Category Archives: Tax Division

After Nearly 20 Years, International Fugitive in Multi-Million Dollar Fraud Scheme Apprehended in Greece and Extradited to United States to Serve Prison Sentence

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WASHINGTON – A former New York businessman, who disappeared the same day a federal jury sitting in the U.S. District Court in Newark, New Jersey, began deliberating in his tax evasion and fraud trial, was caught while in Greece more than 18 years after his conviction, and appeared in federal court in the District of New Jersey on Friday, July 17, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.

Gideon Misulovin, 58, whose last known address was in New York City, was extradited from Greece to the United States to serve his 10-year prison sentence.  He has been incarcerated in the United States since his return on July 16.

On March 7, 1996, a jury convicted Misulovin of conspiracy to impede and impair the Internal Revenue Service (IRS) in the ascertainment and collection of more than $6.5 million in federal motor fuel excise taxes, wire fraud and money laundering stemming from a scheme to conceal the unpaid diesel fuel excise taxes from state and federal tax authorities.

During trial, Misulovin was free on $500,000 bail and attended each day of the trial.  He failed to appear in court March 4, 1996, for the parties’ closing arguments.  U.S. Senior District Judge Dickinson R. Debevoise of the District of New Jersey in Newark issued a warrant for his arrest.  On June 25, 1997, Judge Debevoise sentenced Misulovin in absentia to serve 10 years in prison and a three-year term of supervised release, and to pay a $150,000 fine.  The court also ordered Misulovin to pay restitution in the amount of $200,000 to the United States and $100,000 to the state of New Jersey.

The evidence at trial established that from 1988 through Jan. 31, 1993, Misulovin and his co-conspirators sold untaxed diesel fuel in a series of paper transactions using wholesale companies.  Some of the companies were shams and called “burn” or “butterfly” companies.  As part of the scheme, the sham company would assume the federal and state tax liability and then vanish, allowing the conspirators to keep the excise taxes they collected from truck stops and service stations.

The case, part of a then-nationwide motor fuel excise tax enforcement effort, was investigated jointly by the Motor Fuel Task Force and the U.S. Attorney’s Office of the District of New Jersey.  In an effort to infiltrate the bootleg gasoline industry, task force agents set up an undercover business called RLJ Management that competed directly with the defendants’ operation.

At the conclusion of the undercover operation, in November 1992, federal agents seized Misulovin’s assets, including approximately $70,000 in cash from his residence and $277,000 from his business bank account.

Misulovin’s co-defendant and co-conspirator, Arnold Zeidenfeld, of Brooklyn, New York, pleaded guilty prior to trial and testified for the government.  Gurmit Singh and Manbir Singh, of Matawan, New Jersey, who operated truck stops in southern New Jersey, also pleaded guilty for their roles in the scheme.

In August 2014, based on an Interpol Red Notice, Misulovin was detained in a Greek airport using an alias and traveling with an Israeli passport.  He was subsequently arrested pursuant to a U.S. request for a provisional arrest, and after contested extradition proceedings, was found extraditable in 2015.

The task force included attorneys from the Tax Division and agents from the IRS Criminal Investigation and Examination Divisions, the FBI, the U.S. Department of Transportation and the New Jersey State Department of Taxation and Finance.  Seth D. Uram, formerly a Trial Attorney in the Tax Division and now an Assistant U.S. Attorney in Portland, Oregon, and Trial Attorney Charles A. O’Reilly of the Tax Division prosecuted the case.

Acting Assistant Attorney General Ciraolo thanked the Department of Justice’s Office of International Affairs, the FBI’s New Jersey Field Office and the Greek Ministry of Justice for their assistance in apprehending and extraditing Misulovin.  Ciraolo also thanked the U.S. Attorney’s Office of the District of New Jersey for their substantial assistance.

Hawaii Businessman Convicted of Federal Tax Crimes for Failing to Report Millions of Dollars in Income Disguised as Company Expenses

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A Hawaii businessman was convicted yesterday following an 11-day jury trial in Honolulu of one count of corruptly endeavoring to obstruct the administration of the Internal Revenue Code and six counts of filing false individual income tax returns, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Florence T. Nakakuni of the District of Hawaii.

The jury convicted Albert S.N. Hee, 61, of Kailua, Hawaii, of filing false income tax returns for tax years 2007 through 2012, and of obstructing the Internal Revenue Service (IRS) from 2002 through 2012.  According to court documents and the evidence introduced at trial, Hee owned Waimana Enterprises Inc., a telecommunications holding company based in Honolulu.  Over the course of a decade, Hee directed Waimana to pay millions of dollars in personal expenses on his behalf.  He falsely deducted the payments from his corporate tax returns as if they were legitimate business expenses, and failed to report the payments as income on his individual returns.

“The jury’s verdict reflects the department’s unwavering commitment to U.S. taxpayers to aggressively pursue and prosecute individuals like Mr. Hee, who cheat the government to line their own pockets and finance their extravagant lifestyles,” said Acting Assistant Attorney General Ciraolo.

Hee’s lavish spending included paying more than $96,000 for personal massages; paying his wife and children full-time salaries with benefits packages, even though they performed little to no work for the company; and paying more than $736,900 in college tuition and housing for his three children.  Hee also directed Waimana to pay various expenses on his personal credit card, including family trips to Walt Disney World, Tahiti, France, Switzerland, and a four-day vacation at the Mauna Lani resort on the Big Island of Hawaii, which Hee falsely characterized as a “stockholder’s meeting” and deducted as a business expense on the company’s tax return.

In 2008, Hee used company funds to purchase a home in Santa Clara, California, valued at $1.3 million.  Hee told his accountants that the property would be used as an employee retreat in an attempt to disguise it as a legitimate business expense.  However, Hee’s children testified at trial that from 2008 through 2012, they lived in the home while attending college in Santa Clara and did not pay rent to Waimana for their use of the property.  Hee’s son testified that the house was walking distance from the college campus, and that he and his sister rented other rooms of the house to their college friends, but kept the rent that they collected from their roommates and did not give it to their father’s company.

At Hee’s scheduled Oct. 26 sentencing, he faces a statutory maximum sentence of three years in prison for each charge, a fine of up to $250,000 and restitution to the IRS.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Nakakuni commended the special agents of IRS–Criminal Investigation, who investigated the case, and Trial Attorney Quinn P. Harrington of the Tax Division and Assistant U.S. Attorneys Les Osborne and Larry Tong of the District of Hawaii, who are prosecuting the case.

Former President of Townsend Controls Inc. Sentenced to Prison for Failing to Pay Over $3.3 Million in Federal Employment Taxes and Interest

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A Burbank, Washington, businesswoman was sentenced yesterday to serve more than three years in prison following her February 2015 conviction of 10 counts of failing to pay over federal employment taxes to the Internal Revenue Service (IRS) after a five-day jury trial in U.S. District Court for the Eastern District of Washington, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Michael C. Ormsby of the Eastern District of Washington.

Maria Elizabeth Townsend, 39, was sentenced by U.S. District Court Judge Thomas O. Rice to serve 40 months in prison to be followed by three years of supervised release, and ordered to pay $3,327,124.49 in restitution to the IRS for employment taxes due and owing plus interest for her 10 counts that she was convicted of in the indictment, a $1,000 special assessment and $8,048.49 in prosecution costs.  At the conclusion of yesterday’s sentencing hearing, Judge Rice remanded Townsend to the custody of the U.S. Marshals Service.

“Holding business owners accountable who willfully evade their employment tax obligations to line their own pockets is among the Tax Division’s highest priorities,” said Acting Assistant Attorney General Ciraolo.  “These offenders, who not only steal from the United States, but also take advantage of honest competitors, will be prosecuted to the fullest extent of the law, and like Ms. Townsend, will face incarceration and substantial financial penalties.”

“The sentence imposed in this case reflects the seriousness of ‘white collar’ crime and that those accused of failing to pay over payroll taxes deducted from their employee’s pay checks to the IRS will be fairly and justly held accountable for their criminal conduct,” said U.S. Attorney Ormsby.  “This case is yet another example of the commitment of the U.S. Attorney’s Office to prosecute aggressively fraud cases in the Eastern District of Washington.  IRS-Criminal Investigation is commended for its tireless efforts in thoroughly investigating this case.”

“Employers who do not withhold employment taxes are not only cheating the government, they are cheating their own employees and creating financial problems for them,” said Chief Richard Weber of IRS-Criminal Investigation.  “Ms. Townsend chose to ignore her duty to timely file and pay employment taxes and now has to pay the consequences.  Investigating employment tax crimes remains one of IRS-CI’s highest priorities, keeping the playing field level for all businesses in the United States who obey the law and pay their taxes.”

According to information disclosed in court documents and at trial, Townsend was the president and majority shareholder of Townsend Controls Inc. (TCI), a Pascoelectrical contractor.  Over time, TCI grew from a small company of 15 employees to more than 150 employees by 2008.  The majority of TCI’s employees were members of Local 112 of the International Brotherhood of Electrical Workers Union (Local Union 112).  Townsend was responsible for TCI’s operations and finances, and was required to file the Employer’s Quarterly Federal Tax Returns (IRS Forms 941) and pay over to the IRS the company’s federal income, social security and Medicare taxes, known as Federal Insurance Contribution Act (FICA) taxes, that were withheld from the wages of TCI’s employees.  For 16 tax quarters, between Oct. 1, 2005, and Sept. 30, 2009, Townsend withheld $3,361,246 in federal employment taxes from the wages of Local Union 112 TCI employees, as well as TCI’s non-union employees, and failed to pay over those taxes due and owing to the IRS.  In addition to failing to pay over the taxes due and owing, Townsend also did not file any Forms W-2 for her employees for 2007 and 2008 with the Social Security Administration.

Between April 2007 and September 2009, rather than pay the accumulating employment taxes due to the IRS, Townsend authorized the disbursement of more than $31 million in TCI funds to pay vendors and other business and personal expenses.  Specifically, using TCI’s funds, Townsend paid TCI’s vendors and employees; paid a dividend of approximately $200,000 to one of her partners who co-signed a business loan; disbursed $300,000 towards the payment of her joint personal income tax obligations; disbursed more than $260,000 in funds to family members; and spent $22,000 to construct a pool at her residence, $30,000 to purchase a boat, $30,000 to purchase a Cadillac Escalade, $42,982 to purchase a Jeep Commander, $14,850 to purchase a timeshare at Walt Disney World and to fund various physical improvements to TCI’s headquarters.

During court proceedings, a psychiatrist for Townsend testified that she was suffering from multiple psychiatric disorders that paralyzed her when it came to being able to pay over the quarterly employment taxes to the IRS, despite receiving quarterly notices from the IRS that taxes were due and owing.  At sentencing, Judge Rice credited the testimony of the psychiatrist who testified for the government and commented that in every other aspect of her life, Townsend was functioning, which included paying the company’s state tax obligations.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Ormsby commended the special agents of IRS-Criminal Investigation, who investigated the case, and Assistant U.S. Attorney George J.C. Jacobs III of the Eastern the District of Washington and Trial Attorney Lisa L. Bellamy of the Tax Division, who are prosecuting the case.

New York Tax Return Preparer Pleads Guilty to Preparing False Tax Returns

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A Staten Island, New York, tax return preparer and business owner pleaded guilty today in U.S. District Court in the Eastern District of New York to preparing false federal income tax returns, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.

According to court documents and statements, Alabi Gbangbala, 51, was the operator of Broadfield, a tax return preparation business located in Staten Island.  For tax years 2008 and 2009, Gbangbala prepared false individual income tax returns for Broadfield clients by, among other things, falsifying self-employment business receipts and losses on Schedules C and inflating or fabricating charitable contributions and unreimbursed employee expenses on Schedule A.  Gbangbala was responsible for filing false tax returns on behalf of his clients that resulted in at least a $178,000 tax loss to the U.S. Treasury. Gbangbala also filed false personal individual income tax returns for tax years 2008 through 2010, in which he failed to report his total income for each calendar year.

Gbangbala faces a statutory maximum sentence of three years in prison and a fine of $250,000 for one count of aiding and assisting the preparation of a false return at his Sept. 24 sentencing.

Acting Assistant Attorney General Ciraolo commended the special agents of IRS-Criminal Investigation, who investigated the case, and Trial Attorneys Christopher O’Donnell and Mark McDonald of the Tax Division, who are prosecuting the case.  Ciraolo also thanked the U.S. Attorney’s Office of the Eastern District of New York for their assistance.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Alabama Woman Pleads Guilty for Involvement in Stolen Identity Refund Fraud Ring

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A Phenix City, Alabama, resident pleaded guilty today in the Middle District of Alabama for her role in a stolen identity refund fraud (SIRF) scheme, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney George L. Beck Jr. of the Middle District of Alabama.

According to court documents, between March 2011 and May 2014, Teresa Floyd conspired with her daughter, Lasondra Miles Davis, and others to defraud the United States by filing false federal income tax returns using stolen identities.  Miles Davis obtained the means of identification of individuals without their authorization and provided the stolen identities to Floyd.  Floyd and her co-conspirators obtained Electronic Filing Identification Numbers (EFINs) from the Internal Revenue Service (IRS) in the names of tax preparation businesses, which Floyd then used to file false tax returns with the stolen identities.  All of the false returns included fraudulent claims for tax refunds.  Floyd, Miles Davis and others cashed the refund checks at several companies in Alabama and Georgia, and Floyd deposited refund checks into her bank account.

Floyd faces a mandatory statutory sentence of two years in prison for the aggravated identity theft count and an additional statutory maximum sentence of 10 years in prison for the conspiracy count.  Both counts include a statutory maximum fine of $250,000.  Miles Davis pleaded guilty on April 10 to one count of aggravated identity theft and is scheduled to be sentenced on Aug. 12.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Beck commended special agents of IRS-Criminal Investigation, who investigated the case, and Trial Attorneys Michael C. Boteler and Michael P. Hatzimichalis of the Tax Division and Assistant U.S. Attorney Jonathan Ross of the Middle District of Alabama, who are prosecuting the case.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Kentucky Businessman Sentenced in New York Federal Court for $53 Million Tax Scheme and Massive Fraud that Involved Bribery of Bank Officials

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Acting Assistant Attorney General Caroline D. Ciraolo of the Department of Justice’s Tax Division and U.S. Attorney Preet Bharara of the Southern District of New York announced that a Kentucky businessman was sentenced today to serve 12 years in prison.

Wilbur Anthony Huff, 53, of Caneyville and Louisville, Kentucky, was also ordered to pay more than $108 million in restitution for committing various tax crimes that caused more than $50 million in losses to the Internal Revenue Service (IRS), and a massive fraud that involved the bribery of bank officials, the fraudulent purchase of an insurance company, and the defrauding of insurance regulators and an investment bank.  In December 2014, Huff pleaded guilty before U.S. District Judge Noemi Reice Buchwald of the Southern District of New York, who imposed today’s sentence.

“The department is committed to vigorously pursuing and prosecuting those individuals who violate the employment tax laws of the United States,” said Acting Assistant Attorney General Ciraolo.  “Today’s significant prison sentence sends a loud and clear message to those engaged in such criminal conduct, including owners and operators of professional employer organizations like Mr. Huff, who steal employment taxes collected from their business clients to line their own pockets, instead of paying over those funds to the IRS.”

“Anthony Huff and his co-conspirators stole millions of dollars from taxpayers and engaged in extensive frauds, all in the pursuit of additional property, luxury cars and the like,” said U.S. Attorney Bharara.  “His crimes have earned him 12 years in prison.  I would like to thank our law enforcement partners for their assistance on this case.”

According to the information, plea agreement, sentencing submissions and statements made during court proceedings:

Huff was a businessman who controlled numerous entities located throughout the United States (Huff-Controlled Entities).  Huff controlled the companies and their finances, using them to orchestrate a $53 million fraud on the IRS and other schemes that spanned four states, involving tax violations, bank bribery, fraud on bank regulators and the fraudulent purchase of an insurance company.  As part of his crimes, Huff concealed his control of the Huff-Controlled Entities by installing other individuals to oversee the companies’ day-to-day functions and to serve as the companies’ titular owners, directors, or officers.  Huff also maintained a corrupt relationship with Park Avenue Bank and Charles J. Antonucci Sr., the bank’s president and chief executive officer, and Matthew L. Morris, the bank’s senior vice president.

Tax Crimes

From 2008 to 2010, HUFF controlled O2HR, a professional employer organization (PEO) located in Tampa, Florida.  Like other PEOs, O2HR was paid to manage the payroll, tax and workers’ compensation insurance obligations of its client companies.  However, instead of paying $53 million in taxes that O2HR’s clients owed the IRS and $5 million to Providence Property and Casualty Insurance Company (Providence P&C) – an insurance company based in Oklahoma – for workers’ compensation coverage expenses for O2HR clients, Huff stole the money that his client companies had paid O2HR for those purposes.  Among other things, Huff diverted millions of dollars from O2HR to fund his investments in unrelated business ventures and pay his family members’ personal expenses.  The expenses included mortgages on Huff’s homes, rent payments for his children’s apartments, staff and equipment for Huff’s farm, designer clothing, jewelry and luxury cars.

Conspiracy to Commit Bank Bribery, Defraud Bank Regulators and Fraudulently Purchase an Oklahoma Insurance Company

From 2007 through 2010, Huff engaged in a massive multi-faceted conspiracy in which he schemed to bribe executives of Park Avenue Bank, defraud bank regulators and the board and shareholders of a publicly-traded company, and fraudulently purchase an Oklahoma insurance company.  As described in more detail below, Huff paid bribes totaling hundreds of thousands of dollars in cash and other items to Morris and Antonucci in exchange for their favorable treatment at Park Avenue Bank.

As part of the corrupt relationship between Huff and the bank executives, Huff, Morris, Antonucci and others conspired to defraud various entities and regulators during the relevant time period.  Specifically, Huff conspired with Morris and Antonucci to falsely bolster Park Avenue Bank’s capital by orchestrating a series of fraudulent transactions to make it appear that Park Avenue Bank had received an outside infusion of $6.5 million, and engaged in a series of further fraudulent actions to conceal from bank regulators the true source of the funds.

Huff further conspired with Morris, Antonucci and others to defraud Oklahoma insurance regulators and others by making material misrepresentations and omissions regarding the source of $37.5 million used to purchase Providence Property and Casualty Insurance Company, an insurance company based in Oklahoma that provided workers’ compensation insurance for O2HR’s clients and to whom O2HR owed a significant debt.

Bribery of Park Avenue Bank Executives

From 2007 to 2009, Huff paid Morris and Antonucci at least $400,000 in exchange for which they: provided Huff with fraudulent letters of credit obligating Park Avenue Bank to pay $1.75 million to an investor in one of Huff’s businesses if Huff failed to pay the investor back himself; allowed the Huff-Controlled Entities to accrue $9 million in overdrafts; facilitated intra-bank transfers in furtherance of Huff’s fraud; and fraudulently caused Park Avenue Bank to issue at least $4.5 million in loans to the Huff-Controlled Entities.

Fraud on Bank Regulators and a Publicly-Traded Company

From 2008 to 2009, Huff, Morris and Antonucci engaged in a scheme to prevent Park Avenue Bank from being designated as “undercapitalized” by regulators – a designation that would prohibit the bank from engaging in certain types of banking transactions and that would subject the bank to a range of potential enforcement actions by regulators.  Specifically, they engaged in a series of deceptive, “round-trip” financial transactions to make it appear that Antonucci had infused the bank with $6.5 million in new capital when, in actuality, the $6.5 million was part of the bank’s pre-existing capital.  Huff, Morris and Antonucci funneled the $6.5 million from the bank through accounts controlled by Huff to Antonucci.  This was done to make it appear as though Antonucci was helping to stabilize the bank’s capitalization problem, so that the bank could continue engaging in certain banking transactions that it would otherwise have been prohibited from doing, and to put the bank in a better posture to receive $11 million from the Troubled Asset Relief Program.  To conceal their unlawful financial maneuvering, Huff created, or directed the creation of, documents falsely suggesting that Antonucci had earned the $6.5 million through a bogus transaction involving another company Antonucci owned.  Huff, Morris and Antonucci further concealed their scheme by stealing $2.3 million from General Employment Enterprises Inc., a publicly-traded temporary staffing company, in order to pay Park Avenue Bank back for monies used in connection with the $6.5 million transaction.

Fraud on Insurance Regulators and the Investment Firm

From July 2008 to November 2009, Huff, Morris, Antonucci and Allen Reichman, an executive at an investment bank and financial services company headquartered in New York City (the Investment Firm), conspired to defraud Oklahoma insurance regulators into allowing Antonucci to purchase the assets of Providence P&C and defraud the Investment Firm into providing a $30 million loan to finance the purchase.  Specifically, Huff and Antonucci devised a scheme in which Antonucci would purchase Providence P&C’s assets by obtaining a $30 million loan from the Investment Firm, which used Providence P&C’s own assets as collateral for the loan.  However, because Oklahoma insurance regulators had to approve any sale of Providence P&C, and because Oklahoma law forbade the use of Providence P&C’s assets as collateral for such a loan, Huff, Morris, Antonucci and Reichman made and conspired to make a number of material misstatements and material omissions to the Investment Firm and Oklahoma insurance regulators concerning the true nature of the financing for Antonucci’s purchase of Providence P&C.  Among other things, Reichman directed Antonucci to sign a letter that provided false information regarding the collateral that would be used for the loan, and Huff, Morris and Antonucci conspired to falsely represent to Oklahoma insurance regulators that Park Avenue Bank – not the Investment Firm – was funding the purchase of Providence P&C.

After deceiving Oklahoma regulators into approving the sale of Providence P&C, Huff took $4 million of the company’s assets, which he used to continue the scheme to defraud O2HR’s clients.  Ultimately, in November 2009, the insurance company became insolvent and was placed in receivership after Huff, Morris and Antonucci had pilfered its remaining assets.

*                *                *

In addition to his prison sentence, Huff was sentenced to three years of supervised release, and ordered to forfeit $10.8 million to the United States and pay a total of more than $108 million in restitution to victims of his crimes, including, among others, the Federal Deposit Insurance Corporation (FDIC) and the IRS.

In imposing today’s sentence, Judge Buchwald said Huff’s crimes were “truly staggering” and “eye popping.”  Judge Buchwald described Huff’s conduct, which was preceded by a federal conviction and failure to pay millions in civil judgments, as “a living example” of “chutzpah,” which she defined as “shameless audacity and unmitigated gall.”

Morris and Reichman pleaded guilty for their roles in the above-described offenses on Oct. 17, 2013, and Feb. 20, 2015, respectively.  Reichman is scheduled to be sentenced before Judge Buchwald on July 15, and Morris is scheduled to be sentenced before Judge Buchwald on Aug. 19.

Antonucci pleaded guilty to his role in the crimes described above on Oct. 8, 2010, and is scheduled to be sentenced on Aug. 20, also before Judge Buchwald.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Bharara thanked the Special Inspector General for the Troubled Asset Relief Program, the FBI, IRS-Criminal Investigation, the New York State Department of Financial Services, Immigration and Customs Enforcement’s Homeland Security Investigations, and the Office of Inspector General of the FDIC, for their work in the investigation, and the Tax Division and the U.S. Attorney’s Office of the Southern District of Florida, for their assistance in the prosecution.

Today’s announcement is part of efforts underway by the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.

The case is being handled by the U.S. Attorney’s Office of the Southern District of New York Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Janis Echenberg and Daniel Tehrani and Special Assistant U.S. Attorney Tino Lisella of the Tax Division are in charge of the criminal case.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Former New Jersey Chiropractor Sentenced to Prison for Fraud

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A man formerly of Neptune, New Jersey, was sentenced today in the U.S. District Court for the District of New Jersey to serve 54 months in prison to be followed by five years of supervised release, the Justice Department and the Internal Revenue Service (IRS) announced.

In February 2014, a jury convicted David Moleski, a pilot and former chiropractor, of 14 counts of mail fraud, one count of wire fraud, one count of corruptly endeavoring to obstruct and impede Internal Revenue laws and three counts of submitting false claims for tax refunds.  Moleski was sentenced by U.S. District Judge Freda L. Wolfson, who also ordered that Moleski pay a $10,000 fine and, as a condition of release, $48,199 in restitution.

According to the evidence presented in court, Moleski submitted three false tax returns in 2009 for tax years 2006 through 2008 that collectively requested more than $1.3 million in income tax refunds to which he was not entitled.  Prior to filing these returns, Moleski failed to file tax returns from 1999 through 2005, even though he was legally required to file.  When the IRS assessed taxes for those years and began collecting, Moleski obstructed the collection efforts and demanded that a third-party financial institution not comply with an IRS levy.  In addition, Moleski attempted to pay credit card bills and other debts with fake financial instruments that claimed to draw on an account at the U.S. Treasury that did not actually exist.  For instance, Moleski sent a fake financial instrument for $500,000 in alleged payment of a mortgage debt.

The case was investigated by special agents of IRS-Criminal Investigation.  Trial Attorneys Tino M. Lisella and Yael T. Epstein of the Tax Division prosecuted the case, with the assistance of the U.S. Attorney’s Office for the District of New Jersey.

Owner of New York Construction Company Indicted for Tax Fraud

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The Justice Department and Internal Revenue Service (IRS) announced that Tomas Olazabal, of Fresh Meadows, N.Y., was arrested today following his indictment in the U.S. District Court for the Eastern District of New York on Aug. 8, 2013, on multiple tax crimes.

According to the indictment, Olazabal owned Tupac Construction Corp., a construction company in Fresh Meadows.  As alleged in the indictment, Olazabal used check cashing services to cash a substantial number of checks paid to his construction company for services between 2007 and 2008.  He concealed his check cashing activities from his tax return preparers.  Accordingly, the gross receipts represented by the checks negotiated at the check cashers were not included as gross receipts on the company’s tax returns.

The indictment alleges that Olazabal filed false 2007 and 2008 corporate income tax returns for Tupac. Olazabal faces a potential maximum sentence of six years in prison and a potential fine of up to $500,000.

A trial date has not been scheduled.  An indictment merely alleges that a crime has been committed, and a defendant is presumed innocent until proven guilty beyond a reasonable doubt.

The case was investigated by IRS – Criminal Investigation and is being prosecuted by Trial Attorneys Mark Kotila and Steve Descano of the Justice Department’s Tax Division.

Phillip Zane’s Game Theory: Ten Years On

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Ten years ago this spring, Zane published his definitive work on game theory which changed the way law-and-economics scholars and sophisticated prosecutors and defense counsel analyze whether, when, and how corporations and executive management teams should disclose white collar criminal conduct.

Phillip Zane be the only attorney whose colleagues and clients might expect to see an open book on games and strategy on his desk.

Ten years ago this spring, Zane published The Price Fixer’s Dilemma:  Applying Game Theory to the Decision of Whether to Plead Guilty to Antitrust Crimes, 48 Antitrust Bull. 1 (2003), which changed the way law-and-economics scholars and sophisticated prosecutors and defense counsel analyze whether, and when, to settle high-stakes antitrust cases.

Zane’s article strongly suggested that in a number of common situations, pleading guilty (or even seeking the protections of the corporate leniency program) is not always justified.  Zane’s article used a repeated, or iterative, version of the prisoner’s dilemma to demonstrate that pleading guilty was not always the best strategy for antitrust defendants facing criminal prosecution and civil liability in multiple proceedings or jurisdictions.

At the time, a few of the brainier Antitrust Division prosecutors breathed a sigh of relief when the defense bar did not seem to notice and they failed to incorporate Zane’s research into their negotiating strategies.

In 2007, Zane published “An Introduction to Game Theory for Antitrust Lawyers,” which he used in a unit of an antitrust class he taught at George Mason University School of Law. That paper was another milestone on the way to making game theory concepts accessible and useful to the antitrust defense bar.

Zane’s work, which now used game theory to criticize the settlement of the second Microsoft case and the Government’s approach to conscious parallelism, as well as the leniency program, was met with official grumblings within the Antitrust Division.

GeyerGorey LLP was founded on the principle that the chances for achieving the best possible outcome are maximized by having access to multiple, top-notch, cross-disciplinary legal minds that are synced together by an organizational and compensation structure that encourages sharing of ideas and information in client relationships.

As international enforcement agencies sprouted and developed criminal capabilities and as more hybrid matters included prosecutors from US enforcement agency components with sometimes overlapping jurisdictions, such as the Antitrust, Criminal, Civil and Tax Divisions of the Department of Justice, and the alphabet soup of regulatory agencies, particularly the Securities and Exchange Commission, it became apparent that Zane’s game-theoretic approach has application in almost every significant decision we could be called upon to make.  Since Zane has joined us we have been working to factor in the increased risks associated with what we call hybrid conduct (conduct that violates more than a single statute).  Our tools of analysis for identifying risks for violations of competition laws, anti-corruption laws, anti-money-laundering laws, and other prohibitions, include sophisticated game-theoretic techniques, as well as, of course, the noses of former seasoned prosecutors, taking into account, each particular client’s tolerance for risk.

To take one example, an internal investigation might show both possible price fixing and bribery of foreign government officials.  How, given the potential for multiple prosecutions, should decisions to defend or cooperate be assessed?  And how might such decisions trigger interest by the Tax Division, the SEC, the Commodities Futures Trading Commission, the Federal Energy Regulatory Commission or other regulators.  When should a corporation launch an internal investigation?  When should it make a mandatory disclosure?  What should it disclose and to which agency, in what order?  When should it seek leniency and when should it instead stand silent?  These tools are valuable in the civil context as well:  When should it abandon a proposed merger or instead oppose an enforcement agency’s challenge to a proposed deal?

These are truly the most difficult questions a lawyer advising large corporations is required to address.  We are well positioned to help answer these questions.