Stewart’s basic point. The customers at issue were specifically targeted by the bank as part of a scheme to help Americans dodge U.S. tax payments. If a small African or Latin American country, rather than Switzerland, was aiding and abetting its bank’s refusal to cooperate with such an important American tax fraud investigation, it is difficult to believe that we would be witnessing this much U.S. hand-wringing.
Today’s Washington Post has a good story here by David Hilzenrath on the deferred prosecution agreement announced Wednesday between Swiss banking giant UBS and the DOJ. UBS agreed to pay a modest $780 million and gave up the names, and account information, of 200-300 clents. This is far less than the 20,000-50,000 accounts the IRS and DOJ seek, and legal proceedings will continue on that issue.
Raoul Weil, chairman and CEO of UBS’ global wealth management and business banking division, on Wednesday was indicted by a federal grand jury in the Southern District of Florida on charges of conspiring to defraud the IRS by helping US citizens avoid paying federal income tax. The indictment (.pdf) comes as part of the DOJ’s ongoing investigation of UBS’ cross-border banking business. Weil’s division provides cross-border services to about 20,000 clients with assets of about $20 billion. The indictment alleges that about 17,000 of those clients concealed their identities and Swiss bank accounts from the IRS, and that UBS assisted them by failing to report Form 1099 information to the IRS. Weil is accused of facilitating this and failing to stop it (Bloomberg, DOJ). UBS has issued a press release stating that Weil will relinquish his duties.
Richard Walters of Bowie, Maryland, brother of DC Tax Office fraud ringleader Harriette Walters, was sentenced on Tuesday to 51 months in prison by US District Judge Alexander Williams in Greenbelt, Maryland for his role in the $48 million fraud scheme. He had pleaded guilty to receipt of stolen property and conspiracy to commit money laundering in connection with a property tax refund scheme, and had cooperated with authorities. Walters’ business, Helmet’s Plumbing, was used to launder 15 fraudulently issued DC tax refund checks totaling $4.9 million between 2001 and 2007. Over $1 million of that amount went into accounts he controlled.
Five more cooperating defendants will be sentenced by Judge Williams, including three in December. Harriette Walters pleaded guilty in September in DC (earlier). She will be sentenced on March 25, 2009 by US District Judge Emmet Sullivan (DOJ, WaPo).
In Los Angeles on Monday, US District Judge John Walter sentenced the last two defendants in the long-running kickback scheme at the former Milberg Weiss law firm, now known as Milberg LLP. Former client Steven Cooperman, who acted as a lead plaintiff in some Milberg cases, was sentenced to four months in prison and two years of supervised release; Cooperman pleaded guilty to a conspiracy count last year. Paul Selzer, a former outside attorney who helped Milberg funnel kickbacks to clients, was sentenced to two years probation; Selzer pleaded guilty in July to a tax obstruction count (Reuters).
In Los Angeles on Monday, US District Judge John Walter sentenced former Milberg Weiss partners David Bershad and Steven Schulman to six months in prison each for their roles in the long-running kickback scheme at the firm, now known as Milberg LLP. Bershad pleaded guilty in July 2007 to a one-count information charging him with obstruction and making false statements. He was the first partner to plead guilty and his cooperation helped the DOJ obtain guilty pleas from the firm and from principals Melvyn Weiss and Bill Lerach, who are currently serving 30- and 24-month prison sentences, respectively. But Walter rejected his plea for probation, calling him an architect of the scheme. Schulman pleaded guilty to a racketeering count in October 2007. Both men had already agreed to forfeit their gains — $7.75 million for Bershad, $1.85 million for Schulman (Bloomberg, Reuters).
Jury selection began Tuesday in US v. Stein et al, the tax shelter fraud trial which once had 19 defendants, including 17 former KPMG partners. What once promised to be the largest tax fraud trial ever now has four defendants remaining: former Sidley Austin LLP law partner R. J. Ruble and former KPMG LLC partners David Greenberg, John Larson and Robert Pfaff. Two of the original defendants pleaded guilty. US District Judge Lewis Kaplan in July 2007 dismissed the indictments of 13 other KPMG partners in a decision with far-reaching implications (earlier here and here). Last month Kaplan refused to dismiss the remaining indictments. The trial is expected to last three to four months (NYT, Reuters).
Jayrece Turnbull, niece of DC Tax Office fraud ringleader Harriete Walters, pleaded guilty on Tuesday before US District Judge Alexander Williams in Greenbelt, Maryland to receipt of stolen property, conspiracy to commit money laundering, tax evasion, and mail fraud in connection with the $48 million fraud scheme. Walters pleaded guilty last month (earlier). More than $24 million in fraudulent tax refund vouchers were routed through accounts controlled by Turnbull over a 6 year period. Her sentencing is scheduled for February 4, 2009. All other defendants have now pleaded guilty (WaPo, DOJ).
In Los Angeles on Tuesday, US District Judge John Walter sentenced Howard Vogel to three months in prison for his role in the Milberg Weiss kickback scheme. Vogel pleaded guilty in in August 2006 to one count of making a false statement in federal court. He admitted acting as a paid plaintiff or having a relative act as a plaintiff in 40 different class action lawsuits brought by the firm over a 14 year period. As part of his plea agreement, Vogel forfeited $2 million and paid $550,000 in back taxes (National Law Journal).
Harriet Walters, a former manager in the District of Columbia Office of Tax and Revenue, on Tuesday pleaded guilty before US District Judge Emmet Sullivan in DC to counts of wire fraud, money laundering conspiracy, federal tax evasion, and District of Columbia tax evasion. Walters, who was the principal in an 18 year long fraud scheme, admitted issuing 226 fraudulent property tax vouchers totalling over $48 million between 1989 and 2007. Nine of her co-conspirators have already pleaded guilty; two others are awaiting trial. A sentencing date has not been set. Sullivan expressed doubts about the 15 to 18 years called for in the plea agreement and set a status hearing for October 27 (DOJ, Washington Times).
Chief Judge Dennis Jacobs, writing for a unanimous three-judge panel of the US Court of Appeals for the Second Circuit, today affirmed (.pdf) US District Judge Lewis Kaplan’s July 2007 dismissal of the indictments of 13 out of an original 19 defendants in US v. Stein et al. The case was was once the largest criminal tax shelter prosecution in US history. Kaplan had ruled that the defendants were deprived of their Sixth Amendment right to counsel as a result of KPMG’s decision to stop paying the defendants’ legal costs (despite contractual obligations to pay) after the government threatened to indict the firm. In affirming the dismisal, the appellate court ruled that no other remedy would return the defendants to the status quo.
Rejecting the government’s recommendation of probation (earlier), US District Judge John Walter on Monday sentenced Los Angeles attorney Richard Purtich to two months in prison and fined him $50,000 for his role in the Milberg Weiss kickback scheme. Purtich pleaded guilty in April 2006 to a tax charge for failing to report to the IRS about $900,000 in illegal kickback payments he accepted from Milberg and then funneled to Steve Cooperman, who acted as a lead plaintiff in some Milberg cases. Purtich cooperated with prosecutors in their investigation of Cooperman, who pleaded guilty to a conspiracy count last year. Purtich is expected to be disbarred; he currently works as a contract paralegal (KNBC).
In court documents filed last week in US District Court in Los Angeles, prosecutors recommended that Los Angeles attorney Richard Purtich be sentenced to one year of probation for his role in the Milberg Weiss kickback scheme. Guidelines called for a 21 to 27 months in prison but prosecutors cited his “substantial assistance” in the prosecution of Steve Cooperman, who acted as a lead plaintiff in some Milberg cases. Purtich pleaded guilty in April 2006 to a tax charge for failing to report to the IRS about $900,000 in payments he accepted from Milberg that he passed on to Cooperman, who pleaded guilty to a conspiracy count last year. Purtich will be sentenced on August 11 (National Law Journal).
Deborah Lee Stinson and her son Mark Alan Stinson, both of Dallas, were indicted on Wednesday on counts of conspiracy to commit wire fraud and structuring transactions to evade reporting requirements. Deborah Stinson has been a support employee with the FBI in Dallas for 20 years. The charges arose from an unusual circumstance: Mark Stinson shot and killed a man in a home invasion last year. He was cleared, but investigators noticed a number of expensive vehicles at his house which were all titled to his mother. The indictment alleges that Mark Stinson gave his mother large sums of cash to set her up as a straw buyer of the vehicles and as a straw borrower on car loans which were based on falsified applications. Both Stinsons made their initial court appearance on Thursday and pleaded not guilty. There’s no word yet on where the large sums of cash came from (Dallas Morning News, DOJ).
US District Judge John E. Jones III on Friday refused to dismiss the tax fraud and conspiracy indictment in the Middle District of Pennsylvania against Adelphia Communications founder and former CEO John Rigas and his son, former Adelphia CFO Timothy Rigas. In this case, they are accused of evading about $300 million in personal income taxes. Both men were convicted of securities fraud, bank fraud and conspiracy in the Southern District of New York and are currently serving sentences of 12 and 17 years, respectively (earlier).The Rigases sought dismissal on grounds of double jeopardy and that their acquittal on one wire fraud count in the New York case meant that they didn’t convert Adelphia funds for personal use. But Jones ruled that the Pennsylvania case essentially covers separate offenses and that the acquittal on the wire fraud count did not mean the jury concluded they didn’t defraud Adelphia (Harrisburg Patriot-News).
Attorney Paul Seltzer on Monday became the final Milberg Weiss (now Milberg LLP) defendant to plead guilty in the racketeering and money laundering case against the firm and its former principals. Seltzer pleaded guilty before US District Judge John Walter in Los Angeles to one count of corruptly endeavoring to obstruct the IRS code. He admitted accepting almost $50,000 from the firm and failing to tell the IRS that he transferred $19,000 of it to Seymour Lazar, the convicted dummy plaintiff in many of Milberg’s class action shakedowns suits. Sentencing is scheduled for November 3. Seltzer faces a statutory maximum of three years in prison but prosecutors will recommend probation (AP/San Jose Mercury News).
Over objections from federal prosecutors, US District Judge William Terrell Hodges on Wednesday approved actor Wesley Snipes’ motion (earlier) to be allowed to go to London to do post-production work on one movie and then to Bangkok to start work on another. Snipes is appealing his February conviction on three failure to file misdemeanor tax counts; he was sentenced in April to three years in prison. Judge Terrell also ordered that Snipes be supervised by the Central District of California (Ocala Star-Banner).
US District Judge Joan Lenard in Miami on Tuesday granted a DOJ motion to authorize the IRS to issue a John Doe summons to Switzerland-based UBS. The summons will seek the banking records and identites of US citizens with Swiss bank accounts. The move came less than two weeks after former UBS banker Bradley Birkenfeld pleaded guilty to conspiring to help US clients of UBS evade taxes by hiding assets in Switzerland and Liechtenstein. Birkenfeld is cooperating in the investigation (Reuters, DOJ).
Attorneys for actor Wesley Snipes on Wednesday filed a motion in US District Court in Ocala, Florida requesting that US District Judge William Terrell Hodges grant permission for Snipes to go to London to do post-production work on one movie and then to Bangkok to start work on another. Snipes was convicted in February on three failure to file misdemeanor tax counts and sentenced in April to three years in prison. He is free on bond pending appeal but the USAO is challenging that ruling, so expect them to fight this tooth and nail (Ocala Star-Banner).
Former UBS banker Bradley Birkenfeld pled guilty in Miami federal court yesterday to a tax-related Klein Conspiracy count. He is cooperating with the government in its probe of UBS. This is going to be a very big case. Money.com has the story here.
In Ocala, Florida on Thursday, US District Judge William Terrell Hodges granted bond for actor Wesley Snipes pending his appeal of his conviction and sentence. He had been scheduled to surrender to federal prison authorities during the first week of June to begin serving his sentence. Snipes was convicted February 1 on three misdemeanor counts of failure to file federal income tax returns for 1999-2001 but was acquitted on two felony counts and three other misdemeanor failure to file counts. He was sentenced to three years in prison on April 24. Judge Hodges expressed doubt about the merits of Snipes’ appeal but determined that he was not a flight risk (Orlando Sentinel).
Proscutors got what they wanted: In Ocala, Florida on Thursday, US District Judge William Terrell Hodges sentenced actor Wesley Snipes to three years in prison. Snipes was convicted February 1 on three misdemeanor counts of failure to file federal income tax returns for 1999-2001 but acquitted on two felony tax counts and three more failure to file misdemeanor counts. Hodges sentenced Snipes to the maximum of one year on each count, to be served consecutively. He said “these are serious crimes, albeit misdemeanors, because he has a history of contempt over time.” Hodges also sentenced Snipes’ co-defendants Douglas Rosile and Eddie Ray Kahn, both convicted on the felony counts. Rosile was sentenced to 4 years and six months in prison and Kahn was sentenced to ten years in prison. Judge Hodges was obviously not swayed by a large number of celebrities asking him to sentence Snipes to probation. Among them were Woody Harrelson, Judge Joe Brown and Judge Greg Mathis. It’s hard to believe any federal judge would be influenced by requests from the son of Charles Harrison and two TV show judges. Bloomberg, Orlando Sentinel, DOJ (via PR Newswire).
Prosecutors on Monday filed a sentencing memorandum which recommends that actor Wesley Snipes be sentenced to three years in prison and fined $5 million. Snipes was convicted February 1 on three misdemeanor counts of failure to file federal income tax returns for 1999-2001; however, he was acquitted on the two felony counts he faced andon three misdemeanor failure to file counts for 2002-2004. In calling for the maximum sentence and an upward departure from the guidelines for the fine, the government appears to be seeking enhancements for the acquitted charges. Snipes is scheduled to be sentenced on April 24 (Reuters, Snipes sentencing memorandum).
A three-judge panel from the US Court of Appeals for the Second Circuit on Tuesday heard arguments in the government’s attempt to reinstate the indictments of 13 former KPMG LLC executives in what was once the largest criminal tax shelter prosecution in US history. In July 2007 US District Judge Lewis Kaplan dismissed the indictments of 13 out of an original 19 defendants in US v. Stein et al because the government threatened to indict KPMG if the company did not stop paying the defendants’ legal costs despite contractual obligations to do so. The Bloomberg News story indicates that the judges were highly critical of the government’s arguments. While AUSA Karl Metzner contended that a fair trial was still possible and that dismissal of the indictments was “too drastic a sanction” despite Kaplan’s ruling that the government’s actions violated the defendants’ rights, Chief Circuit Judge Dennis Jacobs noted that “time has moved forward” and Judge Peter Hall likened a reinstatement to “putting toothpaste back in the tube”.
Actor Wesley Snipes on Friday was convicted on three misdemeanor counts of failure to file federal income tax returns for 1999-2001 but was acquitted on the two felony counts he faced– one count of conspiracy to defraud and one count of making a fraudulent claim of payment — and three misdemeanor failure to file counts for 2002-2004. His co-defendants Douglas Rosile and Eddie Ray Kahn faced the same felony counts as Snipes; both were found guilty. US District Judge William Terrell Hodges ordered a pre-sentencing investigation and lowered Snipes’ bail from $1 million to $250,000. Snipes could receive up to one year in prison for each of the three misdemeanor counts and he faces a $17 million back tax bill; Rosile and Kahn each face up to 16 years in prison. The Ocala Star-Banner story is here.
Jurors in the federal tax fraud trial of actor Wesley Snipes and two co-defendants (earlier) completed a second full day of deliberations on Thursday without reaching a verdict. Jurors asked US District Judge William Terrell Hodges to clarify the meaning of the word conspiracy; in response, Hodges referred them again to the jury instructions. Also on Thursday, the insurance company responsible for Snipes’ $1 million bond moved to be released from its obligation if Snipes is convicted, claiming that Snipes does not recognize the court’s jurisdiction and is likely to flee. Judge Hodges denied the motion on procedural grounds. Rick Cundiff’s Ocala Star-Banner story is here.
After the prosecution rested on Friday in the federal tax fraud trial of actor Wesley Snipes and two co-defendants (earlier), Snipes’ lead attorney Robert Bernhoft promised a parade of celebrity witnesses and hinted that Snipes would take the stand in his own defense. But on Monday the defense rested without calling a single witness, asserting that the government had failed to meet its burden of proof. Bernhoft moved for a directed verdict of not guilty, which US District Judge William Terrell Hodges denied. Closing arguments are scheduled for Tuesday morning. AP/Yahoo here, Ocala Star-Banner here.
Jury selection began Monday in Ocala, Florida in the tax fraud trial of actor Wesley Snipes and two co-defendants, known tax protesters Eddie Ray Kahn and Douglas P. Rosile. Snipes is charged with one count of conspiracy to defraud in connection with an attempt to collect $11.7 million in refunds for 1996 and 1997 and one count of making a fraudulent claim of payment for allegedly offering $13 million in fake checks in payment of taxes for those years. In addition, he faces six counts of failure to file tax returns for 1999 through 2004. The AP story is here.