Madoff – Grigg – Dryer: Investment Fraud Victims Tax Relief Through IRC SECTION 165 (c)(2)

Moira Souza Shiver, expert on the application of IRC Section 165, has been asked by me to write this guest blog.  The benefits of Section 165 can be substantial, yet there are few who are qualified to understand how to effectively navigate the regulatory maze to gain maximum benefit.  As a business ethics and fraud prevention speaker, I try, through this blog, to provide a useful forum for discussing issues, and there is none more important at this time than the effective use of legal methods to recover loss.

Facts, Fiction and Future

Victims, taxpayers and citizens, in general, are experiencing an extraordinary chapter in American financial history.  Economic challenges, budget deficits and tax implications lead the list of many issues confronting citizens and legislators.  Surfacing in the midst of what appears to be mass chaos is yet another disturbing issue – victims of investment theft suffering irrecoverable losses in their life savings.  One bright spot, with the uncovering of these massive investment scams, the media is finally bringing attention to the fact that there are hundreds of thousands of people across this great country who are suffering tremendously at no fault of their own.

For the last ten years, I have been fighting for financial recovery for victims of investment theft.  There’s been a law on the books since 1954 that helps some victims, but most often it ignores the truly needy in favor of the wealthy.  Unfortunately, it also requires a monumental struggle with the IRS to get the deserved relief.  The pain and suffering these issues caused demanded I shift my focus and become an advocate for victims in three ways:

Investment Fraud Prevention Through Education
Maximize Recovery Through Legitimate Sources
Changes in the Tax Code to Carry Out the Intention of the Law

PROBLEM – LACK OF CLARITY, COUNTLESS (MIS)INTERPRETATIONS & INEXPERIENCED PROFESSIONALS

The $50 billion dollar Bernard Madoff Ponzi Scheme brought this subject to the public, but sadly, and very importantly, it also surfaced so-called experts that began advising victims on the recovery option under Internal Revenue Code Section 165 (c)(2).  Adding to the tragedy of these losses is the fact that those same experts are supplying incorrect information.  As an example: Stanford Law School and a former senior tax attorney for the IRS are both normally sources you can depend on for tax law advice.  They are both valuable sources of information, but in trying to help victims of investment fraud, they recently published information that could cause more problems than they solve.

An article, Long And Winding Path To Tax Relief For Madoff Victims, appeared on accountingweb.com dated February 19, 2009.  Stanford University provided information on the IRC 165 (c)(2) tax deduction, quoting a former IRS official.  This article is an example of a long list of experts serving up misconceptions, serious omissions, wrong answers and lost opportunities.  Add The Wall Street Journal, MSN, the New York Times and even the IRS to your list of experts providing incorrect information, and you begin to understand the seriousness of the problem.

FACTS – CURRENT TAX LAW HELPING VICTIMS OF INVESTMENT THEFT

Current law includes but is not limited to, the following facts:

IRC 165 (c)(2)
•    Law was established in 1954 to help investment fraud victims recover a portion of their losses through tax benefits (much like that of natural disaster loss victims or casualty losses such as a destroyed automobile not covered by insurance).  It was readdressed in 1984 by the Tax Reform Act, which did away with the 10% exclusion/$100 per item reduction.
•    Deduction allows qualifying victims to take their total net loss against ordinary income in a single year.
•    Deduction allows for the taxpayer to go back three years after declaring the loss in the “Year of Discovery” if a Net Operating Loss (NOL) remains, or, they can waive their right to go back, and carry the NOL forward up to 20 years.
•    Deduction allows for up to a 20 year carry forward, with the exception of when the 3 year carry back is utilized, which subsequently creates the potential for a 23 year benefit.
•    Losses in IRA and Pension Funds Do Not Qualify.
•    The taxpayer must prove the investment was made and lost by reasons of theft as defined in the state where the transaction took place.
•    Taxpayer must exhaust all reasonable means of recovery.
•    Taxpayer must be able to prove privity (Private or joint knowledge of a private matter; especially: cognizance implying concurrence (Merriam-Webster) or in practical terms, there was a first hand relationship between the thief and the victim) in order to qualify.  Ponzi scheme victims are generally not held to this requirement but that I’m aware, that exception is not written as fact.
•    (Some) IRS agents consider any form of pending legal action (individual, class action, federal indictments, bankruptcy or receivership) as potential recovery and will deny a claim until such time as that open pursuit of recovery is resolved.
•    IRS requires a victim to provide proof of cost basis (copies of checks, front and back, wire transfer confirmations, disbursements, withdrawals, recovery, etc.).
•    Taxes on phantom income are recoverable in full but are only allowed to be carried back 3 years.  The balance (NOL) can be carried forward up to 20 years.

FICTION – MISINFORMATION COMMONLY GIVEN TO THE PUBLIC

•    Before a taxpayer can claim a deduction, they must first exclude 10% of their Adjusted Gross Income and $100 per item – Wrong.  Although originally an aspect of the deduction, this exclusion was eliminated 25 years ago by the Tax Reform Act of 1984.
•    2 Year Net Operating Loss Carry Back – Common misconception.  Other than in 2002, when Congress allowed an exception allowing for 5 years, the carry back has always been 3.  The 2 year carry back does not apply to investment losses caused by theft.
•    Up to 50% recovery of loss – Misleading.  In my experience, taxpayers should expect to receive a total benefit between 10 – 20% of their loss.  Although there may be an exception out there somewhere, I’ve never seen any victims receive even close to a 50% benefit.
•    The deduction is taken in the year victims discover the money is gone – Maybe but not likely.  Convincing the IRS of the right year to take the deduction is complicated.  The big issue is the taxpayer having “exhausted all reasonable means of recovery”.  The “year of discovery” determination will vary from agent to agent.
•    The deduction is simple to obtain – Really?  It takes a knowledgeable and experienced 165 tax preparer to guide both taxpayers and the IRS agents through this process.  I promise you, you should be prepared to be fully prepared.  Taxpayers should expect to be reviewed carefully.

FUTURE – NEW PROPOSED LEGISLATION

For some time, I have been trying to get Congress to see the need for changes in the law.  The size of the Madoff ponzi scheme helped me with my mission to get congresses attention.  In doing so, they are now discovering how prevalent investment theft and ponzi schemes are in America.  Congressman Kendrick Meek of Florida’s 17th district moved quickly and proposed new legislation on February 24, 2009.  I’m thrilled to see it happen, but it did not go far enough.

Proposed changes to current tax law.

•    Will allow a 10 year carry back (or length of time in fraudulent investment, whichever is lesser) on cost basis and taxes paid on phantom income verses the current carry back of 3 years.  Given the fact that a great deal of injured investors are in the retiree/elder categories and have had little to no income over the last several years, this change will hopefully increase the chance of them reaching a year where significant taxes were paid.
•    Proposes to provide assistance to individuals who contributed to charitable organizations.  This is a new aspect to the law and it needs to be further examined in order to determine just who gets what benefits?  It’s not clear on how this will work and I’ll have to wait for more details before I can comment.
•    New legislation uses the word “estimate” verses “ascertained”.  This may be a big help in the filing of the claims in a reasonable amount of time, but it is not definitive and more work needs to be done.

FUTURE – CONTINUED – QUESTIONS NOT ADDRESSED

•    Will the complicated terms “Year of Discovery, Privity, Scienter, Cost Basis and Complete and Final Transaction” be defined in a way that makes it reasonable for the taxpayer to meet the requirements for filing?  Regardless of what legislation is proposed or passed, unless these issues are defined in a way that tax payers, their tax professionals and the IRS alike can understand, little if any of this assistance will reach the intended recipients.
•    Why is this limited to just ponzi schemes?  Although certainly less publicized, other forms of investment fraud are still investment fraud and all qualifying victims should be given the same consideration,
•    Will the new legislation actually limit the amount of time before a victim can claim the deduction and the IRS can take to approve it? The current process often takes so long that victims lose everything, including benefits, their homes and even their lives, before the help arrives.
•    Will IRA and pension savings be added to the forms of acceptable losses/victims?  A huge constituency of victims falls into this category and although technically they never paid taxes, they still worked hard for their money and would have paid them when the time arose.  The money was withdrawn, the perpetrator was enriched and he or she should owe the taxes.  Regardless of whether the IRS actually receives them, the victim should be entitled.
•    Would a uniform tax rate potentially be the better and fairer way to go?  Although the current proposed legislation goes far in trying to help, there are still a group of individuals that will be left helpless.  As many of these individuals paid on average 15 – 20 % in taxes when the money was made, it doesn’t seem quite fair that they are penalized for having grown older or now having no income.

SOLUTION

I’d start with definable (and reasonable) guidelines for tax payers and professionals.  Next would be setting up fair opportunities for recovery across the board, regardless of tax bracket or age.  And finally would be the creation of an organization, or an IRS qualifying exam, that sets the standards for professional services.  Setting these guidelines and standards, much the same as what CPAs, doctors, attorneys, etc. must adhere to or lose their standing, would help satisfy the IRS that the claims are legitimate, would provide the relief that so far is nearly impossible to receive and insure that the professionals assisting these victims are qualified and making claims in good faith.  By enacting legislation that gives the IRS authority to qualify those who represent taxpayers, they’d not only protect the victims, they’d protect all taxpayers against fraudulent or unworthy claims.

It was a breath of fresh air to finally see someone step up and try to help these people and I applaud Congressman Meek.  He’s taken the first step, and with a few additions, he could make this law something to be proud of.

Join my voice and let Congressman Meek know that these other issues are important and will make a big difference.

Congressman Meek can be contacted at:

Kendrickmeek.house.gov
Washington, DC
1039 Longworth House Office Building
Washington, DC 20515
Phone: 202-225-4506
Fax: 202-226-0777
Monday–Friday, 9 AM – 6 PM

Moira Souza Shiver
MSS Advocacy Group
mss165.com

Dan LaMarch Payroll Tax Fraud – Plea Agreement – Prison and Restitution in the Future!

Some one following this case, which I reported on back in February 2008, provided me with a copy of the plea agreement.  If you would like a complete copy e-mail me at chuck@chuckgallagher.com.

As a business ethics and fraud prevention speaker, I have had several folks ask just what the punishment would be for such a crime.  Below are reprints from the plea agreement.  Keep in mind, the judge is not bound by the agreement, so he/she would have the authority to make a decision other than what the US Attorney and LaMarch have agreed to.

The relevant provision are as follows:

The parties understand and agree that the offenses to which the defendant will enter a plea of guilty carry the following maximum term of imprisonment and fine: Count 6 (failing to pay over payroll taxes), five (5) years and $250,000; Count 17 (filing a false tax return), three (3) years and $250,000; and Information (wire fraud), twenty (20) years and $250,000. Each count also carries a mandatory special assessment of$100 and a maximum term of supervised release to follow any term of confinement of up to three years. The parties further recognize that a restitution order may be entered by the court.

A total of 28 years according to the agreement is possible, with the likely hood that LaMarch will serve the terms concurrently – meaning that he will likely get 20 years in federal prison plus restitution.

According to the Green Bay Press Gazette:

Daniel LaMarch, 55, who, along with his wife, Kay, owns Title Service of Green Bay, was initially indicted in U.S. District Court on 20 counts of failing to pay payroll taxes and filing false tax returns.

Federal prosecutors alleged that LaMarch withheld from his business’ employees’ wages more than $500,000 that he was supposed to pay the Internal Revenue Service from January 2002 to December 2005.

Initial charges could have had LaMarch facing up to 92 years in prison.  28 is less, but not insubstantial.  he faces sentencing on January 14, 2009.

Your comments are welcome!

Business Ethics Choices: A Taxing Issue Leads to Prison for NC Tax Preparer

MARCELLUS THOMAS, 44, of High Point, North Carolina, was sentenced to 56 months imprisonment on federal income tax charges on September 23, 2008.  There is no doubt when THOMAS reports he will find that his crime was not worth the short term benefit he received.

Crime does not pay.  I know and speak from experience.  Every choice has a consequence.  As a business ethics speaker, I, like Thomas, paid the price for my unethical dealings by spending time in prison.  I am not proud of that fact, but I do know that there is nothing worth the cost of your freedom and other issues that come from being a convicted felon.

According to the US Attorney’s Office:

THOMAS, a commercial income tax preparer operating a company called Refund Recovery Group in High Point, was charged with causing fraudulent federal income tax returns to be prepared for clients and filing them with the Internal Revenue Service for the tax years 2002-2004. Despite the fact that most of his clients lived in publicly-assisted housing and were unemployed during those years, THOMAS claimed income from fictitious businesses such as hair salons and day-care centers on their tax returns without their knowledge in order to obtain income tax refunds under the Earned Income Tax Credit to which they were not entitled. THOMAS did not identify himself on the tax returns as the preparer. After having the Internal Revenue Service wire the refunds, which ranged from $1,377 to $2,726, to his own bank account, THOMAS kept a significant portion of the refunds for himself and gave the remainder to his clients.

From an ethics perspective, THOMAS went knowingly and clearly outside of the bounds of the law and what anyone would have known to be correct.  I cannot say that I would blame his clients as they would, for the most part, be ignorant of the tax law and what, if anything, they would be entitled to.  On the other hand, THOMAS, had to have known exactly what he was doing when he made up fictious companies in order to claim the refunds.

According to the IRS, THOMAS was convicted by a jury on June 6, 2008, of eleven counts of filing false income tax returns.

From $1,300 to $2,800 in refunds to 56 months in federal prison, somehow, based on experience, I think that THOMAS will learn that crime does not pay.  Perhaps, when released he will be able to take what he learned in prison and use it to some good in NC.  For now, his consequence is significant.  You do reap what you sow.

File Your Tax Returns or Go To Prison – James Michael Long Convicted of Failure To File

“During difficult economic times such as these, it is critical that American taxpayers feel confident that everyone is paying their fair share of taxes. Part of our mission is to vigorously enforce the tax laws to instill that confidence,” said Michael P. Lahey, Special Agent in Charge of IRS-Criminal Investigation, Dallas Field Office.

This quote from the US Attorney’s news release about the conviction of James Michael Long speaks volumes. You can bet that “during difficult economic times such as these” people will be tempted to avoid paying income taxes – either outright or through fraudulent deductions or both. If the choice is paying your mortgage and keeping the house or filing or paying your taxes – more than likely the house will come first. This is just the beginning of a title wave of such convictions that will occur for years to come.

But let’s look at this case! According to the news release, James Michael Long was convicted of failure to file tax returns.

During trial, the government presented evidence that during tax years 2001, 2002, 2003 and 2004, Long received income from several sources, including Dallas Auto Auction, ADESA Texas and affiliates, Assister and Associates, Caison Auction Service, Greater Nevada Auto Auction, John Sisk Auctioneering, Ward Brothers Tractor Co., and DFW Auto Auction. His income was $65,447.47 for 2001; $72,714 for 2002; $188,485 for 2003; and $135,177.60 for 2004. His income was well above the minimum amounts required to file an income tax return for each of the respective years.

Long was arrested in May on the charges and was detained pending further proceedings because, as U.S. Magistrate Judge Charles Bleil noted in a written order of detention, the defendant “refused to talk with probation officers about his background, employment, address or any pertinent information. Additionally, he refused to complete a financial affidavit. The defendant was also bizarre in his conduct, seemed irrational, and expressed a lack of recognition of any authority over him.” Long was eventually released on bond in early September.

The jury took 15 minutes to reach a verdict. Long’s sentence is to follow.

If Wesley Snipes can be sentenced to three years for not filing his tax returns, then Long could easily face a significant sentence. And, trust me, I know that time in federal prison is no fun…I was there (not proud of that fact) but know that every choice has a consequence. As a white collar crime and business ethics speaker, I remind audiences of that often.

Let’s hope that Long learns as he has time to reflect on his lost income while in prison. Earning 12 cents per hour for prison work is a radical change from his prior income patterns. But then prison earning are tax exempt.

Darren Reagan – Choices and Consequences That Include Prison! Comments by Business Ethics Speaker Chuck Gallagher

In June of 2008 Darren Reagan was convicted of theft of public money – a federal offense. On October 8th, 2008 he was sentenced to 12 months in federal prison. But this is not the end for Reagan, as he will face additional charges and a hearing in January 2009 for other alleged offenses.

As a business ethics speaker, I remind audiences around the nation that every choice has a consequence. More times than not, we might make simple (unethical or illegal) choices that seem innocent at the time, with the full intent on paying back. Reality is, however, you cannot escape the consequence of the choices made. I know and speak from experience, as it was thirteen years ago to the month that I took my first steps into federal prison for the choices that I made.

According to the US Attorneys Office:

Reagan, who is currently in federal custody, is also a defendant in the Dallas City Hall corruption investigation case, charged with conspiracy to commit extortion, two counts of extortion by public officials, one count of conspiracy to commit money laundering and four counts of tax evasion. That case is scheduled to go to trial in January 2009.

At trial, the jury found that from October 1, 2002, through September 1, 2007, Reagan knowingly stole approximately $45,000 in rental housing assistance payments from the Dallas Housing Authority (DHA) in connection with the rental of certain property to his mother-in-law, Leatha Kirven. Reagan falsely claimed to the DHA that he had no blood, marital, or other familiar relationship to Ms. Kirven, and as such, caused DHA to pay him housing assistant payments to which he was not entitled.

Mrs. Kirven testified in a videotaped deposition taken from her hospital room that she knew that when she signed up for the Section 8 housing assistance with Mr. Reagan, that she knew it was against the rules. She also testified that she told federal agents, when questioned by them two years ago, that she knew it was wrong.

Darren L. Reagan is also a defendant in the Dallas City Hall corruption investigation case, charged with conspiracy to commit extortion, two counts of extortion by public officials, one count of conspiracy to commit money laundering and four counts of tax evasion. That case is scheduled to go to trial in January 2009.

Politics and Ethics – A Question

Ethics is defined as the discipline dealing with what is good and bad and with moral duty and obligation. Now if that is generally true – that ethical choices are defined as those choices that deal with a moral duty and obligation, then the question is can ethics and politics truly go hand in hand?

Some would, of course, say yes. I’ve heard it said that ethical people are always ethical. However, from my experience personally and in observing the behavior of others, I am not sure that is true. I have come to believe that ethical or moral people can become so tempted that they make unethical or bad decisions. And, speaking from experience, the first decision although mentally difficult is the one that paves the way for more to follow.

So here me out and please, with your comments, answer this question! I submit that Darren Reagan started out being a good man. Like most of us, he likely had his flaws, but I bet there are those who would read this and vouch that Reagan was a good man. If that is so, then what happened that caused an otherwise good man to make choices that ended him up with a home in federal prison? Could it be that the power of politics proved to be too much temptation?

Those who have a connection to this case – your comments are welcome!

Identity Theft Alive and Well! Levander and Rita McLean of Garland Texas Convicted

There are times when I read of people who have been convicted and I wonder how good people got caught up in a crime and ended up with unfortunate consequences.  Often, as an ethics speaker, I have said that – Every Choice Has A Consequence.  That is a true statement.  And at times it is true that otherwise good people make bad choices and find out the hard way about the consequences that follow.  But in this case – well read for yourself.

According to the US Attorney’s office: Levander Carlton McLean, 66, and his wife, Rita Murphy McLean, 45, of Garland, Texas, were convicted by a federal jury following a three-day trial on conspiracy to unlawfully use identification documents.  They each face a maximum statutory sentence of five years in prison, a $250,000 fine and restitution. They are scheduled to be sentenced by Judge Kinkeade on December 3, 2008.

The government presented evidence at trial that in July 2001, Levander and Rita Murphy McLean were able to convince their nephew, a Texas Department of Public Safety driver’s license technician, to make them a fraudulent Texas driver’s license and a fraudulent 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.

Now I have to ask here…wonder what the nephew thought when dear old Aunt and Uncle were asking for the fake ID’s?  In order for a fraud to happen three things must be present: (1) need; (2) opportunity and (3) rationalization.  In this case the Nephew provided the opportunity.  Had the Nephew just said now – which is the logical answer, this couple could not have carried out this fraud. 

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. 

While bluntly put this is just dumb fraud pure and simple, there are many other circumstances where good people make bad choices and find out the hard way about consequences.  In this case, I would wager that they both will serve some time in federal prison.  Meanwhile, while I have no idea about the nephew…I would suspect that at a minimum he’s lost his job and perhaps is subject of an investigation for conspiracy.

For information about ethics and choices presentations, visit my web site and remember – Every Choice Does Have A Consequence.

Aryeh Schottenstein and Shawn A. Griffin Plead Guilty! And the Ohio Mortgage Fraud Guilty Pleas Keep on Coming…

As a mortgage fraud speaker, I observe what’s taking place in the mortgage fraud arena, but I have to say, the legal eagles in Ohio are working the mortgage fraud angles hard…

Two more Columbus-area people indicted as part of a mortgage fraud scheme that secured more than $7 million in mortgage loans pleaded guilty in United States District Court. Aryeh Schottenstein, age 34, of Columbus, pleaded guilty to one count of conspiracy to commit wire fraud and one count of money laundering, and Shawn A. Griffin, age 38, also of Columbus, pleaded guilty to two counts of conspiracy to commit wire fraud and one count of money laundering.

Schottenstein and Griffin were indicted along with Donald F. Green, Jeffrey Lieberman and George “Terry” Jordan for a mortgage fraud scheme in central Ohio in 2003 and 2004. COMMENT: It seems that at the height of easy money for mortgages – mortgage fraud was rising as well. See what these folks did below as their crime is becoming a common pattern.

According to statements of facts filed with Schottenstein’s and Griffin’s pleas, Schottenstein and Lieberman owned a company called Parkview Bank. One of Parkview’s business purposes was to locate financing for real estate investors seeking to buy and renovate houses in Columbus. Parkview needed a source for the financing for this venture. In 2003, Schottenstein and Lieberman met with the managing partners for Stillwater Asset Backed Fund to convince them to provide the funding. They were successful.

Parkview and Stillwater entered into an agreement whereby Stillwater would provide the funding for Parkview’s deals. Rather than abide by the agreement and locate legitimate investors, Schottenstein used Griffin to recruit straw-buyers to pose as real estate investors. Using straw-buyers was quicker and easier than locating legitimate real estate investors thereby making it easier to generate more loan origination fees. The straw-buyers were told by Griffin they did not need to renovate the houses or make monthly interest payments. Griffin assured them he would take care of all the details.

COMMENT: Two things stand out – (1) impatience with legitimate business became the foundation of the fraud; and (2) the “straw buyers” were motivated by quick money in order to participate in the scam.

Griffin also recruited straw buyers in 2002 and 2003 for Jeff Pearson, now deceased. Pearson bought dozens of low-income distressed houses in Columbus for amounts at or near their fair market value. The houses were in need of renovation. Very little if any renovation was done to the houses. The houses were sold to Griffin’s straw-buyers for two to three times the amounts Pearson had paid only a few weeks or months earlier. Despite having good credit, the straw-buyers usually had little income. At the closing on the straw-buyers’ purchases of the houses, the title companies issued large checks payable to Pearson as proceeds from the sales.

Green pleaded guilty on April 11. Lieberman and Jordan pleaded guilty on April 24. All are free pending sentencing. Judge Marbley will set a date for sentencing. Conspiracy to commit wire fraud is punishable by up to five years in prison and the money laundering charges carry a maximum sentence of ten years in prison.

According to the Columbus Dispatch a scheme that investigators say bilked millions from banks, lenders and investors was so involved that there were too many fraudulent home purchases to list in the 36-page federal indictment.

Those indicted originally were:

Donald F. Green, 48, of Columbus, real-estate investor

Shawn A. Griffin, 37, of Cleveland, real-estate investor

Aryeh M. Schottenstein, 33, of Oak Park, Mich., real-estate investor

Jeffrey M. Lieberman, 56, of Bexley, real-estate investor

George T. “Terry” Jordan, 50, of Canal Winchester, real-estate agent

Dwayne L. Carter, 37, of Columbus, loan officer

Jonathan L. Boyd, 38, of Columbus, loan officer

Kenyatta Johnson, 37, of Michigan, loan officer

James Darneil Gaither, 37, appraiser

Every choice has a consequence. As a white collar crime and mortgage fraud speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. While Schottenstein and Griffin may have enjoyed the money for a time and avoided the consequences – they did not avoid the consequences all together. Prison is no fun and both are facing several years plus substantial restitution for this conviction. Likely they will serve time and that will prove to be a dramatic change from their prior activities. You do reap what you sow.

If you were a victim…please share your experience so other may benefit.

Mortgage Fraud Speaker – Chuck Gallagher – signing off…

A Ferrari, A Bentley and a Federal Indictment – Andrew Maxwell Parker Finds Himself on the Wrong Side of the Law!

Every choice has a consequence! May 2008 will be remembered by 40-year-old Andrew Maxwell Parker, owner of San Antonio Trade Group, Inc., since he was indicted on conspiracy, wire fraud, money laundering, false statements and tax charges. It appears that Parker’s choices may be having unexpected consequences.

Parker’s indictment alleges that from February 2003 to November 2006, Parker schemed to defraud the Export-Import Bank of the United States (Ex-Im Bank) by stealing millions of dollars in loan proceeds from private U.S. lenders to Mexican business owners and causing multi-million dollar losses to Ex-Im Bank who guaranteed or insured those loans based on false applications and support documentation submitted by Parker. The indictment also charges Parker with defrauding lenders in transactions not insured or guaranteed by the Ex-Im Bank.

The indictment further alleges that Parker attempted to evade paying taxes owed in calendar years 2003 and 2004 by disguising account transfers of $588,000 and $816,720.55, respectively. Parker allegedly claimed the money was used to purchase equipment being exported to Mexico when in fact, he used the $588,000 to purchase a house in Dallas, Texas, and the $816,720.55 to purchase two Ferrari automobiles and one Bentley automobile for himself. He also funneled money to relatives, all from nominee accounts. Furthermore, the indictment alleges that he under-reported his actual income on his 2003 and 2004 tax returns.

In all, Parker is charged with conspiracy, nine counts of wire fraud, two counts of use of a false document, 12 counts of money laundering, two counts of tax evasion, and two counts of filing a false income tax return. The indictment also seeks the criminal forfeiture of his San Antonio residence at 407 E. Wildwood Dr. and his 2004 GMC Hummer H2, plus a monetary judgement in the amount of $10 million representing proceeds obtained directly or indirectly as a result of Parker’s alleged scheme.

While an indictment is only a formal accusation of criminal conduct and not evidence of guilt, rarely does the US Attorney’s office lose a case like this. More than likely this will be an open and shut case. The government may not get a conviction on all charges, but they will get a conviction. Considering the recency of the indictment, my guess is that Parker will use his resources to secure legal help in reaching a plea agreement that will minimize his prison time. Although Parker’s lawyer, John Pinckney, said Parker denies the allegations and wants a jury trial. If convicted he will likely spend substantial time in federal prison.

Parker has been the target of the FBI and criminal investigators of the Internal Revenue Service over more than $163 million in loans backed by the Export-Import Bank of the United States. The bank is a little-known federal agency that is supposed to help American companies export their products by backing high-risk loans to foreign businesses that are supposed to buy the products. It works with some private commercial lenders to get the loans and has to pay with taxpayer funds if the borrower defaults. Court records allege millions of dollars of loans handled through Parker defaulted and the bank had to cover them.

“I have been calling for a (Congressional) investigation because there is ample evidence that hundreds of millions of dollars of taxpayer money is simply disappearing from the Export-Import Bank as they appear to be guaranteeing loans to businesses that don’t exist,” said Congressman Jeb Hensarling of Dallas. “A lot of money was provided to companies and they never, ever repaid the loans. The bottom line is this a mess, it deserves a full investigation. I don’t know of the particulars of the case in San Antonio, but it is further evidence of federal program that has run amok and needs accountability and an investigation.”

“It started out as a well-intentioned program… but there is no oversight, like a board of directors in private (banking), to ensure that things aren’t hinky,” said David Williams, vice president of policy for Washington-D.C.-based watchdog Citizens Against Government Waste. “The federal government has been notorious about its lack of oversight. The last thing we need is a corporate welfare program that has no oversight on it.”

Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. While Parker may have looked good for a time and avoided the consequences – he did not avoid the consequences all together. If convicted Parker will find that prison is no fun and likely will be facing many years plus substantial restitution for his conviction. Serving time will prove to be a dramatic change from his prior activities. You do reap what you sow.

If anyone reading has any background on PARKER – feel free to comment as I study the behaviors and backgrounds of those indicted for white collar crime.

White Collar Crime Speaker – Chuck Gallagher – signing off…

THIS JUST IN…another reader provided these links related to Export-Import Bank frauds and sentences. See here and here.

Thanks!!!

Just Pay Me “Cash” – Local Dentist Dr. Brian G. Martinez Pleads Guilty to Tax Evasion!

As a former CPA, I can’t tell how many times I’ve heard clients say that since they received money in cash “it wasn’t taxable.” WRONG! Not only did I correct that impression for my clients, I would not keep them as clients if they insisted on being a part of what is obviously tax fraud.

Now, I went to prison for tax evasion, so I am not lily white. In fact, while I am not proud of my past, I have a unique perspective from which to write and comment. Perhaps my comments will be the foundation that might help others.

According to the US Attorney’s office, a practicing Houston area dentist has pleaded guilty to filing a false income tax return and evading more than $145,000 in federal income taxes between 1999 and 2003. Dr. Brian G. Martinez, 51, a practicing dentist in Houston, pleaded guilty to the federal felony tax charge Thursday, May 1, 2008. At the hearing, Martinez admitted that between Jan. 1, 1999, and April 15, 2004, while engaged in the commercial practice of dentistry, he received payment for services rendered to patients in the form of cash and/or by credit card, check or money order. Although books and records for the practice recording the payments made by patients for services rendered were maintained, not all payments were recorded in the books and records that were disclosed to those who prepared Dr. Martinez’s tax returns for calendar years 1999 through 2003. In some instances, Martinez was handed both cash receipts and checks which he personally cashed, which would not be disclosed, documented or disclosed to the tax return preparers.

COMMENT: The practice of not keeping accurate records is common. In fact, the fact that Dr. Martinez went to the trouble to keep inaccurate records show deliberate intent and, likely will pay against him at his sentencing hearing.

Martinez concealed from his tax preparers a total of $533,048 in revenue or gross receipts received from patients during calendar years 1999 through 2003 – all taxable income – causing materially false income tax returns to be filed with the IRS and evading the payment of a total of $149,253 in income taxes for those tax years.

COMMENT: When cash receipts are concealed the question often arises, what to do with the cash. More times than not, the IRS can recreate accurate income records by looking at lifestyle. Rarely does a person hide the cash. Most of the time they spend it and that’s the one activity that creates the trail for a conviction.

To help with sentencing, Martinez paid restitution – delivering a check in the amount of $149,253 payable to the IRS. Sentencing is set for July 25, 2008. Martinez faces a maximum of five years in prison and a $250,000 fine. Additionally, the court may impose up to three years of court supervision to follow any term of imprisonment imposed. I suspect that Martinez will face 12 months in prison!

Comments are welcome!

White Collar Crime Speaker – Chuck Gallagher – signing off…

Fake IRS Employee – Morgan Mayfaire a/k/a Elizabeth Valdo – Charged with Prepare Fraudulent Tax Returns

So it’s tax season, the time when all are required to file tax returns. You look for someone who can provide the service correctly. You want someone with experience, someone who knows the law. Hum… I guess a n IRS employee would do?

As it turns out, Morgan Mayfaire, a/k/a/ Elizabeth Valido, age 49, of Davie, Florida, was charged with thirty-five counts of making false and fraudulent statements and eight counts impersonating an employee of the United States. Great! Wonder how the folks who had her fill out their returns feel?

If convicted, Morgan Mayfaire faces a maximum term of imprisonment of 3 years and a $100,000 fine on each of the charges of fraud and false statements, and a maximum term of imprisonment of 3 years and a $250,000 fine on each of the charges of impersonating an employee of the United States.

According to the Indictment, Morgan Mayfaire prepared fraudulent tax returns at her residence in Davie, Florida for several clients. The clients paid Mayfaire a tax return preparation fee of 10% of the refund claimed on their federal tax returns. Mayfaire prepared tax returns and amended tax returns on Forms 1040 and 1040X in which she reported false medical expenses, taxes, charitable contributions, and employee business expenses. The false expenses and deductions listed on the returns resulted in approximately $472,904 in tax refunds to her clients.

NOTICE: If you hire a return preparer who charges based on the refund received…watch out. By any ethical standard you can think of – this is wrong and a clear indication that some sort of fraud is likely.

Moreover, according to the charges, Mayfaire falsely represented to her clients that she was an IRS employee, and, as such, knew ways to increase taxpayer deductions on tax returns that others were unfamiliar with. These false representations induced clients to hire her to prepare their tax returns.

While an indictment is not an indication of guilt, I have found as someone who speaks and writes about white collar crime, that most indictments result in a guilty verdict. As evidenced in the Wesley Snipes sentencing hearing, if convicted, this woman will go to jail.

YOUR COMMENTS ARE WELCOME!

Meanwhile, white collar crime speaker, Chuck Gallagher, signing off…