Dec 28th 2012
Business Owner Arrested in $3.75 Million Real Estate Investment Scam
A San Fernando Valley business owner was arrested December 20, 2012, on federal charges for allegedly running a real estate investment scam in which several dozen investors lost over $3.75 million.
David Williams, fifty-two, a licensed securities dealer and investment adviser, was arrested pursuant to a ten-count indictment returned by a federal grand jury charging him with eight counts of wire fraud and two counts of tax evasion.
The indictment alleges that Williams operated the scheme out of three Studio City–based companies – WFG Holdings, Inc.; Williams Financial Group, LLC; and Sherwood Secured Investment Fund, LLC (SSIF).
According to the indictment, Williams told a series of lies and failed to disclose information to those seeking to invest in a private placement offered to a small number of investors. Specifically, Williams, and those working under his direction, told investors that SSIF would invest its assets primarily in real estate; investments in non-real estate related assets would be limited to less than 10 percent. Investors were further told that their investments would be secured by a lien on any investment property acquired.
In fact, Williams used more than 10 percent of the SSIF funds for non-real estate related business, including $896,000 for business expenses incurred by his broker-dealer firm, Morgan Peabody. Williams further used investors' monies to pay the following personal expenses: $569,000 to lease with an option to buy his personal residence, $173,000 for construction and furnishings in his personal residence, $75,000 for clothing and jewelry, $69,000 for family travel, and $35,000 for his children's school tuition.
Between July 2007 and March 2008, Williams fraudulently obtained over $3.75 million from approximately sixty investors as a result of the SSIF offering, the indictment alleges.
If convicted of the charges contained in the indictment, Williams would receive a statutory maximum sentence of 180 years in federal prison.
Owner of Security Guard Business Pleads Guilty to Tax Crimes
Appearing before US District Court Magistrate Judge Jacqueline Chooljian, the owner of an Inglewood, California, security guard business pleaded guilty to failing to pay employment taxes of approximately $416,065 to the IRS.
Wayne Spencer, sixty, owner and operator of Omphroy Corporation, doing business as Trans North American Protection (TNAP), pleaded guilty to three counts of failing to pay over employment taxes to the IRS during 2001.
According to the plea agreement, Spencer operated a scheme that allowed TNAP to avoid paying the employment taxes required to be withheld from the wages and salaries of its approximately 100 employees. Using a dual payroll check scheme, the third-party payroll service used by TNAP was not provided accurate payroll information, allowing TNAP to understate employment taxes paid over to the IRS.
Approximately 20 percent of TNAP employees received two payroll checks during 2000 and 2001 – one computer-generated check issued by the payroll service company (representing approximately 10 percent of the total wages paid to such employees), and a second handwritten check issued by TNAP (representing the remaining 90 percent of total wages paid to such employees). The additional wages that TNAP actually paid to such employees were not reported to the payroll service company, nor were they subject to employment tax withholding.
Most of the remaining 80 percent of employees were paid solely with handwritten checks issued by TNAP. The wages and salaries paid to employees who received only TNAP-issued payroll checks were not reported to the payroll service company, nor did TNAP pay over to the IRS the employment taxes attributable to such wages and salaries.
Spencer caused TNAP to underreport the gross wages and salaries paid to its employees, resulting in additional taxes due to the IRS of $416,065 for the eight quarterly filings in 2000 and 2001.
Spencer faces a statutory maximum sentence of three years in federal prison and fines totaling at least $300,000 when sentenced for his crimes. Magistrate Judge Chooljian ordered Spencer to appear for sentencing on March 14, 2013.
Owner of Beverly Hills Massage Therapy Business Pleads Guilty to Tax Fraud
The owner of Utta Body Sculpture, Inc., located in Beverly Hills – a deep tissue massage therapy business catering to celebrity and high-net-worth clients – pleaded guilty to a federal tax charge admitting that she attempted to conceal income from the IRS.
Utta Hollingshead, fifty-six, of Santa Monica, pleaded guilty to one count of subscribing to a false federal income tax return for the 2005 calendar year. Hollingshead entered her guilty plea before US District Judge Manuel L. Real.
According to her plea agreement, for the year 2005, Hollingshead reported to the IRS that her business had gross receipts of approximately $122,595, when in fact, a federal investigation uncovered gross receipts of more than $332,000. Similarly, Hollingshead failed to report business income for the 2006 and 2007 tax years, causing a total tax loss to the government of $167,720.
During the years 2005 through 2007, Hollingshead accepted from business clients large payments by check made payable to cash. She then endorsed those checks directly to her credit card to pay personal expenses, including luxury trips overseas. These payments from clients and some cash payments as well, were never deposited into the Utta Body Sculpture bank account and were not disclosed to Hollingshead's tax return preparer.
Hollingshead faces a statutory maximum sentence of three years in federal prison and a fine of at least $250,000. Judge Real ordered Hollingshead to appear for sentencing on February 25, 2013.
Fraudster Convicted of Identity Theft and Money Laundering Scheme Involving Impersonation of Victims
A Marina Del Rey, California, man has been found guilty of federal fraud charges for his role in a scheme where he and his brother impersonated victims to obtain and use credit cards in the victims' names.
Johnny Stewart, fifty, was convicted by a federal jury of eighteen felony counts, including conspiracy to commit bank fraud, bank fraud, access device fraud, aggravated identity theft, and money laundering. The jury deliberated for less than two hours.
The evidence presented during a four-day trial showed that Stewart and his brother, Clayton Stewart, were involved in a conspiracy in which the defendants fraudulently applied online for unauthorized credit cards from financial institutions, such as Chase Bank USA, Bank of America, and Capital One Bank.
For many of the cards, Stewart made calls to the bank in the names of actual victims and used credit rating agency profile information for those victims to inquire about the cards' status. Once the defendant and his brother received the credit cards, they used the credit cards to make unauthorized bank ATM withdrawals and purchases, including purchases of department store gift cards and Apple iPads.
To get more money out of the scheme, Stewart and his brother created sham entities so that charges could be made with the fraudulent credit cards on merchant processors for the entities. The intended dollar loss associated with the scheme is estimated as at least $600,000.
As a result of the guilty verdicts, Stewart faces a statutory maximum sentence of 302 years in federal prison. The charge of aggravated identity theft carries a mandatory term of at least two years. Stewart is scheduled to be sentenced on March 18, 2013.
Before the trial, Clayton Stewart, forty-six, pleaded guilty to conspiracy to commit bank fraud, access device fraud, and money laundering. He is scheduled to be sentenced on February 4, 2013.
Attorney Sentenced to Three Years in Prison in Tax Fraud Scheme to Evade over $1 Million in Tax
Robert M.L. Baker III, owner of Robert M.L. Baker III Law Offices in Santa Monica, California, was sentenced to three years in prison and three years of supervised release following imprisonment. Baker was also ordered to pay $1,140,879 in restitution to the IRS and $916,000 in restitution to a victim for a total of $2,056,879 in total restitution.
On January 25, 2012, Baker, forty-six, pleaded guilty to willfully subscribing and filing false tax returns in a conspiracy to commit tax fraud. According to the plea agreement, Baker admitted that he along with others devised a scheme to misappropriate client fees and settlements in order to evade payment of his tax obligations.
Baker utilized shell entities and trusts to hide over $900,000 in client fees and assets from the IRS, including a house located in Westwood. Baker also submitted a false offer in compromise form by mail and filed false tax returns with the IRS in attempts to evade over $1 million in tax.
In furtherance of the conspiracy, Baker altered his banking practices. Baker used nominee bank accounts, converted client fees into cashier's checks to pay personal expenses, altered and cashed checks, and directed clients and other law firms handling clients to mail and wire funds to nominee bank accounts.
As part of the plea agreement, Baker agreed to file amended corporate and individual tax returns correctly reporting gross receipts and deductions. Baker also agreed to make restitution as part of the plea agreement.
Georgia Tax Preparers Allegedly Falsify Tax Returns, Costing US Treasury More than $100 Million
The United States has asked a federal court in Atlanta to bar Larry J. Heath, who operates Heath's Income Tax II in Cartersville, Georgia, and his brother Andrew R. Heath, who operates Excellent Tax Service of Acworth, Georgia, from preparing tax returns for others, the Justice Department announced December 21, 2012.
According to the government complaint, the Heaths and their businesses have repeatedly prepared federal tax returns that unlawfully understate customers' federal tax liabilities. The suit alleges that the defendants concoct bogus losses, expenses, education credits, business expenses, and charitable contributions, which they falsely report on their customers' federal income tax returns.
According to the complaint, the IRS previously suspended Larry Heath's IRS-issued electronic filing identification number (EFIN) because of the large number of erroneous returns he prepared. In response, the complaint alleges, Larry Heath purported to "sell" his business to two different individuals and used their EFINs to continue to file tax returns.
The suit alleges that the IRS has examined thousands of income tax returns prepared by the Heaths and their businesses and found that 94.5 percent of tax returns required IRS adjustments. According to the complaint, the total harm to the US Treasury caused by Larry and Andy Heath's misconduct could exceed $100 million.
Federal Inmate Pleads Guilty to Tax Fraud Perpetrated while in Prison
David Marrero, an inmate in the custody of the Federal Bureau of Prisons serving a ten-year sentence for a Florida Medicare fraud scheme, pleaded guilty in Montgomery, Alabama, to filing a false claim for a $2,719,438 tax refund, the Justice Department and IRS announced December 20.
According to court records, while serving a federal sentence in Montgomery County, Alabama, Marrero began sending various false documents to the IRS and to the federal judge who had presided over his case. Among the documents he admitted sending were false money orders and false tax returns making claims for refunds. The false tax returns were based upon false IRS Forms 1099-OID that Marrero had fabricated claiming that various companies withheld a substantial amount of federal taxes from him when, in fact, the companies had withheld nothing.
Marrero also used financial documents he had obtained from other people, without their knowledge or consent, as supporting documentation for his fraudulent claims.
Under the plea agreement, Marrero faces an additional forty-six months in federal prison on top of the ten-year sentence he is currently serving. He also faces a maximum fine of $250,000. A sentencing date has not yet been set by the US District Court in the Middle District of Alabama.