Defense Rests in Snipe Tax Fraud Case

The defense in the tax fraud and conspiracy trial of Wesley Snipes rested Monday.^[1] In trial after indictments handed down which named Snipes, Eddie Ray Kahn and Douglas P. Rosile.^[2] Snipes and the co-defendants allegedly stopped filing his federal tax returns in 2000, demanded some $11 million in refunds on taxes previously paid and tried to settle other U.S. Treasury debts with fake checks.^[3]

All three were charged tax fraud and conspiracy, while Snipes faced six additional charges of willful failure to file a return from 1999 to 2004.^[4] The 45-year-old actor faces a potential sentence of 16 years in prison, while Kahn and Rosile could get 10; however, sentences that long are extremely rare in these cases.^[5]

"We chose not to call witnesses because there was no need to. The government prosecutors have put on a case that simply does not come close to meeting the standard of its burden of proof……..It was obvious after we went over the evidence the government presented that we could move on to closing arguments immediately and get a just acquittal for Wesley on all counts listed in the indictment," Snipes' federal criminal defense attorney Daniel Meachum said in a statement. ^[6]

Attempt to evade or defeat tax
This crime is covered under 26 U.S.C. § 7201 wherein it states that any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.^[7]Additionally 26 U.S.C. § 7206 covers fraud and false statements and that section declares that any person who willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.^[8]

---

^[1] AP Staff, Snipes' Defense Rests in Tax Fraud Trial, Associated Press Newswire, January 28, 2008, available at LEXIS, News Library, Wire News Services.
^[2] Id.
^[3] Id.
^[4] Id.
^[5] Id.
^[6] Id.
^[7] 26 U.S.C. § 7201(2007).
^[8] 26 U.S.C. § 7206(1)(2007).

Former Gary Indiana Councilman Convicted for Tax Fraud

A federal jury convicted Gary, Indiana political figures Will Smith, Jr., Roosevelt Powell, and Willie Harris, in September of filing false tax returns over a combined $150,000 in fees they received in the sale of a vacant grocery store to a city redevelopment group.^[1]

Smith, who was sentenced Friday, was County Council president when he was indicted last year.^[2] Powell, an adviser to Gary Mayor Rudy Clay, and Harris, a Gary city attorney, were also convicted in the scheme.^[3] Harris received a 55-month sentence Tuesday; Powell was sentenced to 37 months a week earlier.^[4]

In spite of criticism from state and county officials, Smith refused to step down after his conviction, and didn’t resign until Dec. 29, two days before his term expired and three months after he was convicted.^[5]

Authorities asserted that the three arranged for the Gary Historical and Cultural Society to take ownership of the former supermarket, then arranged for it to be sold to the now-defunct Gary Urban Enterprise Association for $200,000.^[6] The men kept 75 percent of the money from the sale for “finder’s fees,” according to trial testimony.^[7]

Prosecutors asserted that the Historical Society received $50,000 from the deal; Harris kept $50,000 for himself and gave $75,000 to Smith and $25,000 to Powell.^[8] Smith said he was nearly $35,000 behind in payments on a bankruptcy settlement at the time.^[9]

Attempt to evade or defeat tax
This crime is covered under 26 U.S.C. § 7201 wherein it states that any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.^[10]Additionally 26 U.S.C. § 7206 covers fraud and false statements and that section declares that any person who willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.^[11]

---

^[1] AP Staff, Ex-councilman sentenced for tax fraud, Associated Press Newswire, January 19, 2008, January 9, 2008, available at LEXIS, News Library, Wire News Services.
^[2] Id.
^[3] Id.
^[4] Id.
^[5] Id.
^[6] Id.
^[7] Id.
^[8] Id.
^[9] Id.
^[10] 26 U.S.C. § 7201(2007).
^[11] 26 U.S.C. § 7206(1)(2007).

David Brooks Indicted for Securities Fraud, Tax Fraud

David Brooks, a former chief executive of body armor maker DHB Industries Inc, faces criminal securities fraud charges; he was released on $400 million bail on Thursday, Jan 3.^[1]

DHB Industries is now known as Point Blank Solutions Inc PBSO.PK and has new management.^[2] The U.S. Attorney's office in Brooklyn, which is prosecuting the case, has accused Brooks and former DHB Chief Operating Officer Sandra Hatfield of improperly altering the company's books to increase earnings and profit margins.^[3]

Brooks was charged in October with securities fraud, insider trading, tax evasion and other offenses.^[4] Federal prosecutors contend he improperly inflated corporate profits and made the company pay for personal expenses.^[5]

In a written order issued Thursday, Judge Joanna Seybert in U.S. district court in Brooklyn, New York, agreed to release Brooks on a $400 million bond co-signed by several family members and secured by $48 million in assets. Brooks was ordered to home confinement while he awaits trial.^[6]

"David is pleased to be able to spend time with his family and with his lawyers to begin preparing his defense," asserted his federal criminal defense lawyer, Paul Shechtman.^[7]

Tax evasion is covered under 26 U.S.C. § 7201 and in that statute it states that it is a crime for any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.^[8]

To prove a federal criminal securities fraud case, the government must prove beyond a reasonable doubt that: 1)the defendant used a device or scheme to defraud someone, made an untrue statement of a material fact, or failed to disclose a material fact which resulted in making the defendant's statements misleading; 2) the defendant's acts were, or failure to disclose was, in connection with the purchase or sale of securities; the defendant used the mail or telephone in connection with these acts or this failure to disclose; and the defendant acted for the purpose of defrauding buyers or sellers of securities.^[9] If the government successfully convicts the defendant on securities fraud charges, the defendant can be fined up to $1,000,000 (up to $5,000,000 if a corporation), imprisoned for up to 10 years, or both.^[10]

---

^[1] Martha Graybow, Jeffrey Benkoe, $400 mln bail set for ex-US body armor executive, Reuters Newswire, January 3, 2008, available at LEXIS, News Library, Wire News Services File.
^[2] Id.
^[3] Id.
^[4] Id.
^[5] Id.
^[6] Id.
^[7] Id.
^[8] 26 U.S.C. § 7201(2007).
^[9] 15 U.S.C. §77a & 78a (2007).
^[10] Id.

Haas Sentenced for Tax Fraud

Gene Francis Haas, the owner of an Oxnard machine-tool company, was sentenced to two years in prison for trying to avoid more than $34 million in income taxes by padding the books with false expenses.^[1]

Haas owns Haas Automation, Inc. which is believed to be the nation's largest computerized machine tool maker.^[2] He also is a noted philanthropist who donated hundreds of thousands of dollars to Ventura County colleges and nonprofits.^[3] He and four business associates were charged in connection with three separate tax fraud schemes that Haas engineered, according to the U.S. attorney's office.^[4]

Haas pleaded guilty in August to 11 federal charges and before sentencing had paid about $75 million in taxes, penalties and interest to settle the tax charges.^[5] The other defendants all pleaded guilty earlier and will be sentenced next year.^[6]

Prosecutors asserted that the tax fraud began in 2000 when Haas tried to recover nearly $9 million he had paid to settle a patent infringement lawsuit brought by a rival firm.^[7] The company's former financial officer reported the scheme to the FBI in 2001, leading to a year long investigation.^[8]

Attempt to evade or defeat tax is covered under 26 U.S.C. § 7201, wherein it states that any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.^[9]

Federal criminal defense attorney Douglas McNabb has also previously discussed the federal crime of tax fraud in his blog, here.

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^[1] AP Staff, SoCal man gets 2 years over $34 million tax fraud, Associated Press Newswire, November 6, 2007, available at LEXIS, News Library, Wire News Services File.
^[2] Id.
^[3] Id.
^[4] Id.
^[5] Id.
^[6] Id.
^[7] Id.
^[8] Id.
^[9] 26 U.S.C. § 7201(2007).

Medina Pleads Guilty to Tax Fraud

Renato Medina, a casino owner in Colma, CA, is at the heart of a federal public corruption probe in California that has led to several arrests.^[1] Medina has admitted to cheating on his taxes and illegally deducting $2.6 million in personal expenses.^[2] Medina's niece and nephew, who were also arrested, have pleaded not guilty to helping Medina set up sham companies to help funnel casino revenue into Medina's personal holdings.^[3]

The public corruption probe also caught Colma’s former mayor who was sentenced to 18 months in prison in July after pleading guilty to accepting airline tickets from Medina while the casino had business pending before him.^[4]

Medina could face up to five years in prison when he's sentenced Feb. 28 for felony tax evasion.^[5] He has also agreed to pay $591,000 in back taxes after admitting listing home furnishings, a new Mercedes Benz and other personal luxuries as Lucky Chances Casino expenses.^[6]

The IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.^[7] The Criminal Investigation Division of the IRS takes attempts to evade the tax laws of the United States very seriously. But the Investigation division is not limited to mere tax crimes; they can also pursue crimes such as money laundering and bank fraud.^[8]

Tax evasion is covered under 26 U.S.C. § 7201 and in that statute it states that it is a crime for any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.^[9]

---

^[1] AP Staff, Colma casino owner pleads guilty to tax evasion, Associated Press Newswire, October 23 , 2007, available at LEXIS, News Library, Wire News Services File.
^[2] Id.
^[3] Id.
^[4] Id.
^[5] Id.
^[6] Id.
^[7] IRS, Criminal Investigation (CI) At-a-Glance, available http://www.irs.gov/compliance/enforcement/article/0,,id=108792,00.html (last visited October 23, 2007).
^[8] Id.
^[9] 26 U.S.C. § 7201(2007).

Kenyan Man Arrested for Identity Theft; Tax Fraud

Police arrested Ervin Patrick Somba in Kenya on Tuesday, Sept 24, based on U.S. indictments.^[1] Somba, together with 16 other people, was arrested for allegedly using the identities of 300 individuals to file false tax returns.^[2]

Police acted on a tip off and found Somba in a home in the suburbs of Nairobi, he did not resist arrest and was found with two Kenyan passports issued between July and August, an unregistered shotgun and explosive pellets.^[3] Somba is one of three people indicted in July who U.S. authorities had said are believed to be living in Kenya.^[4] Already, 10 of the people wanted in the alleged identity theft case are in custody in the U.S.; as of now only four of the defendants are unaccounted for.^[5]

In July, a federal grand jury indicted the 17 people after prosecutors charged them with stealing the personal information of Kansas City-area nursing home residents and using it to file at least 365 fraudulent federal tax returns since February 2005.^[6] They allegedly sought $13.1 million in refunds. U.S. Attorney John Wood asserted at the time conspirators had also filed fraudulent tax returns in 27 states.^[7]


Attempt to evade or defeat tax
This crime is covered under 26 U.S.C. § 7201 wherein it states that any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.^[8]

Additionally 26 U.S.C. § 7206 covers fraud and false statements and that section declares that any person who willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.^[9]

---

^[1] Tom Odula, Police arrest Kenyan man indicted in US for alleged identity theft Associated Press Newswire, September 24, 2007, available at LEXIS, News Library, Wire News Services.
^[2] Id.
^[3] Id.
^[4] Id.
^[5] Id.
^[6] Id.
^[7] Id.
^[8] 26 U.S.C. § 7201(2007).
^[9] 26 U.S.C. § 7206(1)(2007).

Jury Deliberates in Black Fraud Trial

The jury has begun deliberating in the fraud and racketeeting trial of former media mogul Conrad Black.^[1] The panel has been in court for three months of testimony, more than 40 witnesses about 30 hours of closing statements and the presentation of hundreds of documents in the trial of Black and three other Hollinger executives.^[2]

The jury will be considering all 43 of the charges, which include mail and wire fraud, obstruction of justice, racketeering and tax fraud; there are 13 counts against Black, 11 against each of former Hollinger International executives Jack Boultbee and Peter Atkinson and eight against former company lawyer Mark Kipnis.^[3]

The key issue in this case rests on non-compete payments from sales of Hollinger newspapers which were made in exchange for promises not to compete in the same markets where the papers circulated.^[4] Such agreements are not unusual in the publishing industry, but prosecutors say the money should have gone to Hollinger's shareholders, not the executives.^[5]

As they deliberate, the mostly female jury was instructed that it must decide whether prosecutors have proven beyond a reasonable doubt that Black and the others intentionally lied to enrich themselves at the expense of Hollinger International shareholders.^[6]

Obstruction of Justice
Under 18 U.S.C. § 1519, any person who falsifies documents with the intent to impede, obstruct, or influence the investigation of any matter within the jurisdiction of a department of the United State can be fined, imprisoned for 20 years, or both.

Racketeering
Racketeering is generally covered by 18 U.S.C. § 1951 wherein it states that interference with commerce by threats or violence is a crime that occurs when a person, in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by robbery or extortion or attempts or conspires so to do, or commits or threatens physical violence to any person or property in furtherance of a plan or purpose to do anything in violation of this section shall be fined under this title or imprisoned not more than twenty years, or both.

Racketeering charges should be differentiated from RICO charges. Racketeering is the interference of commerce through threats of violence.^[7] RICO charges,^[8] on the other hand, concern organized crime and systematic racketeering activity infiltration into legitimate organizations. However, because the statutes are written loosely enough to be applied to drug traffickers, it would not surprise us to find out that the individuals in question in this case had been charged under the RICO statutes, rather than solely under the racketeering statutes.

---

^[1] Romina Maurino, In the jury’s hands, The Canadian Press, June 28, 2007, available at http://thechronicleherald.ca/Canada/851159.html (last visited June 28, 2007)
^[2] Id.
^[3] Id.; AP Staff, A look at the Conrad Black trial, Associated Press Newswire, June 27, 2007, available at LEXIS, News Library, Wire News Services File.
^[4] Id.
^[5] Id.
^[6] Id.
^[7] See 18 U.S.C. §§ 1951 et seq.; see also Id. § 1961(a) (“racketeering activity” defined).
^[8] Id. §§ 1961 et seq.

Museum President Charged with Mail and Tax Fraud

The former president of the Independence Seaport Museum,^[1] John S. Carter, was charged Monday with mail fraud and tax evasion after federal authorities alleged that he scammed the struggling museum out of $1.5+ million to fund his excessive spending habits.^[2] Carter allgedly submitted false invoices to get the museum to pay for home improvements, artwork, jewelry, electronics, clothing, housewares and a root canal.^[3]

Carter was fired last year after serving as museum president for about 17 years.^[4] The museum filed a civil lawsuit in Massachusetts against him in January accusing him of defrauding the institution of $2.4 million.^[5] "Mr. Carter expects to plead guilty to the charges set forth in the information, although he doesn't necessarily agree with all the details set forth in the information...He is prepared to accept responsibility." said Mark Cedrone, Carter’s attorney, Monday May 21.^[6]

The complaint alleges offenses going back to 1997 including:

• Carter spent more than $335,000 in museum funds to build a carriage house next to his Cape Cod home and make other property improvements.^[7]
• He allegedly used about $50,000 in museum funds to buy a wooden eagle that once decorated an old riverboat and a 19th century narwhal tusk, the information says.
• $900,000 was spent on his boats.^[8]
• In 1997, the museum transferred the title of the Albacore, an antique sailboat, to Carter's personal company for $1, a transaction that was never approved by the museum's board of directors.^[9]
• Between 1998 and 2004, Carter allegedly submitted fraudulent invoices to get the museum to pay for more than $408,000 in renovations to the vessel; he eventually sold the boat for $190,000 and kept the proceeds.^[10]
• In 2005, Carter allegedly commissioned a Maine company to build a $100,000 wooden sailboat for his personal use. The museum paid about $71,000 of the bill after Carter submitted fraudulent invoices.^[11]

Carter is charged with tax evasion because he failed to report any of the museum funds as income. He is also charged in a fraud scheme involving ownership of a life insurance policy.^[12]

Tax Evasion is covered in 26 U.S.C. § 7201 where it states that any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.

We have previously spoken about mail fraud here.

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^[1] The Independence Seaport Museum opened in 1961 as the Philadelphia Maritime Museum. After moving several times and adopting its current name in 1995, the museum now has a waterfront building on the Delaware River. It owns the Spanish-America War cruiser USS Olympia and the World War II-era submarine USS Becuna.
^[2] Kathy Matheson, Former head of Philadelphia maritime museum charged with fraud, Associated Press Newswire, May 21, 2007, available at LEXIS, News Library, Wire News Services File.
^[3] Id.
^[4] Id.
^[5] Id.
^[6] Id.
^[7] Id.
^[8] Id.
^[9] Id.
^[10] Id.
^[11] Id.
^[12] Id.

Carter Couple Convicted of Fraud

The wife of a former Chicago insurance executive convicted in a multimillion-dollar fraud was herself sentenced to 2 years in prison Thursday, April 26, for laundering tens of thousands of dollars from the scheme.^[1]In September, a jury convicted Virginia Carter on 24 counts of money laundering and tax fraud.^[2] She might have faced as much as 9 years in prison, but her attorney argued it would be unfair for her to be sentenced to a prison term as long as the 6-year term handed to her husband, Robert, whose crimes where much more costly.^[3] No evidence was presented that Virginia Carter was involved in the fraud by her husband, who stole $17 million from Arlington Heights, Illinois, based National Accident Insurance Underwriters Inc.^[4]

However the tax fraud charges did include both the husband and the wife.^[5] The tax fraud charges alleged that Robert and Virginia Carter together filed a false federal income tax return for 1999 and that Virginia Carter alone filed a false return for 2000, in both instances allegedly failing to report income from the fraud scheme.^[6] Robert Carter was also charged with tax evasion for 1999, 2000 and 2001, during which he attempted to evade nearly $1.5 million in federal income taxes.^[7]

The money laundering charges against Virginia Carter alone alleged that in March, April, May and one instance in September 2002, she engaged in 23 different cash transactions in amounts ranging from $9,000 to $825,000, knowing that the funds were proceeds of illegal activity.^[8]
She was also ordered to pay restitution of $145,000, and she owes the Internal Revenue Service an additional $648,000.^[9]

We have previously discussed the crime of money laundering here, and tax fraud, here.

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^[1] Tribune Staff, Exec's wife gets 2 years for money laundering, Chicago Tribune Online, Apr 27, 2007, available at http://www.chicagotribune.com/news/local/chicago/chi-0704270298apr27,1,1406093.story?coll=chi-newslocalchicago-hed (last visited Apr. 27, 2007).
^[2] Id.
^[3] Id.
^[4] Id.
^[5] Id.
^[6] U.S. Dep’t of Justice Press Release, Highland Park Couple Indicted in his Alleged Theft of $17 Million from Insurance Brokerage and her Alleged Concealment of Proceeds, U.S. Dep’t of Justice Website, Mar. 19, 2004, available at http://www.usdoj.gov/tax/usaopress/2004/txdv04carter2004fraudrel.pdf (last visited April 27, 2007).
^[7] Id.
^[8] Id.
^[9] Tribune Staff, supra note 1.

Felon Chastises IRS for Making ID Theft So Easy: Soukas

Evangelos Dimitrios Soukas testified at a Senate Finance Committee hearing that he used stolen identities, phony tax information, and electronic filing applications to collect IRS refunds in 2000 and 2001, while he was on the run from the FBI.^[1] Apparently "an easy way to make money quickly" is to file phony federal tax returns.^[2] Soukas said he gained more than $47,000 in refunds in this manner because the IRS lacks strong security safeguards.^[3] One IRS agent who spoke to Soukas on the phone "found it hard to believe I was able to do what I was doing with no education in taxes, and … called me a genius," Soukas testified.^[4]

Soukas is serving a 92-month prison term for scams that defrauded identity theft victims, the government and banks of more than $1.1 million. He initiated the scam initially because it was so simple.^[5] He would file multiple federal tax returns online using stolen identities; he got his money within days through refund anticipation loans.^[6] The IRS wired refunds to a bank account in his name, even though some of the refunds were listed in the names of identity theft victims, Soukas testified.^[7]

Soukas questioned why the IRS does not require a personal identification number or use of a mother's maiden name as a security measure for electronic returns.^[8] "There should be some type of extra measure to safeguard the people's tax records, in my opinion," he testified.^[9]

Finance Committee Chairman Max Baucus, D-Mont., called the ease of Soukas' crimes "a mark of the government's failure to protect taxpayers……[w]hy doesn't the IRS do something about that?"^[10] IRS Commissioner Mark Everson asserted that the safeguards would be expensive to implement and could "be damaging to the interests of many legitimate taxpayers" by making filing more difficult.^[11]

This falls in line with what we discussed here on this blog earlier this week, and this is further proof that in the wake of the Sept. 11 terror attacks Bush administration has refocused the FBI on fighting terror which has left far fewer agents to target the cases the bureau has traditionally pursued, such as fraud.

We have extensively discussed Bank Fraud, Identity theft and Wire fraud previously in this blog.

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^[1] Kevin McCoy, Scamming IRS 'pretty easy,' felon says, USA Today, Apr. 13, 2007, available at http://www.usatoday.com/money/perfi/taxes/2007-04-12-tax-fraud-sidebar-usat_N.htm (last visited Apr. 13, 2007).
^[2] Id.
^[3] Id.
^[4] Id
^[5] Id.
^[6] Id.
^[7] Id.
^[8] Id.
^[9] Id.
^[10] Id.
^[11] Id.