Ex-CEO Gets Jail Time For Corporate Kickback Scheme

Although recent legislative reforms have focused on public companies, headlines show the fallout from corporate greed also affects executives and auditors of private companies. Last week, the founder and former CEO of Conair Corporation was sentenced to 20 to 37 months in jail for tax evasion.

The tax evasion took the form of a multi-million dollar kickback scheme involving several vendors. The vendors were directed to falsely inflate the service fee they charged the company for shipping containers from Hong Kong to the U.S. The difference was kicked back into the CEO's Swiss bank accounts or to people, charities or companies he designated.

The scheme resulted in $3 million in unreported income on the owner's individual tax return. Last week, he paid the Internal Revenue Service (IRS) almost $2 million to cover his federal tax liabilities. The company paid more than $3.6 million to cover its federal civil tax liabilities. The company's annual sales are estimated at $500 million to $1 billion.

The case came as a shock to many observers. Conair, a manufacturer of personal products, was something of an all-American success story. It was started by the former CEO and his parents with $100. At the start of the seven-year investigation, the CEO earned $20 million. In his statement, the CEO said he has asked himself, "Why did I do this?" His answer was, "What I did comes down to greed." ("Conair founder gets 3 years for tax evasion," Greenwich Time, September 21, 2002.)

The IRS special agent in charge of the case said, "Recently, American taxpayers have been reading about financial fraud by corporate executives. Today's sentencing serves a warning to corrupt corporate executives about the criminal tax consequences of their behavior. It also offers assurance to the taxpaying public that the United States government is committed to investigating and prosecuting such crimes."

-Rosemary Schlank

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