Wire Fraud, Tax Evasion, and Money Laundering—Michael K. Salisbury

The head of Louisville’s historical weapons museum has been indicted on federal wire fraud, tax evasion, and money laundering charges for allegedly “inflating the prices of weapons bought by the museum’s founder and primary financial backer.”^[1] Michael K. Salisbury—along with his wife, Karen Cruse Salisbury—allegedly “worked together to misrepresent the price and value of a number of antique firearms sold to [Owsley Brown] Frazier and the museum.”^[2] It is also alleged that Mr. Salisbury “concealed the income from the fraud and failed to pay income taxes” derived from it.^[3] Mr. Frazier opened the museum in 2004 in downtown Louisville, and it exhibits the “philanthropist’s personal collection of guns and weaponry dating from the 18th to the early 20th centuries.”^[4]

According to prosecutors, Mr. Salisbury turned a profit of at least $1.75 million dollars, with some of the items selling at twice the value of the original purchase price.^[5] This is where the charges get tricky. Merely selling an object at a 100% markup is not per se illegal. Something more is required.

The indictment alleges that the Saliburys used “materially false and fraudulent promises and representations, knowing that such promises and representations were false when made.”^[6] It also alleges that Mr. Salisbury “deprived his employer of the intangible right of honest services in that he falsely represented the price and value of items purchased, knowing that the representations were false and fraudulent when made, and retained for his personal gain and benefit the difference between the represented price and the actual price.”^[7] He also allegedly committed honest services fraud by “demand[ing] that kickbacks be paid and receiv[ing] kickbacks on certain transactions.”^[8]

If the facts are as the prosecutors allege, the fraud occurred when Mr. Salisbury located certain weapons for “the collector” and misrepresented the price set by the seller. This would probably be an entirely different case if Mr. Salisbury had purchased the weapons himself and then resold them to Mr. Frazier for a premium.

The criminal prosecution arises from civil litigation between Mssrs. Salisbury and Frazier. Mr. Frazier has sued Mr. Salisbury under the civil RICO statutes for, among other things, breach of fiduciary duty.^[9] Mr. Salisbury offers the affirmative defense that Mr. Frazier agreed to pay a commission on the guns which Mr. Salisbury located. Apparently the litigation is ongoing, with the discovery period ending in April of 2006.

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[1] Former President of Frazier Museum, Wife Indicted on Fraud Charges, Business First, Jan. 26, 2006.
[2] Id.
[3] Id.
[4] Id.
[5] Couple Accused of Defrauding Arms Museum, Associated Press (via WKRN.com), Jan. 26, 2006.
[6] United States v. Salisbury, No. 3:06cr-10-5, Indictment at 2 (W.D. Ky. 2006) (available through PACER).
[7] Id. (emphasis added).
[8] Id.
[9] Frazier v. Salisbury, No. 3:04-cv-00124, Complaint (W.D. Ky. 2005).