Hedge Fund Manager and CPA Administrator Convicted by Jury for $40 Million Ponzi
On Friday, February 8, 2013, a federal jury in Charlotte convicted certified public accountant Jonathan D. Davey, forty-eight, of Newark, Ohio, of four criminal charges relating to an investment fraud conspiracy, announced the US Attorney for the Western District of North Carolina.
The federal indictment, returned in February 2012, charged Davey with serving as the "administrator" for numerous hedge funds for the Black Diamond Ponzi Scheme; with soliciting over $11 million from victims with his own hedge fund, Divine Circulation Services; and with tax evasion. The charges arise from the Black Diamond investigation, which has brought criminal charges against eleven individuals and CommunityONE Bank, relating to conduct between October 2007 and April 2007 that deprived over 400 victims of more than $40 million.
According to evidence presented at trial, Davey lied to collect over $11 million from victims mainly in North Carolina, Virginia, and Ohio, for his hedge fund by claiming, among other things, that he had done due diligence on Black Diamond and was operating a legitimate hedge fund with significant safeguards, when, in reality, neither claim was true.
Then, as Black Diamond began to collapse, Davey and other hedge fund managers started a derivative Ponzi scheme using a so-called "cash account" that Davey controlled. Davey and his coconspirators collected over $5 million from new victim investors for the cash account and used the new victim money to make Ponzi payments to old investors and themselves.
The evidence at trial showed that, as administrator for the scheme, Davey controlled most funds and wires for the scheme and published a website for victims that reflected false returns. At trial, the government showed that by the end of the scheme, the website reflected over $120 million in supposed value for victim accounts when Davey and the hedge fund managers in reality had less than $1 million total in their accounts.
According to evidence presented at trial, Davey used an elaborate network of shell companies to evade taxes and commit money laundering with the proceeds of the Ponzi scheme. In particular, Davey used an offshore shell company in Belize to funnel money to build a mansion in Ohio, creating a sham "loan" by pretending that investors had "loaned" investment money to the Belizean shell company that was then used to build Davey's personal mansion.
Other defendants convicted in this case:
- Keith Franklin Simmons was convicted following a jury trial of securities fraud, wire fraud, and money laundering. Simmons was sentenced to fifty years in prison on May 23, 2012.
- Bryan Keith Coats pleaded guilty on October 24, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Coats was sentenced to fifteen years in prison on November 16, 2012.
- Deanna Ray Salazar pleaded guilty on December 7, 2010, to conspiracy to commit securities fraud and tax evasion. Salazar was sentenced to fifty-four months in prison on May 23, 2012.
- Jeffrey M. Muyres pleaded guilty on May 17, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Muyres was sentenced to twenty-three months in prison on January 18, 2012.
- Roy E. Scarboro pleaded guilty on December 3, 2010, to securities fraud, money laundering, and making false statements to the FBI. Scarboro was sentenced to twenty-six months in prison on May 4, 2011.
- James D. Jordan pleaded guilty on September 14, 2010, to conspiracy to commit securities fraud. Jordan was sentenced to eighteen months in prison on June 29, 2011.
- Stephen D. Lacy pled guilty on December 9, 2010, to conspiracy to commit securities fraud. Lacy was sentenced to six months in prison on May 4, 2011.
- Chad A. Sloat pleaded guilty on October 17, 2012, to conspiracy to commit securities fraud and failure to file a tax return. Sloat is currently waiting to be sentenced.
- Jeffrey M. Toft pleaded guilty on November 26, 2012, to conspiracy to commit securities fraud, conspiracy to commit wire fraud, and conspiracy to commit money laundering. Toft is currently waiting to be sentenced.
- Michael J. Murphy pleaded guilty on January 22, 2013, to conspiracy to commit securities fraud. Murphy is currently waiting to be sentenced.
On April 27, 2011, a criminal bill of information and a Deferred Prosecution Agreement were filed against CommunityONE Bank N.A. related to its failure to file a suspicious activity report (SAR) and maintain an effective anti-money laundering program. As court records show, Simmons was a customer of CommunityONE and used various accounts with the bank in furtherance of the Ponzi scheme. However, according to filed court documents, the bank did not file any suspicious activity reports on Simmons, despite the hundreds of suspicious transactions that took place in his accounts. The bank agreed to pay $400,000 toward restitution to victims of the Ponzi scheme that operated through accounts maintained at the bank.
Davey was convicted of all charges following a forty-five-minute jury deliberation. Davey faces a statutory maximum sentence of five years in prison for count one (securities fraud conspiracy) and a $250,000 fine; a maximum of twenty years in prison for count two (wire fraud conspiracy) and a $250,000 fine; a maximum of twenty years in prison for count three (money laundering conspiracy) and a $250,000 fine; and a maximum of five years in prison for count four (tax evasion) and a $250,000 fine. Davey has been released on bond and a sentencing date has not been set yet.
Source: US Department of Justice
Justice Department Seeks to Shut Down South Florida Tax Return Preparers
The Justice Department announced February 4 that it has sued two Miami tax return preparers, seeking to bar them from preparing federal tax returns for others. The civil injunction suit alleges that Marlen Monzon, her son Yanko Rodriguez, and their Miami business, Tri Stars Multiservices Corporation, claim bogus deductions and credits on customers' federal tax returns.
Monzon and Rodriguez allegedly included fabricated claims for business expenses on customers' tax returns, even though the customers have no business. According to the complaint, these fabricated expenses offset the customers' wage income and improperly lower the customers' reported taxable income. This generates (or increases) a refund, and often qualifies customers for credits to which they are not entitled.
The complaint alleges that the IRS has examined 498 tax returns for tax years 2008 through 2011 and found that nearly every return claimed that the customer operated a nonexistent business and reported a business loss. This allegedly reduced the customers' reported tax liability by an average of $7,031 per return, for a total of $3,494,336 in lost revenue.
According to the complaint, in 2008, the IRS assessed penalties against Monzon in the amount of $43,000 based on her preparation of tax returns claiming bogus fuel tax credits. The complaint alleges that, rather than claiming bogus fuel tax credits, Monzon now simply reports bogus gasoline expenses related to nonexistent businesses on her customers' tax returns.
Source: US Department of Justice
Court Bars South Carolina Tax Return Preparers from Preparing Returns for Others
A federal district judge in Florence, South Carolina, permanently barred Rachel D. Watson, of Florence, and Susann Allen of Darlington, South Carolina, from preparing federal income tax returns for others, the Justice Department announced February 8. The injunctions bar Watson and Allen from preparing returns for others and require them to send copies of the injunction to any employers for whom they prepared returns since January 1, 2008.
According to the government's complaint in the case, Watson and Allen prepared federal income tax returns at a number of businesses in South Carolina including, most recently, Fludd's Express Tax Service and Gold Valley Pawn. The complaint alleged that Watson and Allen prepared returns that unlawfully claimed the Earned Income Tax Credit by reporting fictitious Schedule C businesses or business income or fictitious dependents. The complaint also alleged that Watson and Allen fabricated or inflated deductions. The complaint alleged that these activities led to their clients filing returns which unlawfully understated income tax liabilities and overstated refunds. Watson and Allen consented to the entry of the injunctions.
Source: US Department of Justice
South Florida Brothers Sentenced for Tax Evasion
Michael Farnell and James Farnell, residents of Boca Raton, Florida, were sentenced to prison terms for income tax evasion, the Justice Department and IRS announced February 8. Michael Farnell and James Farnell were previously indicted on April 19, 2012. Judge William P. Dimitrouleas sentenced Michael Farnell to a term of eighteen months in prison, and his brother James Farnell was sentenced to a term of forty-two months. Michael Farnell was remanded into custody. James Farnell was already in custody.
According to statements made in court and publicly filed documents, Michael Farnell and James Farnell sold stock in a privately held Florida-based technology company between 2004 and 2006 and failed to report the capital gains or pay taxes on the capital gains from those stock sales. In 2004, the US Securities and Exchange Commission (SEC) filed suit against the Farnell brothers for securities violations at another company that they operated the year 2000. A majority of the stock sales at issue in this case violated the injunction from the SEC's lawsuit.
According to public documents and statements made in court, the Farnell brothers held their stock in this Florida-based technology company in the name of nominee trusts. The proceeds of the stock sales were deposited into bank accounts titled in the name of these nominee trusts. Neither brother filed tax returns in 2004 and 2005. James Farnell also failed to file a 2006 tax return. As part of the sentencing, Michael Farnell and James Farnell both agreed that they failed to report additional income paid to them by this Florida-based technology in 2001 through 2003.
Michael Farnell was ordered to pay restitution of $448,128, and James Farnell was ordered to pay restitution of $434,115, both to the IRS.
Source: US Department of Justice
Alabama Woman Sentenced to Twelve Years in Prison for Identity Theft Tax Scheme
Antoinette Djonret was sentenced February 8 to 144 months in prison for her involvement in two separate tax fraud schemes, the Justice Department and IRS announced. She was also ordered to pay $1,291,658 in restitution. In October 2012, Djonret had pleaded guilty to charges in the two cases. In the first case, Djonret pleaded guilty to charges of conspiracy and aggravated identity theft. She pleaded guilty to filing false tax returns in the second case.
According to court documents from the first case, between October 2009 and April 2012, Djonret and her coconspirators used stolen identities to file more than 1,000 false tax returns that fraudulently claimed over $1.7 million in tax refunds. Djonret and her coconspirators filed most of these tax returns from her residence in Montgomery, Alabama.
According to court records, Djonret orchestrated this scheme. She obtained stolen identities from multiple sources, including Alabama state databases. She also established an elaborate network for laundering the refund money by recruiting a number of individuals to purchase prepaid debit cards for use in the scheme. The individuals Djonret recruited to launder the refund proceeds recruited other individuals to purchase the debit cards. Djonret and her coconspirators used the debit cards onto which the fraudulent tax refunds were placed. Three of the coconspirators she recruited have also pleaded guilty and are currently awaiting sentencing.
Documents introduced as part of the sentencing established that Djonret was also involved in a separate tax fraud scheme. Prior to beginning her identity theft scheme, Djonret worked at a tax return preparation business called Premier Tax, where she prepared false tax returns for clients of the business.
Source: US Department of Justice
Alaska Couple Sentenced for Tax Crimes
Anchorage, Alaska, US Attorney Karen L. Loeffler announced February 4 that James Leroy Jensen, fifty-nine, and Robin L. Jensen, sixty, residents of Cordova, Alaska, were sentenced for willfully violating federal income tax laws.
James Jensen had previously pled guilty to evading taxes associated with his 1994 through 1997 income tax returns and was sentenced by US District Court Judge Timothy M. Burgess to three years in prison, a $25,000 fine, and 600 hours of community service. Robin Jensen previously pleaded guilty to filing a false 2000 income tax return and was sentenced by Judge Burgess to two years in prison, a $10,000 fine, and 200 hours of community service.
The Jensen's were also ordered to pay $311,605.65 in restitution to the US Treasury and to file 2006-2009 tax returns as a condition of their supervised release. The IRS has already levied and recovered $294,537.28 in back taxes that were being held on their behalf by the Exxon Qualified Trust Fund.
According to their plea agreements, James Jensen is a commercial fisherman and Robin Jensen ran a cabin rental business in Cordova. After the IRS audited their 1994-1997 tax returns, the Jensen's owed over $100,000 in additional taxes and they began to challenge the jurisdiction of the IRS and the authority of the federal government to tax them.
In 2001, the IRS recorded a Notice of Federal Tax Lien of $201,029 against the Jensen's for tax years 1994 through 1997. The Jensen's appealed the IRS collection process and went to tax court in 2003.
At a hearing, the presiding judge said that James Jensen's arguments about his tax liability were "frivolous gibberish." The judge denied the appeal and fined James Jensen an additional $10,000.
Instead of complying with the tax laws, the Jensen's created several entities including a trust in Nevada and two "corporation soles" in Utah, one of which named James Jensen as "overseer." These nominee entities were used to take title to assets that belonged to the Jensen's, and thereby, open bank accounts for the Jensen's to conceal income, including over $1 million accredited to James Jensen's fishing income between 2004 and 2007. James Jensen used money from these accounts to purchase at least $100,000 in gold coins and pay off a timeshare condominium in Kahana Beach, Hawaii.
In addition, according to the plea agreement, James Jensen tried to thwart IRS collection efforts by mailing a false document called a "Bill of Exchange" to the Secretary of the US Treasury. This document purported to be a payment of $339,888.81 that would eliminate his tax debt for 1994 through 1997. James Jensen also attempted to use these same false documents to have IRS liens removed from his funds in the Exxon Qualified Settlement Fund. Both of these attempts failed.
The Jensen's also filed false tax returns from 1998-2003, claiming they had no taxable income because their earnings were not taxable under the discredited "claim of right" theory. Finally, the Jensen's failed to file tax returns from 2004-2007, based on claims that the corporation sole entities they created in Utah",Rhema Foundation" and "Eyak River Ministries", were exempt from filing tax returns or paying taxes for religious reasons.
The government's sentencing memorandum concerning Robin Jensen argues that she colluded with her husband to conceal assets from IRS collection efforts and that, rather than fulfilling their tax obligations, the Jensen's "flooded" the IRS with frivolous literature for fourteen years and used a complex series of schemes to avoid paying their taxes.
During the sentencing hearing, Judge Burgess described the Jensen's tax evasion schemes as "sophisticated, well thought-out, and relentless."
Source: US Attorney District of Alaska
Fort Collins Accountant Allegedly Stole More than $300,000 from Local Companies
A Fort Collins, Colorado, woman faces numerous felony charges after being indicted by a Weld County grand jury for allegedly stealing more than $300,000 while working for Windsor, Colorado-based companies.
Jennifer Choury, forty-one, is accused of orchestrating a number of financial schemes, including making unauthorized cash withdrawals on company accounts and pocketing cash from the sale of a company limousine.
According to the indictment, Choury worked at different times as a financial controller for the Water Valley Land Co. and the director of finance and office manager for Trollco Inc. Both real estate development companies are based out of Windsor and are owned by Martin Lind, whose companies also include Vima Partners LLC and Pelican Lakes LLC. Choury's duties also reportedly extended to these other companies.
Choury is alleged to have made at least sixty-three unauthorized withdrawals from Water Valley Land Co. and Trollco Inc. bank accounts between February 2008 and April 2012.
The indictment filed last week alleges that Choury would send e-mail requests to the bank that copied to her employer, Lind. She would then allegedly use her access to Lind's e-mail account to create false authorizations under his name and then delete any evidence of the e-mails from the employer's account. She's alleged to have done this using a different account fifty-one times between July 2009 and May 2012 and an additional three times using other accounts from 2010 to 2012.
In total, the indictment alleges the theft of at least $257,567 and as much as $308,950 among the various company accounts.
Source: Denver Post