Illegal Scheme Sought More than a Quarter Billion Dollars in Tax Refunds
October 4, 2012, Arturo Villarreal-Alba, of Whittier, California, pleaded guilty in US District Court to conspiracy to defraud the United States in a fraudulent federal income tax return filing scheme, which together fraudulently claimed more than $250 million in false income tax refunds and pleaded guilty to mail fraud in a vehicle registration "title washing" scheme.
According to court documents, Villarreal, forty-four, worked with Old Quest Foundation, Inc. in Fontana and De La Fuente Ramirez and Associates (DLFRA) in Rancho Cucamonga, two Southland companies charged in an Original Issue Discount (OID) scheme that allegedly filed more than 400 false federal income tax returns with the IRS. It is alleged the IRS erroneously issued millions of dollars in tax refunds to Old Quest and DLFRA customers. On April 30, 2011, he was also named in a thirty-four-count superseding indictment alleging a vehicle registration "title-washing" scheme.
According to the plea agreement, Villarreal-Alba admitted that he referred customers to the OID scheme. Villarreal admitted he caused at least two false 2009 OID-based federal income tax returns to be prepared and filed which claimed a total in false tax refunds of $998,478.
Villarreal-Alba also admitted that between 2009 and 2011, he participated in a vehicle "title-washing" scheme in which he falsely told victims that there was a "special program" wherein vehicles could be paid off and victims would end up owning one or more of the vehicles free and clear. Many victims purchased several vehicles by using their good credit to obtain loans from the car dealers. Rather than having the car loans paid, the victim's signatures on Department of Motor Vehicles (DMV) documents were forged to obtain clear title from the DMV, and then Villarreal-Alba and his co-schemers would either resell the vehicles to unsuspecting victims or obtain title liens on the vehicles from vehicle title loan companies.
Villarreal-Alba used the US mail system in the scheme by fraudulently receiving the "cleaned" pink slips from the DMV by mail. He admitted that he failed to file tax returns and report to the IRS thousands of dollars in income he made 2009 and 2010 from the tax and vehicle title-washing scheme.
The statutory maximum sentence the court can impose is thirty years' imprisonment and a fine of $500,000 or twice the gross gain or loss. Sentencing is scheduled January 18, 2013.
Los Angeles Accountant Pleads Guilty to Tax Crimes Related to Hawaii Clients
Dennis Duban, a Los Angeles-based accountant and tax return preparer, pleaded guilty to conspiracy to defraud the IRS and assisting in the filing of a false federal income tax return before US District Court Judge Leslie E. Kobayashi in Honolulu, Hawaii. Duban was previously scheduled to begin trial on October 2, 2012.
When he is sentenced on April 18, 2013, Duban faces maximum penalties of up to five years imprisonment for the conspiracy charge and up to three years imprisonment for the false return count, along with fines of up to $250,000 on each count.
Duban was a CPA who ran an accounting firm called Duban Sattler and Associates, LLP (formerly Duban Accountancy, LLP), in Los Angeles, California. Duban provided accounting and tax planning services to Hawaii residents Charles Alan Pflueger, James Pflueger, and some of the Hawaii-based entities they controlled, including Pflueger, Inc. and Pflueger Properties.
Beginning as early as 2003, Duban knew that personal expenses of Pflueger, Inc. owner, Charles Alan Pflueger, were being paid for by Pflueger, Inc. and illegally deducted on corporate income tax returns as business expenses. Duban also knew that some personal expenses of another codefendant were being paid for and illegally deducted by Pflueger, Inc. In preparing tax returns for Pflueger and another codefendant from at least 2003 to 2006, Duban did not include as additional items of income all personal expenses of which he was aware were paid for by Pflueger, Inc. and constituted income to the taxpayers.
In connection with the 2007 sale of Hacienda, a San Diego, California, investment property owned by Pflueger Properties, Duban agreed with another codefendant to file a false Pflueger Properties 2007 partnership income tax return and false individual income tax return, which falsely reported the gain on the sale of the property and sold for $27,500,000. In particular, Duban reported the basis of Hacienda as approximately $7 million higher than its actual basis.
Prior to the sale of the Hacienda property, Duban and others assisted the same codefendant in creating a nominee Cook Islands trust and opening a bank account at Wegelin Bank in Switzerland in the name "Southpac Trustee International, Inc., as Trustee of the Vista Pacifica Trust." Proceeds of the Hacienda sale, over $14 million, were sent to the Wegelin account. Duban and a New York-based firm served as investment managers for the account. Duban and the codefendant did not timely report the codefendant's beneficial interest in the Swiss account on Schedule B of a Form 1040 individual income tax return or by filing a Report of Foreign Bank Account (FBAR).
Duban had an interest in other foreign bank accounts that he failed to properly report to the government. For at least 2006 and 2007, Duban failed to report his interest in at least one New Zealand account, held in the name of Lookout Point Limited, on Schedule B of his individual income tax returns or by filing an FBAR.
As part of the plea agreement filed in connection with his guilty plea, Duban admitted that the tax loss associated with his criminal conduct is at least $1 million. He agreed to pay a 50-percent penalty for the one year with the highest balance in his undisclosed New Zealand accounts in order to resolve his civil liability for failing to file FBARs, Forms TD F 90-22.1.
In May 2012, Pflueger, Randall Kurata, and Julie Kam, who were charged in the same indictment, pleaded guilty to filing false tax returns regarding improper payments of personal expenses by Pflueger, Inc. and another entity. The remaining defendant charged in the indictment, James Pflueger, is currently set for trial on February 12, 2013.
Husband and Wife Sent to Prison in Mortgage Fraud Scheme
Joe Daniel Cody Jr., forty-three, of Murrieta, California, was sentenced to sixty-three months in prison, three years of supervised release, and ordered to pay over $1 million in restitution for conspiracy to money laundering in a mortgage fraud scheme by US District Judge Virginia A. Phillips. Also, Angela Lynette Cody, thirty-eight, of Murrieta was sentenced to forty-eight months in prison, three years of supervised release, and ordered to pay over $1 million in restitution for conspiracy to money laundering in a mortgage fraud scheme, again by US District Judge Virginia A. Phillips on September 17, 2012.
According to court documents, the husband and wife team, were employees of All Fund Mortgage, a national mortgage brokerage firm based in Tacoma, Washington, and they managed a branch out of their Murrieta residence. As part of the conspiracy, Joe and Angela Cody and others would convince homeowners, primarily in San Bernardino and Riverside counties, to refinance or temporarily sell their homes to others to help them lower their monthly mortgage payments. In furtherance of the scheme, the Codys would convince homeowners to allow an "investor" (who was really a "straw buyer") with good credit to be added to the title of their home, telling the homeowners they could then refinance under more favorable terms.
They would then effectuate sales of the properties and cash out the equity at closing once they acquired loans from new lenders based on false and fraudulent information. The Codys and their coconspirators caused homeowners to lose title to their homes and lenders to hold millions of dollars in bad loans. In most cases, title was never transferred back to the homeowner, and the schemers took the equity out of the property. Few, if any, payments were ever made, and the properties were eventually sold or went through foreclosure proceedings.
In furtherance of the scheme, the Codys and others also recruited individuals with good credit to act as straw buyers, offering an opportunity to purchase an investment property with an instant tenant and receiving a kickback between $1,000 to $25,000 per property. At least twenty-one homeowners were victimized in a total of $1,042,866.08.
Tax Preparer Sentenced for Preparing False Tax Returns and Stealing Tax Refunds and Stimulus Checks
Javier Francisco Vega, owner of One Stop Tax Service of Redlands, California, was sentenced on September 25, 2012, to eighteen months incarceration and one year of supervised release.
Vega, fifty-two, was also ordered by US District Judge Gary A. Feess to pay $114,691 to the IRS and $19,524.50 to various taxpayer clients for a total of $134,215.50 in restitution.
On June 4, 2012, Vega pleaded guilty to one count of preparing a false tax return. According to the plea agreement, from approximately 2005 to 2009, he knowingly prepared at least forty-five fraudulent federal tax returns for at least twenty clients.
According to court documents, the false tax returns filed claimed false deductions, expenses, or credits for which the taxpayer was either not entitled to claim or only entitled to claim substantially less than the reported amount. It is alleged that the false tax returns included information with respect to false dependents, unreimbursed employee business expenses, education credits, and business profit/loss.
The total tax loss resulting from those fraudulent tax returns totaled $114,691.00. In most cases, Vega arranged for the client's inflated refunds to be sent to his office or deposited into bank accounts for a Refund Transfer transaction without the clients' knowledge. Vega also sometimes forged the clients' signature on the refund checks drawn and informed his clients that they were entitled to no refund, or to a refund lower than the amount he had obtained from them. Vega also provided some of the clients with artificial tax returns.
Vega also stole five refund checks and two stimulus checks intended for his clients, for whom he had filed accurate tax return information. The refund checks and stimulus checks were issued by the IRS. The total amount of loss to those clients is $19,524.50.
Pasadena Man Sentenced to Federal Prison for Making a False Claim with the IRS
Appearing before US District Judge Otis D. Wright II, a Pasadena, California, man was sentenced yesterday to twenty-four months in federal prison for making a false claim for payment against the IRS.
Stephen Andre Mitchell, fifty-one, was further ordered to pay restitution of $71,091.00 to the IRS and to spend three years on supervised release following his prison sentence.
Mitchell pleaded guilty in June to a one-count information charging him with preparing and filing with the IRS a false 2007 income tax return for an individual reporting false wages and tax withholdings from an employer for which the individual never worked.
According to documents filed with the court, Mitchell admitted that for the 2005, 2006, and 2007 tax years, he knowingly filed at least seventy-four fraudulent income tax returns, falsely claiming refunds of at least $200,000. Based upon Mitchell's false claims to the IRS, $71,091 was issued to the defendant.
The income tax returns prepared and filed by Mitchell fraudulently claimed refunds based on false forms W-2, which either inflated or completely fabricated the individual's salary and withholdings. Additionally, many of the false returns prepared by Mitchell also claimed false dependents, false Earned Income Tax Credits, and false Child Tax Credits.
Per the plea agreement, Mitchell has agreed to the entry of a binding civil injunction, barring him for life from aiding in the preparation of federal income tax returns for anyone other than himself and his legal spouse, and barring him from representing other individuals before the IRS.
CEO Sentenced to Eighteen Months Imprisonment for Tax and Mail Fraud in Telemarketing Investment Scheme
Mark Johnson, fifty-five, founder of Pacific Starr Fleet (PSF) in Los Angeles, was sentenced to eighteen months imprisonment, three years of supervised release, and ordered to pay $179,100 in restitution.
On May 10, 2012, Mark Johnson pleaded guilty to one count each of tax fraud and mail fraud. According to the plea agreement, Johnson was the president and CEO of PSF, a business that claimed to offer private jet charter services to corporate and private customers through a membership purchased through PSF. However, according to court documents, Johnson rented office space and hired telemarketers to solicit investor money. The company did not own any assets, airplanes, or hangar space. The company also did not have any customers and no memberships were ever sold.
Between December 28, 2006, and November 17, 2008, Johnson induced more than ten investors to invest in PSF with promises that he knew he could not fulfill. Johnson was aware that telemarketers promised significant returns on investments, such as a 250 percent in three months and a 400 percent return in six months.
Johnson admitted that he induced one investor to invest in PSF for $500. In exchange, Johnson promised that after PSF was offered for sale publically through an initial public offering (IPO); Johnson would pay the investor $25,000 for a portion of the investor's shares. The company never went public, and only a small portion of the investor funds were used for business expenses but were used to pay Johnson's personal expenses instead.
Johnson further admitted that he was advised by an attorney and others knowledgeable about IPOs of the costs and records needed for an IPO. Johnson admitted that he knew that he did not possess the accounting records or the funds for an IPO of Pacific Starr Fleet. The total loss to investors is $179,100.
Johnson also admitted that he failed to collect and pay over taxes for employees and independent contractors of PSF. As part of the agreement, Johnson signed a closing agreement with the IRS, permitting the IRS to assess and collect the total tax due to the IRS for employment taxes between third quarter 2006 through third quarter 2007, totaling $9,563.40.