District Not Recorded

Attached please find a PDF version of the supplemental brief in Zubik v.Burwell that was filed April 12, 2016. 

A Leawood, Kansas, business owner was convicted today of tax fraud following a month-long jury trial, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Barry R. Grissom of the District of Kansas.

The jury found Kathleen Stegman, 58, guilty of four counts of tax evasion relating to her evasion of corporate income taxes for the years 2008 and 2009 and individual income taxes for the years 2007 and 2008.  Stegman and her husband, Christopher Smith, 51, were both acquitted on the charge of conspiracy to defraud the United States and Stegman was acquitted on one count of tax evasion.   

Stegman owned Midwest Medical Aesthetics Center in Leawood, which provided aesthetic services including microdermabrasion, laser hair removal and anti-aging procedures and products.  Smith owned Encompass Construction Group in Independence, Missouri. 

“Today’s verdict is a reminder to business owners that they cannot use their companies as their personal piggy banks,” said Acting Assistant Attorney General Ciraolo.  “All taxpayers must file true and accurate returns with the IRS to report their income and expenses.  Those that fail to do so face significant consequences, including criminal prosecution, prison and monetary penalties.” 

According to the evidence at trial, Stegman under-reported her company’s gross receipts and overstated her company’s expenses on the corporate tax returns filed with the Internal Revenue Service (IRS).  Stegman also diverted income from the company for her personal use and failed to report the income on her tax returns.  The government also presented evidence that Stegman and Smith agreed to fabricate a repairs and maintenance contract between Smith and Midwest Medical in order to increase the company’s business deductions and divert money from the company to their personal use.  In December 2010, Stegman wrote a check in the amount of $50,575 to Encompass Construction, which was drawn on Midwest Medical’s bank account.  Smith used the money to buy gold coins that were shipped to Stegman’s business address in Leawood.  On Midwest Medical’s 2010 corporate tax return, Stegman fraudulently deducted this payment as a business expense for repairs and maintenance.

“Today’s verdict is an important victory for America’s taxpayers who play by the rules and have no tolerance for those who make up their own rules,” said Special Agent in Charge Karl Stiften of IRS-Criminal Investigation.  “There is no such thing as free money and there are no awards or incentives for creativity when it comes to crime.”

Stegman faces a statutory maximum sentence of five years in prison and a $250,000 fine on each count of tax evasion.  A sentencing date has not yet been set.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Grissom thanked special agents of IRS Criminal Investigation, who investigated the case and Trial Attorneys Ryan R. Raybould and John T. Mulcahy from the Tax Division and Assistant U.S. Attorney Jabari B. Wamble of the District of Kansas, who prosecuted the case.

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

The Department of Justice and the Federal Trade Commission (FTC) today issued a joint statement reaffirming the importance of preserving competition in the defense industry.  The statement describes the agencies’ framework for analyzing defense industry mergers and acquisitions and emphasizes that the antitrust agencies work closely with the Department of Defense, which is in a unique position to assess the impact of proposed defense industry consolidation on its ability to fulfill its mission.

“The Department of Justice is committed to preserving competition for current and future defense procurement,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “In light of recent speculation about possible future consolidation, we thought it timely to reinforce that message.  Working with our colleagues at the Department of Defense, our mission in reviewing proposed defense industry consolidation is to ensure that our military continues to receive the most effective and innovative products at competitive prices in both the short- and long-term thereby protecting  our national security, American soldiers, sailors, marines and air crews, and our nation’s taxpayers.”

“Competition is the essential ingredient that leads to high-quality products at lower prices,” said Chairwoman Edith Ramirez of the Federal Trade Commission.  “This is especially critical when it comes to America’s defense industry, which provides the weapons and equipment that our men and women in uniform rely on every day.”  

In the joint statement, the federal antitrust agencies emphasize that the particular aspects of the defense industry, such as high barriers to entry, the importance of investment in research and development and the need for surge capacity, can be central to reviewing defense industry mergers and acquisitions.  The joint statement also states that defense industry mergers should not adversely affect short or long-term innovation and must maintain a sufficient number of competitors, including both prime and subcontractors, to ensure that competition for current, planned and future procurement remains robust. 

The antitrust agencies will continue their close working relationship with the Department of Defense as established by the Defense Science Board Task Force on Antitrust Aspects of Defense Industry Consolidation and are committed to the long-standing practice of giving the Department of Defense's assessment substantial weight in areas where it has special expertise and information, such as national security.

DOJ-FTC Statement (April 12, 2016)

Attorney General Loretta E. Lynch today recognized crime victim survivors, advocates and allied professionals at the National Crime Victims’ Rights Service Awards ceremony.  This year’s event honored 10 individuals and programs for their extraordinary actions to bring positive and lasting change in the lives of crime victims.

“The extraordinary individuals being honored today are inspiring examples of service and selflessness,” said Attorney General Loretta Lynch.  “Whether they are conducting research, championing new policies, or working directly with victims in need, these honorees are helping to revive hopes, restore futures, and reclaim lives.  I am deeply grateful for their contributions, and I am proud to say that the Justice Department stands with them in the work of ensuring that every victim of crime in the United States receives the assistance that they need and deserve.”

This year’s theme—Serving Victims, Building Trust, Restoring Hope—focuses the observances for the 2016 Crime Victims’ Rights Week, April 10-16.  President Reagan proclaimed the first Victims’ Rights Week in 1981, calling for greater sensitivity to the rights and needs of victims.  The Justice Department’s Office for Victims of Crime leads communities across the country in observing National Crime Victims’ Rights Week and hosts an annual award ceremony.

Following is a list of the award recipients, who were nominated by their colleagues in the field and selected by the Attorney General:

• Tomorrow’s Leaders Award – new award for 2016 – honors and highlights youth up to 24 years old who dedicate their efforts to supporting victims of crime. 

Recepient: Miki K. Nishizawa of Waipahu, Hawaii.

• Award for Professional Innovation in Victim Service Award recognizes a program, organization or individual who helps expand the reach of victims’ rights and services.

Recipient: Choctaw Nation Victim Services of Hugo, Oklahoma.

• The Crime Victims Financial Restoration Award recognizes individuals, programs, organizations or teams that develop innovative ways of funding services for crime victims or instituted innovative approaches for securing financial restoration for crime victims.

Recipients: Stephen J. Pfleger and Laura D. Rottenborn of the U.S. Attorney’s Office for the Western District of Virginia.

• The Crime Victims’ Rights Award honors those whose efforts to advance or enforce crime victims’ rights benefit crime victims at the state, tribal, or national level. 

Recipient: Russell P. Butler, Esq., Executive Director of Maryland’s Crime Victims’ Resource Center from Upper Marlboro, Maryland.

• The National Crime Victim Service Award honors extraordinary efforts in direct service to crime victims.

Recipient: National Domestic Violence Hotline of Austin, Texas. 

• The Ronald Wilson Reagan Public Policy Award honors leadership, innovation and vision that lead to noteworthy changes in public policy that benefit crime victims.

Recipient: Dr. John P. J. Dussich of Fresno, California.

• The Special Courage Award recognizes extraordinary bravery in the aftermath of a crime or courageous act on behalf of a victim or potential victim.

Recipients: Kim Case of Jefferson City, Missouri and Brenda Tracy of Salem, Oregon.

• The Vision 21 Crime Victims Research Award recognizes individual researchers or research teams that make a significant contribution to the nation’s understanding of crime victims’ issues.

Recipient: Dr. Anne P. DePrince of Denver. 

Descriptive narratives and videos of the contributions of recipients are available at Office for Victims of Crime’s Gallery: https://ovcncvrw.ncjrs.gov/Awards/AwardGallery/gallerysearch.html.

About the Office of Justice Programs (OJP)

OJP, headed by Assistant Attorney General Karol V. Mason, provides federal leadership in developing the nation’s capacity to prevent and control crime, administer justice and assist victims.  OJP has six components: the Bureau of Justice Assistance; the Bureau of Justice Statistics; the National Institute of Justice; the Office of Juvenile Justice and Delinquency Prevention; the Office for Victims of Crime and the Office of Sex Offender Sentencing, Monitoring, Apprehending, Registering and Tracking.  More information about OJP can be found at www.ojp.gov.

A fugitive and former lawyer, who had been on the run since being sentenced to more than six years in prison on tax charges in 2002 was apprehended last week in Phoenix, Arizona, by the U.S. Marshals Service, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.

Palle Bognaes aka Pono, 74, was convicted in 2001 following a two-week jury trial in Reno, Nevada, of conspiracy to defraud the United States, obstructing the administration of the internal revenue laws, tax evasion and failure to file income tax returns.  On Jan. 28, 2002, U.S. District Judge David W. Hagen of the District of Nevada sentenced Bognaes to 80 months in prison.  Bognaes failed to report to prison in March 2002 to begin serving his sentence and remained a fugitive until he was apprehended on April 2.

The evidence at trial demonstrated that Bognaes, a lawyer, engaged in a scheme in which he created Unincorporated Business Organizations (UBOs) for his clients.  Bognaes then instructed his clients to transfer title of their assets into the UBOs and told them that they did not have to pay personal income taxes on those assets.  Bognaes collected significant fees for his services.  Bognaes referred to these UBOs by various names, including Massachusetts Trust, Common Law Trust and Pure Trust Organizations.  

Bognaes also assisted co-defendant Jose Gastanaga of Reno, in setting up a UBO.  Together they conspired to evade the payment of more than $2 million in taxes owed by Gastanaga.  Bognaes assisted Gastanaga by attempting to prevent the Internal Revenue Service (IRS) from seizing two homes for nonpayment of those taxes and obstructed the IRS’s sale of Gastanaga’s interest in a ranch located in Paradise Valley, Nevada.  Bognaes also created UBOs for several other clients, including doctors and chiropractors and taught his clients how to conduct their transactions through the use of nominees and by wiring funds offshore to Turks and Caicos.  For one client, Bognaes generated fake receipts to support $67,000 of false deductions during an IRS audit.

At the time of his arrest, Bognaes contended that his name was Sam Smith.  However, after the FBI confirmed that the individual arrested was, in fact, Bognaes, he was transferred to the custody of the Bureau of Prisons to begin serving his prison term.

Acting Assistant Attorney General Ciraolo commended the diligent investigation of the U.S. Marshals Service in Phoenix and in Reno  for bringing Bognaes to justice after 14 years.  Acting Assistant Attorney General Ciraolo also thanked IRS – Criminal Investigation, who investigated this case and Trial Attorney Lori A. Hendrickson of the Tax Division and Assistant U.S. Attorney Anastasia King, formerly of the Tax Division, who prosecuted this case with valuable assistance from the U.S. Attorney’s Office in Reno. 

Cashed More Than 360 Checks Totaling More Than $780,000

A Columbus, Georgia, resident was sentenced today to 18 months in prison for her role in a stolen identity refund fraud conspiracy, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and Acting U.S. Attorney G.F. Peterman, III for the Middle District of Georgia.

According to court documents, between February 2013 and May 2014, Vicky Wheeler, 55, worked as a bank teller at a SunTrust Bank branch in Columbus.  Wheeler was approached by several co-conspirators who wanted her to cash fraudulently obtained tax refund checks in exchange for a fee.  Wheeler was informed that the tax refund checks were generated from tax returns filed using stolen identities.  To disguise the fraudulent nature of the checks, Wheeler made false entries on the face of the checks to make it appear as if she received identification when the checks were cashed.  Wheeler never received any forms of identification.  In total, Wheeler received and cashed approximately 361 fraudulent tax refund checks, including U.S. Treasury checks and tax refund checks issued by financial institutions that claimed $780,760.17 in tax refunds.  

“The prosecution of stolen identity refund crimes remains a top priority of the department,” said Acting Assistant Attorney General Ciraolo.  “These cases are not limited to those individuals who file fictitious tax returns.  We will vigorously pursue participants at all levels of these schemes, including those who steal identities and those who, like Ms. Wheeler, assist in cashing the refund checks that result from the fraud.”

“Stolen identity refund fraud results in major loss of revenue to the United States Government,” said Special Agent in Charge Veronica F. Hyman-Pillot of the Internal Revenue Service-Criminal Investigation (IRS-CI).  “Vicky Wheeler abused her position of trust and allowed greed and deceit to fuel criminal behavior.  Today she is being held accountable for her actions.  Her prison sentence and restitution order should send a message that refund fraud, greed, and deceit does not payoff in the end.”

In addition to the prison term, U.S. District Judge Clay D. Land ordered Wheeler to serve three years of supervised release and pay restitution in the amount of $780,760.17.

Acting Assistant Attorney General Ciraolo and Acting U.S. Attorney Peterman commended special agents of IRS-CI and the U.S. Secret Service, who investigated the case and Trial Attorney Michael C. Boteler of the Tax Division and Assistant U.S. Attorney Crawford L. Seals of the Middle District of Georgia, who prosecuted the case. 

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

A federal grand jury sitting in Nashville, Tennessee, returned an indictment on April 6, which was unsealed today, against a Nashville woman charging her with six counts of assisting in the preparation of false tax returns, two counts of filing false personal tax returns and one count of obstructing the due administration of the internal revenue laws, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney David Rivera for the Middle District of Tennessee.

According to the indictment, Tracey Brown operated a tax return preparation business, Total Tax Services, from her residence.  It is alleged that between 2006 and 2010, she filed false tax returns on behalf of her clients.  On these returns, Brown claimed a variety of fraudulent deductions, including medical expenses, charitable contributions and unreimbursed employee expenses.  After one of her clients was audited, Brown provided false documentation to the Internal Revenue Service (IRS).  Brown is also alleged to have under-reported the gross receipts and sales figures on her personal income tax returns for the years 2008 and 2009.    

If convicted, Brown faces a statutory maximum sentence of three years in prison for each count.  She also faces substantial monetary penalties, supervised release and restitution.

An indictment merely alleges that crimes have been committed.  Defendants are presumed innocent until proven guilty beyond a reasonable doubt.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Rivera commended special agents of IRS-Criminal Investigation, who investigated the case and Assistant U.S. Attorney Tom Jaworski and Trial Attorneys Alex Effendi and Nathan Brooks of the Tax Division, who are prosecuting this case.

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

Attorney General Loretta E. Lynch released the following statement announcing that Bill Baer, who currently serves as Assistant Attorney General of the Antitrust Division, will serve as Acting Associate Attorney General effective April 17, 2016.  The Associate Attorney General is the Justice Department’s third-ranking post.

“Bill Baer is an extraordinary public servant, an outstanding attorney and a champion of all those who look to the law for empowerment and protection,” said Attorney General Lynch.  “From his work at the Federal Trade Commission to his leadership of the Justice Department’s Antitrust Division, he has demonstrated keen intelligence, strong judgment and consummate skill.  In the last few years alone, he has led the Antitrust Division to new heights – unlocking $400 million in relief for consumers in a case against Apple’s price-fixing of e-books; achieving a record $2.5 billion in fines in a case that exposed a scheme by Citicorp, JPMorgan Chase, Barclays and the Royal Bank of Scotland and others to rig the foreign currency exchange spot market; and standing up against corporate behavior that would have damaged our markets and hurt consumers in industries from beer and wine to airlines and phone companies.  With his hard work and unwavering dedication, he has earned the trust and respect of Justice Department employees at every level.  I could not imagine a better individual to fill Stuart Delery’s shoes as Associate Attorney General of the United States.”

Wells Fargo Bank Admits That It Certified that Loans Were Eligible for FHA Mortgage Insurance When They Were Not, and That It Did Not Disclose Thousands of Faulty Mortgage Loans to HUD

The Department of Justice announced today that the United States has settled civil mortgage fraud claims against Wells Fargo Bank, N.A. (Wells Fargo) and Wells Fargo executive Kurt Lofrano, stemming from Wells Fargo’s participation in the Federal Housing Administration (FHA) Direct Endorsement Lender Program.  In the settlement, Wells Fargo agreed to pay $1.2 billion and admitted, acknowledged and accepted responsibility for, among other things, certifying to the Department of Housing and Urban Development (HUD), during the period from May 2001 through December 2008, that certain residential home mortgage loans were eligible for FHA insurance when in fact they were not, resulting in the Government having to pay FHA insurance claims when some of those loans defaulted.  The agreement resolves the United States’ civil claims in its lawsuit in the Southern District of New York, as well as an investigation conducted by the U.S. Attorney’s Office for the Southern District of New York regarding Wells Fargo’s FHA origination and underwriting practices subsequent to the claims in its lawsuit and an investigation conducted by the U.S. Attorney’s Office for the Northern District of California into whether American Mortgage Network, LLC (AMNET), a mortgage lender acquired by Wells Fargo in 2009, falsely certified and submitted ineligible residential mortgage loans for FHA insurance.

The settlement was approved today by U.S. District Judge Jesse M. Furman for the Southern District of New York.

“This settlement is another step in the Department of Justice’s continuing efforts to hold accountable FHA approved lenders that unlawfully submitted false claims at the expense of American homeowners and taxpayers,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “In addition to today’s resolution with Wells Fargo, the department has pursued similar misconduct by numerous other lenders, returning more than $4 billion to the FHA fund and the Treasury and filing suit where appropriate.  We remain committed to protecting the public fisc from all who seek to abuse it, whether they do business on Wall Street or Main Street.”

“This Administration remains committed to holding lenders accountable for their lending practices,” said Secretary Julián Castro for HUD.  “The $1.2 billion settlement with Wells Fargo is the largest recovery for loan origination violations in FHA’s history.  Yet, this monetary figure can never truly make up for the countless families that lost homes as a result of poor lending practices.” 

“Today, Wells Fargo, one of the biggest mortgage lenders in the world, has been held responsible for years of reckless underwriting, while relying on government insurance to deal with the damage,” said U.S. Attorney Preet Bharara for the Southern District of New York.  “Wells Fargo has long taken advantage of the FHA mortgage insurance program, designed to help millions of Americans realize the dream of home ownership, to write thousands and thousands of faulty loans.  Driven to maximize profits, Wells Fargo employed shoddy underwriting practices to drive up loan volume, at the expense of loan quality.  Even though Wells Fargo identified through internal quality assurance reviews thousands of problematic loans, the bank decided not to report them to HUD.  As a result, while Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust.  With today’s settlement, Wells Fargo has finally resolved the years-long litigation, adding to the list of large financial institutions against which this office has successfully pursued civil fraud prosecutions.” 

“Misconduct in the mortgage industry helped lead to a destructive financial crisis that spanned the globe,” said Acting U.S. Attorney Brian Stretch for the Northern District of California.  “American Mortgage Network’s origination of FHA-insured loans that did not comply with government requirements also caused major losses to the public fisc.  Today’s settlement demonstrates the Department of Justice’s resolve to pursue remedies against those who engaged in this type of misconduct.”                  

“This matter is not just a failure by Wells Fargo to comply with federal requirements in FHA’s Direct Endorsement Lender program – it’s a failure by one of our trusted participants in the FHA program to demonstrate a commitment to integrity and to ordinary Americans who are trying to fulfill their dreams of homeownership,” said Inspector General David A. Montoya for HUD.

According to the second amended complaint filed in Manhattan federal court, the government had alleged:

Wells Fargo has been a participant in the Direct Endorsement Lender program, a federal program administered by FHA.  As a Direct Endorsement Lender, Wells Fargo has the authority to originate, underwrite and certify mortgages for FHA insurance.  If a Direct Endorsement Lender approves a mortgage loan for FHA insurance and the loan later defaults, the holder or servicer of the loan may submit an insurance claim to HUD for the outstanding balance of the defaulted loan, along with any associated costs, which HUD must then pay.  Under the Direct Endorsement Lender program, neither the FHA nor HUD reviews a loan for compliance with FHA requirements before it is endorsed for FHA insurance.  Direct Endorsement Lenders are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance and maintaining a quality control program that can prevent and correct any deficiencies in their underwriting.  The quality control program requirements include conducting a full review of all loans that go 60 days into default within the first six payments, known as “early payment defaults”; taking prompt and adequate corrective action upon discovery of fraud or serious underwriting problems; and disclosing to HUD in writing all loans containing evidence of fraud or other serious underwriting deficiencies.  Wells Fargo failed to comply with these basic requirements. 

First, between at least May 2001 and October 2005, Wells Fargo, the largest HUD-approved residential mortgage lender, engaged in a regular practice of reckless origination and underwriting of its FHA retail loans, all the while knowing that it would not be responsible when the defective loans went into default.  To maximize its loan volume (and profits), Wells Fargo elected to hire temporary staff to churn out and approve an ever increasing quantity of FHA loans, but neglected to provide this inexperienced staff with proper training.  At the same time, Wells Fargo’s management applied pressure on its underwriters to approve more and more FHA loans.  The bank also imposed short turnaround times for deciding whether to approve the loans, employed lax underwriting standards and controls and paid bonuses to underwriters and other staff based on the number of loans approved.  Predictably, as a result, Wells Fargo’s loan volume and profits soared, but the quality of its loans declined significantly.  Yet, when Wells Fargo’s senior management was repeatedly advised by its own quality assurance reviews of serious problems with the quality of the retail FHA loans that the Bank was originating, management disregarded the findings and failed to implement proper and effective corrective measures, leaving HUD to pay hundreds of millions of dollars in claims for defaulted loans.

Second, Wells Fargo failed to self-report to HUD the bad loans that it was originating, in violation of FHA program reporting requirements.  During the period 2002 through 2010, HUD required Direct Endorsement Lenders to perform post-closing reviews of the loans that they originated and to report to HUD in writing loans that contained fraud or other serious deficiencies.  This requirement provided HUD with an opportunity to investigate the defective loans and request reimbursement for any claim that HUD had paid or request indemnification for any future claim, as appropriate.  During this nine-year period, Wells Fargo, through its post-closing reviews, internally identified thousands of defective FHA loans that it was required to self-report to HUD, including a substantial number of loans that had gone into “early payment default.”  However, instead of reporting these loans to HUD as required, Wells Fargo engaged in virtually no self-reporting during the four-year period from 2002 through 2005 and only minimal self-reporting after 2005. 

In his capacity as Vice President of Credit-Risk – Quality Assurance at Wells Fargo, Lofrano executed on Wells Fargo’s behalf the annual certifications required by HUD for the Bank’s participation in the Direct Endorsement Lender program for certain years.  Lofrano also organized and participated in the working group responsible for creating and implementing Wells Fargo’s self-reporting policies and procedures.  In contravention of HUD’s requirements, that group failed to report to HUD loans that Wells Fargo had internally identified as containing material underwriting findings.  Moreover, Lofrano received Wells Fargo quality assurance reports identifying thousands of FHA loans with material findings – very few of which Wells Fargo reported to HUD.

*          *          *

As part of the settlement, Wells Fargo has admitted, acknowledged and accepted responsibility for, among other things, the following conduct:  During the period from May 2001 through, on or about Dec. 31, 2008, Wells Fargo submitted to HUD certifications stating that certain residential home mortgage loans were eligible for FHA insurance when in fact they were not, resulting in the Government having to pay FHA insurance claims when certain of those loans defaulted.  From May 2001 through January 2003, Wells Fargo’s quality assurance group conducted monthly internal reviews of random samples of the retail FHA mortgage loans that the Bank had already originated, underwritten, and closed, which identified for most of the months that in excess of 25 percent of the loans and in several consecutive months, more than 40 percent of the loans, had a material finding.  For a number of the months during the period from February 2003 through September 2004, the material finding rate was in excess of 20 percent. A “material” finding was defined by Wells Fargo generally as a loan file that did not conform to internal parameters and/or specific FHA parameters, contained significant risk factors affecting the underwriting decision and/or evidenced misrepresentation.

Wells Fargo also admitted, acknowledged and accepted responsibility for the following additional conduct:  Between 2002 and October 2005, Wells Fargo made only one self-report to HUD, involving multiple loans.  During that same period, the Bank identified through its internal quality assurance reviews approximately 3,000 FHA loans with material findings.  Further, during the period between October 2005 and December 2010, Wells Fargo only self-reported approximately 300 loans to HUD.  During that same period, Wells Fargo’s internal quality assurance reviews identified more than 2,900 additional FHA loans containing material findings that the Bank did not self-report to HUD.  The government was required to pay FHA insurance claims when certain of these loans that Wells Fargo identified with material findings defaulted. 

Lofrano admitted, acknowledged, and accepted responsibility for, among other things, the following matters in which he participated:  From Jan. 1, 2002, until Dec. 31, 2010, he held the position of Vice President of Credit Risk – Quality Assurance at Wells Fargo; in that capacity, he supervised the Decision Quality Management group; in 2004, he was asked to organize a working sub-group to address reporting to HUD; in or about October 2005, he organized a working group that drafted Wells Fargo’s new self-reporting policy and procedures; and during the period October 2005 through Dec. 31, 2010, based on application of the Bank’s new self-reporting policy and by committee decision, Wells Fargo did not report to HUD the majority of the FHA loans that the Bank’s internal quality assurance reviews had identified as having material findings.

*          *          *

Principal Deputy Assistant Attorney General Mizer thanked the U.S. Attorney’s Office for the Southern District of New York and the U.S. Attorney’s Office for the Northern District of California for their diligent pursuit and successful resolution of this matter and the Commercial Litigation Branch, HUD’s Office of General Counsel and HUD’s Office of Inspector General, for their extraordinary support. 

The case settled by today’s settlement is captioned United States v. Wells Fargo Bank, N.A., et. al., 12-cv-7527 (S.D.N.Y.)

          Alicia A.G. Limtiaco, United States Attorney for the Districts of Guam and the Northern Mariana Islands (NMI), announced that the U.S. Attorney’s Office sponsored training on Child Sexual Exploitation, Child Pornography, Sexting, Internet Dangers and Safety Tips, on April 6, 2016.  The presenters at the training were U.S. Attorney Alicia Limtiaco, and U.S. Department of Homeland Security/Homeland Security Investigations Special Agents Avery Cepeda and Richard Flores.

          The training was attended by over 60 school officials, including administrators, principals, vice principals, psychologists, program coordinators, and others.

Photos:

The Norwegian shipping company DSD Shipping (DSD) was sentenced to pay a total corporate penalty of $2.5 million as a result of its convictions in Mobile, Alabama, for obstructing justice, violating the Act to Prevent Pollution from Ships (APPS), tampering with witnesses and conspiring to commit these offenses.  The company was ordered to pay $500,000 of the penalty to the Dauphin Island Sea Lab Foundation to fund marine research and enhance coastal habitats in the Gulf of Mexico and Mobile Bay. 

In addition, DSD was placed on a three year term of probation and was ordered to implement an environmental compliance plan to ensure the company’s vessels obeyed domestic and international environmental regulations in the future.  The sentence was announced by Assistant Attorney General John C. Cruden for the Justice Department’s Environment and Natural Resources Division and U.S. Attorney Kenyen R. Brown for the Southern District of Alabama.

The operation of commercial marine vessels generates large quantities of waste oil, oil-contaminated waste water and garbage.  International and U.S. law forbid the discharge of waste oil and garbage into the ocean and require that these vessels use pollution prevention equipment, known as an oily-water separator, to prevent the discharge of oil-contaminated waste water.  Should any overboard discharges occur, they must be documented in either an oil record book or a garbage record book, logs that are regularly inspected by the U.S. Coast Guard.

The evidence demonstrated at trial that DSD operated the M/T Stavanger Blossom, a 56,000 gross ton crude oil tanker, from 2010 to 2014 without an operable oily-water separator as required by law.  On Jan. 29, 2010, an internal corporate memorandum written by a vessel engineer warned DSD that the pollution prevention equipment did not work.  The memo further warned that if the problem was not addressed, “some day, it might end up that someone is getting caught for polluting.”  However, rather than repair or replace the oily-water separator, DSD operated the vessel illegally for the next 57 months before the conduct was identified by U.S. Coast Guard inspectors in November 2014.  As the testimony at trial revealed, DSD illegally discharged approximately 20,000 gallons of oil-contaminated waste water and plastic bags containing 270 gallons of sludge into the ocean during the last two-and-a-half months of the vessel’s operation.

The evidence also established that DSD lied about these activities by maintaining fictitious record books aboard the vessel.  These records omitted the illegal discharges of oil and garbage and falsely claimed that pollution prevention equipment was used when it was not.  Further, when the U.S. Coast Guard examined the ship, DSD’s senior ship officers lied about the discharges and ordered their subordinates to do the same. 

In court documents filed prior to sentencing, prosecutors informed the court that despite convictions for eight felony offenses, DSD continued to deny wrongdoing in Norwegian press accounts.  Prosecutors also noted that previous deficiencies in the operation of pollution prevention equipment had been identified in other DSD vessels while they were in international ports.

Three senior engineering officers employed by DSD to operate the ship were also sentenced.  Defendant Bo Gao, chief engineer of the vessel, and Xiaobing Chen, second engineer of the vessel, were both sentenced to six months imprisonment as a result of their conduct.  Defendant Xin Zhong, fourth engineer of the vessel, was sentenced to two months imprisonment.  All three also face the loss of their marine engineering license and exclusion from employment in the merchant marine.  A fourth DSD employee, Daniel Paul Dancu, pleaded guilty in October 2015, and will be sentenced on April 11, 2016.

“We will continue to aggressively prosecute and hold accountable those shipping companies who flout the laws that protect our oceans and coastal waterways from harmful vessel pollution and waste,” said Assistant Attorney General Cruden.  “It is fitting that a portion of this penalty will go towards repairing and protecting the Gulf coastal environment that is threatened by these illegal discharges.  This egregious abuse of the seas we share as a nation and an international community must stop.”

“We are very pleased with the fines and custody sentences imposed by the court in the case today,” announced U.S. Attorney Brown. “The fine and probation imposed against DSD, and the custody sentence imposed on the engineering officers reflect the seriousness of the offenses committed against the United States and the environment.  The U.S. Attorney’s Office will continue to investigate and prosecute environmental crimes.  It is incumbent upon all individuals and corporations to protect our environment and the resources along the Northern Gulf of Mexico.”

“The Coast Guard will not tolerate the pollution of our marine environment,” said Rear Admiral Dave Callahan for the Eighth Coast Guard District Commander.  “The individuals committing environmental crimes are putting our natural resources at risk and they must be held accountable.  I am thankful for the hard work and dedication that Coast Guard Sector Mobile, the Coast Guard Investigative Service, the Department of Justice, and the Environmental Protection Agency have put into the investigation and prosecution of this case.”

“The Coast Guard Investigative Service is deeply committed to protecting our nation’s waters and ensuring that those within the commercial shipping industry are good stewards of the marine environment,” said Director Michael Berkow for the Coast Guard Investigative Service.  “Sadly, although entirely preventable, pollution from vessels remains all too common. We hope the sentences in this case deter others from committing similar conduct.  We are grateful to our investigative partners for their assistance in the prosecution of this case.”

“When a company fails to comply with our nation’s environmental laws, it can have a devastating effect on both public health and wildlife,” said Special Agent in Charge Andy Castro of EPA’s criminal enforcement program in Alabama.  “The defendants knowingly discharged oily waste from a vessel into the open water and then tried to cover up their crimes by falsifying entries in the vessel’s log books.  This successful prosecution is another example of the effective partnership between the Department of Justice, the Coast Guard and EPA to protect the environment and our natural resources.”

This case was investigated by the U.S. Coast Guard Sector Mobile, U.S. Coast Guard District Eight, the Coast Guard Investigative Service, and the EPA’s Criminal Investigations Division.  Assistant U.S. Attorney Michael D. Anderson, with the U.S. Attorney’s Office for the Southern District of Alabama, and Trial Attorney Shane N. Waller, with the Department of Justice’s Environmental Crimes Section, prosecuted the case.

Return Preparer in De Kalb, Mississippi, Allegedly Overstated Refunds through
Fictitious or Exaggerated Business and Farm Losses and Tax Credits

Christopher Chamberlin, a tax return preparer in De Kalb, Mississippi, has prepared income tax returns for customers that fraudulently overstate the customers’ refunds, according to a civil complaint filed by the Justice Department today.  The complaint asks the U.S. District Court for the Southern District of Mississippi to permanently bar Chamberlin from preparing tax returns for anyone other than himself. 

According to the complaint, Chamberlin is the sole proprietor of C&T Services LLC, located in De Kalb.  The complaint alleges that Chamberlin prepared returns that fraudulently overstated refunds by reporting fictitious or exaggerated expenses on Schedule C, Profit or Loss from Business (Sole Proprietorship) and Schedule F, Profit or Loss from Farming.  The falsely claimed Schedule C and Schedule F expenses in turn generated losses that purportedly qualified Chamberlin’s customers to receive or increase the earned income tax credit (EITC) or to otherwise create or maximize refunds, according to the complaint.  Based on audit adjustments the Internal Revenue Service (IRS) has made to tax returns prepared and filed by Chamberlin for tax years 2012 and 2013, the suit alleges, the United States estimates that the defendant’s conduct may have cost the U.S. Treasury over $1 million for those years alone.

Return preparer fraud is one of the IRS’s Dirty Dozen Tax Scams for 2016.  The IRS has some tips on their website for choosing a tax preparer and has launched a free directory of federal tax preparers.  In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers.  Information about these cases is available on the Justice Department website.  An alphabetical listing of persons enjoined from preparing returns and promoting tax schemes can be found on this page.  If you believe that one of the enjoined persons or businesses may be violating an injunction, please contact the Tax Division with details.

Canadian Pacific’s Proposed Voting Trust Structure Risks Irreversibly Harming Competition

The Department of Justice filed a reply today in opposition to Canadian Pacific Railway Limited’s (“CPRL”) petition for a declaratory order regarding use of a voting trust pending the Surface Transportation Board’s (“STB”) review of a potential merger between Canadian Pacific Railway Company (“CP”) and Norfolk Southern Railway Company (“NS”).

The reply states that the proposed voting trust would fail to preserve the independence of the merging railroads during the pendency of the transaction’s regulatory review and would risk harm to current and future competition.  It urges the STB to reject the proposed voting trust structure or, in the alternative, to deny the request for a declaratory order. 

“Canadian Pacific’s voting trust proposal would compromise Norfolk Southern’s independence and effectively combine the two railroads prior to completion of the STB’s  review,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “That makes no sense.  We urge the STB to preserve its ability to review the impact of the proposal on competition and consumers before Canadian Pacific starts scrambling the eggs.”

On March 2, 2016, CPRL, the holding company that owns CP, petitioned the STB for a declaratory order approving a proposed voting trust structure pending the STB’s review of a merger between CP and NS.  Under the proposed voting trust structure, CPRL would acquire NS, CP’s stock would be placed in trust, and CP’s current CEO would become CEO of NS.  As explained in the filing, this proposed voting trust structure fails under each prong of the STB’s regulatory requirements.

The proposal fails to preserve the independence of NS and CP.  In addition, both CP and NS will have the economic incentives and the ability to align their business strategies before a review of the transaction.  Finally, the proposal would also make it difficult, if not impossible, to effectuate a successful divestiture if the STB were to reject the merger applications.

The STB is an independent agency.  The Administrative Procedure Act provides the STB discretion to issue declaratory orders to terminate a controversy or remove uncertainty.  

The Department of Justice’s Antitrust Division today issued its 2016 spring update.  The update highlights the Antitrust Division’s civil and criminal enforcement actions, international cooperation efforts, and competition guidance and advocacy over the last year.

The spring update includes a message from Assistant Attorney General Bill Baer discussing the division’s recent litigation successes, civil enforcement wins, and its prosecution of domestic and international cartels.  The update includes profiles of some of division employees who helped make that happen. 

The spring update describes the division’s successes in civil enforcement over the past year.  These include several wins in just the last few weeks: the Supreme Court’s recent denial of Apple’s cert. petition, ending that company’s efforts to avoid liability for its role in orchestrating a conspiracy with book publishers to raise the price of eBooks; United Airlines’ abandoned efforts to bolster its monopoly at Newark International Airport; and the temporary restraining order that foiled Tribune Company’s efforts to monopolize local newspaper markets in southern California.  The spring update also provides an in-depth look at the division’s suit to block the Electrolux-General Electric merger, which the parties abandoned before the end of trial, and its earlier work to protect competition among broadband internet providers, canned tuna companies, and installment lenders.

This year’s update also describes the division’s criminal enforcement efforts, which included obtaining more than $3.6 billion in criminal fines and penalties – the largest amount ever secured by the division in a single fiscal year – and bringing charges against 20 companies and more than 60 individuals for criminal violations of U.S. antitrust laws.  The update looks at the milestones the division reached in its prosecution of collusion and fraud in the financial industry and among real estate investors in the southeastern United States and northern California.  It discusses the recent guilty verdict returned in the trial against John Bennett, a former CEO extradited to face charges for kickbacks and fraud.  And it details the division’s work to protect competition in online marketplaces and among firms that help out the heirs of people who died without a will.

Finally, the update explores the division’s competition advocacy in the U.S., its efforts to provide guidance on important issues about the intersection of intellectual property and antitrust, and its work with enforcers across the globe to protect competition and promote sound enforcement of antitrust laws. 

Follow the Antitrust Division on Twitter. 

The owner and captain of the commercial F/V Native Sun, were indicted Thursday for conspiracy, as well as violations of the Clean Water Act (CWA) and Act to Prevent Pollution from Ships (APPS).

According to the indictment, starting in 2011 and continuing into 2013, Bingham and Randall Fox discharged and caused other crewmembers to illegally discharge oil and other pollutants into waters of the United States, coastal waters near Blaine, Washington, and the open ocean where the ship operated.

The discharge of oil and other bilge wastes are regulated by the CWA and APPS to protect the nation's waterways, port and ocean water quality.  The discharge of oils and other pollutants in waters of the United States is prohibited absent a CWA permit.  Open ocean discharges are also prohibited without using the oil-water separation (OWS) equipment specified in APPS.

The indictment describes that Bingham Fox owned the Native Sun and, as part of its dockside maintenance, ordered crew members to discharge oil and other bilge wastes overboard into the harbor and adjoining shorelines of Blaine.  Bingham Fox’s son, Randall Fox, served both as a crewmember and later a captain aboard the Native Sun and ordered crewmembers to discharge oil and bilge wastes overboard while the vessel was underway on fishing trips.  The Native Sun had neither a CWA permit to discharge wastes nor the OWS equipment on-board, as required by APPS. 

The maximum penalty for each count of violating the Clean Water Act is three years in prison and a fine of $250,000.  Knowing violations of APPS are punishable by up to six years in prison and a $250,000 fine. 

The defendants will be summoned to appear in U.S. district court in Seattle on April 14, 2016.

This case is being prosecuted by Trial Attorney Brandy Parker and Senior Trial Attorney Todd W. Gleason of the Environment and Natural Resources Division.  The prosecution is the result of an investigation by the U.S. Coast Guard Sector Puget Sound and the Coast Guard Investigative Service Northwest Region.

An indictment contains only allegations against an individual and, as with all defendants, the Foxes must be presumed innocent unless and until proven guilty.

A Staten Island, New York, tax return preparer and business owner was sentenced to prison today for preparing false federal income tax returns, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. 

Alabi Gbangbala aka Babatunde Alabi Babaia, 52, was sentenced by U.S. District Court Judge Carol Bagley Amon to serve 18 months in prison, followed by one year of supervised release, and ordered to pay $178,209 in restitution to the Internal Revenue Service (IRS).  Gbangbala pleaded guilty on June 1, 2015, to one count of preparing a false tax return.

According to court documents and in-court statements, Gbangbala was the operator of Broadfield, a tax return preparation business located in Staten Island.  For tax years 2008 and 2009, Gbangbala prepared false federal individual income tax returns for Broadfield clients by, among other things, failing to report accurate exemptions, falsifying business receipts and losses on Schedules C, and inflating or fabricating charitable contributions and unreimbursed employee expenses.  He also filed false tax returns for himself by underreporting his income for tax years 2008 through 2010. 

Acting Assistant Attorney General Ciraolo commended the special agents of IRS-Criminal Investigation, who investigated the case, and Trial Attorneys Mark S. McDonald and Christopher P. O’Donnell of the Tax Division, who are prosecuting the case. 

The Justice Department filed a lawsuit and consent decree today to resolve allegations that Pain Management Care P.C., of South Bend, Indiana, refused to treat an individual because he has HIV, in violation of Title III of the Americans with Disabilities Act (ADA).

The department’s investigation found that the individual had sought interventional pain management treatment through anesthesiologist and pain management specialist Dr. Joseph Glazier.  An employee of Pain Management Care informed the individual that Glazier would not treat him “due to [his] condition of being HIV positive.”  Title III of the ADA prohibits public accommodations, such as healthcare providers, from discriminating against people with disabilities, including HIV.

Under the consent decree, which still must be approved by the court, Pain Management Care P.C. will develop a non-discrimination policy, provide ADA training to its employees, submit annual reports to the United States, pay $20,000 to the complainant in monetary damages and $10,000 in civil penalties to the United States.

“The Justice Department is committed to eradicating discrimination resulting from the unfounded fear and dangerous stereotype that someone with HIV would pose a threat to a medical provider,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department’s Civil Rights Division.  “Discrimination by those in the medical profession breaks a trust critical to ensuring access to appropriate treatment for all.”

This settlement is part of the department’s Barrier-Free Health Care Initiative, a partnership of the Civil Rights Division and U.S. Attorney’s Offices across the nation to target enforcement efforts in a critical area for individuals with disabilities: access to health care.  For more information on the Barrier-Free Health Care Initiative visit http://www.ada.gov/usao-agreements.htm.

For more information on the ADA, HIV discrimination and this lawsuit, visit www.ada.gov/aids.  Those interested in finding out more about the obligations of healthcare providers under the ADA may call the Justice Department’s toll-free ADA information line at 800-514-0301 or 800-514-0383 (TDD), or access its ADA website at www.ada.gov.  ADA complaints may be filed by email to [email protected].

The relevant court documents can be found at the following links: complaint and consent decree.  

The Department of Justice announced today that United Continental Holdings Inc. (United) abandoned its plans to purchase 24 take-off and landing authorizations – or “slots” – from Delta Air Lines Inc. (Delta) at Newark Liberty International Airport (Newark). 

On Nov. 10, 2015, the department filed suit to block the proposed acquisition, alleging that it would violate Sections 1 and 2 of the Sherman Act by increasing from 73 percent to 75 percent United’s already dominant share of slots at Newark, one of the nation’s most important airports.  The complaint alleged that the enhancement of United’s dominant position would subject air-travel passengers at Newark – who already pay some of the highest fares in the nation – to higher fares and fewer choices.

On April 1, 2016, the Federal Aviation Administration (FAA) announced that it plans to lift slot controls at Newark, which will ease entry and promote competition at the airport.  The FAA explained that capacity exists for additional flights at Newark, in part because slots that have been allocated are not being fully utilized.  At the same time, the existence of slot constraints has forced the FAA to deny requests from United’s competitors to add service.  As alleged in the department’s complaint, United “grounds” more slots on any given day than any of its competitors have the option to fly, while keeping them out of the hands of potential competitors.  Following the FAA’s announcement, United and Delta decided on April 5, 2016, to terminate their slot purchase agreement.

“This is a great win for Newark travelers and for all American consumers,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “United has used its slots monopoly to dominate air travel in and out of Newark.  The FAA’s action opens up Newark to more robust competition and achieves the very outcome we sought in litigation: protecting consumers from United’s plan to enlarge its monopoly at Newark.”

Newark take-off and landing slots were created by the FAA in 2008 to manage congestion by limiting the number of flights that can serve the airport during the majority of the hours of the day.  Slots are scarce, and airlines at Newark – especially low-cost carriers – have had difficulty obtaining slots to offer new air service.  United controls 73 percent of the slots at Newark and its slot holdings are more than 10 times greater than those of any other airline: United holds 902 slots; no other airline has more than 70.  The transaction abandoned today would have increased United’s slot holdings at Newark to 926, or around 75 percent.

United Continental Holdings Inc. is a Delaware corporation headquartered in Chicago.  Last year, United, the third largest airline in the world in terms of revenues, flew over 138 million passengers to over 352 destinations throughout the world.

Delta Air Lines Inc. is a Delaware corporation headquartered in Atlanta.  Last year, Delta, the second largest airline in the world in terms of revenues, flew over 170 million passengers to 316 destinations throughout the world. 

The owner of a tax return preparation business in Kansas City, Kansas, pleaded guilty today to preparing false income tax returns, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Barry Grissom for the District of Kansas.

Antione Dorsey, 38, of Kansas City, and owner of Day-1 Tax Service, pleaded guilty to one count of preparing false tax returns.  In his plea, Dorsey admitted including false items on his clients’ income tax returns without their knowledge or authorization.  Dorsey falsely inflated taxpayers’ incomes by falsifying gross receipts listed on Schedules C.  As a result, taxpayers appeared to qualify for Earned Income Credits that falsely increased their tax refunds.  In other instances, Dorsey falsified itemized deductions reported on the taxpayers’ Schedules A to fraudulently increase the taxpayers’ refunds.

Dorsey caused fraudulent refund claims of approximately $74,400 to be made to the Internal Revenue Service (IRS) and approximately $13,980 in fraudulent claims to be made to the Kansas Department of Revenue.

Sentencing is set for June 27.  He faces a statutory maximum penalty of three years in prison and restitution. Acting Assistant Attorney General Ciraolo and U.S. Attorney Grissom commended special agents of IRS-Criminal Investigation, who investigated the case and Trial Attorney John T. Mulcahy of the Tax Division and Assistant U.S. Attorney Scott Rask, who prosecuted the case.

Merger would eliminate significant head-to-head competition in oilfield services industry

The Department of Justice filed a civil antitrust lawsuit today seeking to block Halliburton Company’s proposed acquisition of Baker Hughes Inc., alleging that the transaction threatens to eliminate competition, raise prices and reduce innovation in the oilfield services industry.

The department filed its lawsuit in the U.S. District Court for the District of Delaware, where both companies are incorporated.  The complaint alleges that the acquisition – which the companies valued at $34 billion when announcing it – would combine two of the three largest oilfield services companies in the United States and the world, eliminating important head-to-head competition in markets for 23 products or services used for on- and off-shore oil exploration and production in the United States.

“The proposed deal between Halliburton and Baker Hughes would eliminate vital competition, skew energy markets and harm American consumers,” said Attorney General Loretta E. Lynch.  “Our action makes clear that the Justice Department is committed to vigorously enforcing our antitrust laws.  In the days ahead, we will continue to stand up for fair deals and free markets, and for the American people we are privileged to serve.”

“This transaction is unprecedented in the breadth and scope of competitive overlaps and antitrust issues it presents,” said Assistant Attorney General Bill Baer of the department’s Antitrust Division.  “Halliburton and Baker Hughes are two of the three largest integrated oilfield service companies across the globe, and they compete to invent and sell products and services that are critical to energy exploration and production.  We need to maintain meaningful competition in this important sector of our economy.”

During the department’s investigation, Halliburton proposed to remedy the significant harmful effects of the transaction by divesting a mix of assets extracted from certain business lines of the two companies.  According to the complaint, the proposed divestitures would not include full business units but rather would be limited to certain assets, with the merged firm holding onto important facilities, employees, contracts, intellectual property, and research and development resources that would put the buyer of those assets at a competitive disadvantage.  The proposed divestures mostly would allow Halliburton to retain the more valuable assets from either company while selling less significant assets to a third party.  The complaint further alleges that this divesture would not replicate the substantial competition between the two rivals that exists today.

Halliburton is a Delaware corporation headquartered in Houston.  Founded in 1919, Halliburton is the largest provider of services and products to the oil and gas industry in the United States.  It has operations in approximately 80 countries and earned revenue of $23.6 billion in 2015.

Baker Hughes is a Delaware corporation headquartered in Houston.  It was formed in 1987 with the merger of Baker International and Hughes Tool Company, both founded over 100 years ago.  The third-largest provider of oilfield services in the world, Baker Hughes operates in more than 80 countries and earned revenue of $15.7 billion in 2015.

Thousands of Kentucky Claimants Improperly Received Disability Benefits

A retired administrative law judge, a lawyer and a psychologist were charged in a federal indictment unsealed today for their roles in a scheme to fraudulently obtain more than $600 million in federal disability payments for thousands of claimants.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division; Special Agent in Charge Michael McGill of the Social Security Administration-Office of Inspector General’s (SSA-OIG) Philadelphia Field Division; Special Agent in Charge Howard S. Marshall of the FBI’s Louisville, Kentucky, Field Division; Special Agent in Charge Tracey D. Montaño of Internal Revenue Service Criminal Investigations (IRS-CI) Nashville, Tennessee, Field Office; and Special Agent in Charge Derrick Jackson of the U.S. Department of Health and Human Services-Office of the Inspector General (HHS-OIG) Atlanta Regional Office made the announcement.

David Black Daugherty, 81, of Myrtle Beach, South Carolina; Eric Christopher Conn, 55, and Alfred Bradley Adkins, 44, both of Pikeville, Kentucky, were charged in an 18-count indictment returned on April 1, 2016, in the U.S. District Court for the Eastern District of Kentucky.  The indictment was unsealed upon Conn’s arrest and initial court appearance today before U.S. Magistrate Judge Robert E. Wier of the Eastern District of Kentucky.  Conn was detained pending his detention hearing, which is scheduled for April 7, 2016. 

The indictment charges all three defendants with one count of conspiracy to commit mail and wire fraud.  In addition, Conn is charged with three counts of mail fraud, three counts of wire fraud, two counts of obstruction, two counts of false statements, one count of conspiracy to commit money laundering, four counts of money laundering, and one count of conspiracy to structure payments.  Adkins is charged with one count of mail fraud, one count of wire fraud, and one count of false statements.  Daugherty also is charged with two counts of mail fraud, two counts of wire fraud, and one count of conspiracy to commit money laundering.

“The defendants are charged with designing an intricate scheme, using their expertise and positions of authority, to fraudulently induce payment of $600 million in federal disability and healthcare benefits,” said Assistant Attorney General Caldwell.  “While Social Security disability programs are designed to support the disabled, the defendants allegedly used it to enrich themselves.  Today’s arrests demonstrate, however, that the Criminal Division will root out greed and corruption wherever they may be found.” 

“The Social Security Administration Office of the Inspector General is committed to pursuing those who violate the public trust by conspiring to misrepresent disabling conditions to defraud not only Social Security, but all American taxpayers,” said Special Agent in Charge McGill.  “We will continue to uphold the integrity of Social Security’s disability programs, which are a lifeline for so many Americans and their families.  I would like to thank the Department of Justice’s Criminal Division, and in particular, the division’s Fraud Section, for their willingness to take on this case and their diligent efforts to ensure these individuals will be held accountable for their actions.”

“As I stated just a few days ago when announcing charges against Kentucky Deputy Attorney General Timothy Longmeyer, the Louisville FBI is committed to cleaning up Kentucky,” said Special Agent in Charge Marshall.  “The allegations against these defendants is yet another example of Kentucky’s historical willingness to accept corruption as the status quo.  Although cleaning up Kentucky is a long and difficult process, today’s announcement is another step toward ending public corruption and taking back the commonwealth from those who corrupt it.”

“IRS-Criminal Investigation is committed to unraveling complex fraud and money laundering schemes,” said Special Agent in Charge Montaño.  “The allegations in this case describe a gross abuse of a system that was established to provide assistance to those truly in need.  The defendants are alleged to have conspired to use their positions, to corrupt the system for their own personal gain, at the expense of the American taxpayers who fund the Social Security system.  We are proud to work with our law enforcement partners to investigate and prosecute individuals who attempt to enrich themselves by fraudulent means.”

“This scheme allegedly enrolled ineligible people in Medicare and Medicaid,” said Special Agent in Charge Jackson.  “We are working with our law enforcement partners to protect these government health care programs funded by our taxpayer dollars.”

The indictment alleges that from October 2004 to Feb. 13, 2012, Conn, Daugherty and Adkins conspired to defraud the government by, among other things, submitting false and fraudulent medical documentation to the SSA in order to have the SSA pay claimants’ retroactive disability benefits, continue to pay claimants’ disability benefits in the future, award Medicare and Medicaid benefits to claimants and pay Conn’s attorney fees.  According to the indictment, the conspirators intended that the SSA disburse more than $600 million in disability benefits in more than 2,000 cases to claimants in Kentucky and elsewhere, irrespective of the claimants’ actual entitlement to benefits.  Conn, Adkins and Daugherty allegedly received more than $5 million during the nearly eight-year scheme.

According to the indictment, Conn is an attorney whose firm in Floyd County has focused for the past 20 years primarily on representing individuals seeking Social Security disability benefits; Adkins is a clinical psychologist who performed medical evaluations for Conn from 2004 through 2011; and Daugherty is a former SSA administrative law judge who began working with the SSA in 1990 and was assigned to the Office of Disability and Adjudication Review hearing office in Huntington, West Virginia, which maintained a satellite office in Prestonsburg, Kentucky, and handled the claims of Kentucky claimants who requested hearings.  Daugherty, who retired in July 2011, was responsible for deciding whether claimants were disabled and entitled to benefits.

As part of the scheme, Conn allegedly filed disability applications with the Prestonsburg Field Office, irrespective of the claimants’ residence in an effort to ultimately bring the cases before the Huntington Hearing Office, where Daugherty either self-assigned or directed others to assign those cases to himself.  Daugherty allegedly solicited Conn to submit falsified medical evidence so that Daugherty could issue fully favorable decisions.  Adkins and others performed pretextual physical and mental evaluations on claimants, the indictment alleges.  They routinely prepared and signed evaluation reports indicating that claimants had limitations considered disabling by the SSA, irrespective of claimants’ actual physical or mental conditions, according to the indictment.

According to the indictment, once the law enforcement investigation began, Conn allegedly threatened to retaliate against another person’s livelihood when that person provided truthful information to a law enforcement officer about the scheme.  Conn also allegedly destroyed and directed others to destroy evidence, including federal reports, a computer tower and other electronic hardware and media located at his law firm.

An indictment is merely an allegation and all defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The SSA-OIG, the FBI, IRS-CI and HHS-OIG investigated the case.  Trial Attorney Dustin M. Davis and Special Trial Attorney Trey Alford of the Criminal Division’s Fraud Section and Trial Attorney Kristen M. Warden of the Criminal Division’s Asset Forfeiture and Money Laundering Section are prosecuting the case. 

A federal grand jury sitting in Billings, Montana, returned an indictment on Feb. 17, which was unsealed today, charging a Saint Ignatius, Montana, couple with one count of conspiracy to defraud the United States and three counts of tax evasion, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Michael W. Cotter of the District of Montana.

According to the allegations in the indictment, Margaret DeYoung aka Peggy Ann DeYoung and John Robert DeYoung failed to file federal income tax returns with the Internal Revenue Service (IRS) for the years 2009 through 2011.  During these years, Margaret DeYoung received rental income as a part-owner of two mobile home parks in California.  It is alleged that the DeYoungs conspired together to conceal assets and income from the IRS through the use of nominee entities that they created.  The DeYoungs opened bank accounts in the names of these entities using fabricated Employer Identification Numbers to hide the rental income from the IRS and to pay personal expenses.

If convicted, the DeYoungs face a statutory maximum sentence of five years in prison for the conspiracy charge and five years in prison for each count of tax evasion, along with a $250,000 fine on each count.

An indictment merely alleges that crimes have been committed and defendants are presumed innocent until proven guilty beyond a reasonable doubt.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Cotter thanked special agents of IRS-Criminal Investigation, who investigated the case and Assistant U.S. Attorney Chad Spraker of the District of Montana and Trial Attorney Rebecca J. Sable of the Tax Division, who are prosecuting the case.

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

A former resident of Portland, Oregon was sentenced to 37 months in prison today for her role in a tax refund fraud scheme, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.

Tataneisha White, 43, admitted to conspiring with multiple individuals, including Jasmine Mason, Shawntina Ware and Brandon Leath, all of Portland, to file more than 227 false income tax returns claiming more than $1 million in fraudulent refunds.  The false information on the tax returns included fictitious W-2 wages and inflated withholding amounts to generate tax refunds ranging from $1,000 to $12,000.  White also admitted that she and her co-conspirators shared personal identifying information and employer information with each other to file the false returns.  White directed the Internal Revenue Service (IRS) to divide the fraudulently obtained tax refunds between bank accounts and debit cards controlled by White and others, including friends and family members of White and her co-conspirators.  In October 2015, White pleaded guilty to one count of conspiracy to file false claims, one count of filing a false claim and one count of theft of government funds.

In addition to the prison term, U.S. District Judge Robert E. Jones ordered White to serve three years of supervised release and pay restitution to the IRS in the amount of $626,750.  Mason and Leath previously pleaded guilty to similar charges and were sentenced to 32 months and 24 months in prison, respectively.  Ware also pleaded guilty and is scheduled to be sentenced on July 27. 

Acting Assistant Attorney General Ciraolo thanked special agents of IRS-Criminal Investigation, who investigated the case and Trial Attorneys Lori A. Hendrickson and Ryan R. Raybould of the Tax Division, who are prosecuting the case.  Acting Assistant Attorney General Ciraolo also thanked the U.S. Attorney’s Office for the District of Oregon for their valuable assistance.

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

Court Finds That “The Tax Firm” is Successor to Previously
Enjoined Operation, “The Tax Factory,” Flouted Court’s Earlier Order

Finding that she “is not competent, or if competent, she is not willing to prepare returns that comply with the law,” a federal court yesterday held Stephanie Edmond in contempt of court for violating the court’s previous injunction orders.  The U.S. District Court for the District of Tennessee also barred Edmond’s businesses, the Tax Factory and the Tax Firm, and her husband, Kevin Williams, from preparing tax returns and it ordered them to disgorge to the United States all fees they have earned since January 15.

On April 17, 2015, the court enjoined Edmond and the Tax Factory from preparing improper federal income tax returns.  The court also ordered Edmond and her businesses to pay for an independent monitor who would be required to report to the United States on a monthly basis as to whether Edmond complied with the internal revenue laws.  However, the court found that after the independent monitor sent Edmond and the Tax Factory a letter regarding their failure to provide bank statements and otherwise comply with the April 2015 injunction, Williams arranged, in exchange for a fee, to use the Electronic Filing Identification Number of another entity, the Tax Firm, to file returns.  The court found that the Tax Firm was the successor of the Tax Factory and concluded that “[t]here is no evidence that the Tax Firm was created for any reason except to escape the review of the monitor and the injunctions issued by this Court. There is no evidence to show a legitimate separate entity.  Instead, the evidence demonstrates that Tax Firm was created for the improper purpose of flouting the Court’s orders.”  The court ordered a copy of the contempt order to be posted at the locations of the Tax Factory and the Tax Firm in Memphis.

Return preparer fraud is one of the Internal Revenue Service’s (IRS) Dirty Dozen Tax Scams for 2016.  The IRS has some tips on their website for choosing a tax preparer and has launched a free directory of federal tax preparers.  In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers.  Information about these cases is available on the Justice Department website.  An alphabetical listing of persons enjoined from preparing returns and promoting tax schemes can be found on this page.  If you believe that one of the enjoined persons or businesses may be violating an injunction, please contact the Tax Division with details.

Attorney General Loretta E. Lynch released the following statement Tuesday on the departure, effective April 14, of Acting Associate Attorney General Stuart F. Delery:

“For over seven years – since the very first day of the Obama Administration – Stuart Delery has been an indispensable source of wisdom, leadership and inspiration at the Department of Justice, working relentlessly to make the ideals of equal opportunity and equal justice a reality for all.  He has proven himself a superlative lawyer and a dynamic force for progress, both within the department and far beyond it.  Stuart was involved in many of the department’s most consequential cases and programs, and he invariably brought both skill and passion to a wide range of critical issues. 

“Across all of his efforts – from launching the department’s Servicemembers and Veterans Initiative, to implementing the Supreme Court’s landmark ruling in United States v. Windsor, to leading unprecedented actions to address financial fraud and consumer safety – Stuart has been dedicated, above all, to making a meaningful difference in the lives of Americans who need our help and deserve our attention.  We can all take pride in the many ways he has helped to make this country more fair, more equal and more just.  I am grateful for his distinguished record of service, and I wish him the very best in the next steps of his already illustrious career.”

A federal grand jury returned an indictment on March 22, which was unsealed today, charging the operator of an anti-aging skincare company in Dayton, Ohio, with one count of corruptly endeavoring to impair and impede the Internal Revenue Service (IRS), two counts of aiding and assisting in the preparation of false income tax returns and five counts of filing false income tax returns, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. 

According to the indictment, James L. Wright of Germantown, Ohio, controlled the financial and business operations of B&P Company Inc., a fourth-generation family business that has manufactured and sold skincare products, including a wrinkle reduction product called Frownies, since approximately 1889.  It is alleged that beginning in 1997, Wright used a series of entities that he established and controlled to divert money from B&P Company to his personal use and the use of his family members.  Wright caused the preparation and filing with the IRS of false tax returns for B&P Company for the years 2008 and 2009 that claimed deductions for payments that Wright made or caused to be made from the company for his mother’s apartment rent and utilities and the apartment rent of one of his daughters.  Wright is also alleged to have filed false tax returns for another entity, The Remnant Inc., on which he claimed deductions for personal expenses – including expenses related to his personal residence, rent for an apartment for one of his daughters and automobile expenses.  The indictment further charges him with filing false personal income tax returns for the years 2008, 2009 and 2010 on which he underreported his income.

Among the entities that Wright used to obstruct the IRS was Fore Fathers Foundation, a private foundation that Wright established in 2003.  Wright is alleged to have used Fore Fathers Foundation, which was funded with donations from B&P Company and another entity that Wright controlled, to pay his children’s private high school and college tuition.  Wright filed income tax returns in the name of the foundation for the years 2008 and 2009 that failed to disclose that the foundation made payments for his children’s educational expenses.  Wright is also alleged to have submitted documents to the educational institutions on which he concealed his involvement with Fore Fathers Foundation. 

Wright was arrested on March 30.  If convicted, Wright faces a statutory maximum sentence of three years in prison and a $250,000 fine on each count of the indictment.

An indictment is not a finding of guilt.  Individuals charged in indictments are presumed innocent until proven guilty beyond a reasonable doubt.

Acting Assistant Attorney General Ciraolo thanked special agents of IRS-Criminal Investigation, who investigated the case and Trial Attorneys Melissa S. Siskind and Thomas F. Koelbl of the Tax Division, who are prosecuting the case.

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

On March 31st and April 1st, the White House and U.S. Department of State hosted the fourth and final Nuclear Security Summit in Washington, D.C. The purpose of the summit, attended by 53 nations and 3 non-governmental organizations, was to strengthen international commitments to the security of nuclear materials. It also provided world leaders the opportunity to discuss new initiatives for combating nuclear terrorism through improved communication, new training, and the sharing of best practices. Secretary General Jürgen Stock was the head of the delegation for INTERPOL, along with Director Geoffrey Shank, representing the U.S. National Central Bureau (USNCB).

The day before the summit, the Secretary General and USNCB leadership met with staff from the Commerce, Justice, Science, and Related Agencies Subcommittee, as well as staff from the House Homeland Security Committee later that day.  Dr. Stock provided a strategic overview of his vision for INTERPOL going into 2020, emphasizing connectivity between the organization’s databases and those of its members in Europe, improving the use of biometrics, and securing borders against foreign terrorist fighter (FTF) travel. Dr. Stock also noted that though INTERPOL continues to excel in integrating security infrastructure, the rise of cybercrime poses ever greater challenges to law enforcement, and more must be done to ensure partners are communicating their intentions and addressing local administrative problems. To do so, Dr. Stock stressed, requires not only the support of a nation’s NCB, but the uncensored support of its respective government.

ValueAct Invested Over $2.5 Billion in Halliburton and Baker Hughes, Failed to Notify Antitrust Authorities, Wrongly Claiming No Intent to Influence Companies’ Business Decisions

The Department of Justice today filed a civil antitrust lawsuit in the U.S. District Court for the Northern District of California against certain ValueAct Capital entities for violating the reporting and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”).  The Antitrust Division’s lawsuit seeks civil penalties and an injunction against further HSR Act violations. 

On Nov. 17, 2014, Baker Hughes and Halliburton – two of the three largest providers of oilfield products and services in the world – announced their plan to merge in a deal valued at $35 billion.  Thereafter, ValueAct, an activist investment firm, purchased over $2.5 billion of Halliburton and Baker Hughes voting shares without complying with the HSR Act’s notification requirements.  According to the complaint, ValueAct purchased these shares with the intent to influence the companies’ business decisions as the merger unfolded and therefore could not rely on the limited “investment-only” exemption to HSR notification requirements.  The complaint details how ValueAct used its access to senior executives of both Halliburton and Baker Hughes to formulate merger and other business strategies with the companies.

“ValueAct’s substantial stock purchases made it one of the largest shareholders of two competitors in the midst of our antitrust review of the companies’ proposed merger, and ValueAct used its position to influence decision-making at both companies,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “ValueAct was not entitled to avoid HSR requirements by claiming to be a passive investor.  Given the seriousness of the violation and ValueAct’s prior HSR violations, we will be seeking significant civil penalties and an injunction against further violations.”

The HSR Act imposes notification and waiting period requirements for transactions meeting certain size thresholds so that such transactions can undergo premerger antitrust review by the department and the Federal Trade Commission.  The HSR Act has a narrow exemption for acquisitions of less than 10 percent of a company’s outstanding voting securities if that acquisition is made “solely for the purposes of investment” with no intention of participating in the company’s business decisions.  

Federal courts can assess civil penalties for premerger notification violations under the HSR Act in lawsuits brought by the department.  The maximum civil penalty for an HSR violation is $16,000 per day.

ValueAct is an investment firm headquartered in San Francisco that advertises a strategy of “active, constructive involvement” in the management of the companies in which it invests.  According to ValueAct’s website, ValueAct’s business model focuses on “acquiring significant ownership stakes in a limited number of companies,” and “[t]he goal in each investment is to work constructively with management and/or the company’s board to implement a strategy or strategies that maximize returns for all shareholders.”  ValueAct manages over $16 billion on behalf of investors. 

The U.S. District Court for the Eastern District of Michigan entered an injunction against S. Serra Cheese Company (Serra Cheese), of Clinton Township, Michigan, and its co-owners, Stefano Serra and Fina Serra, to prevent the distribution of adulterated cheese, the Department of Justice announced today.

The department filed a complaint on Aug. 8, 2014, in the U.S. District Court for the Eastern District of Michigan, at the request of the U.S. Food and Drug Administration (FDA).  According to the complaint, S. Serra Cheese Company prepares, processes and distributes several varieties of pasteurized, ready-to-eat cheeses, such as ricotta, provolone, mozzarella and primo sale.  The complaint alleged that the company’s Italian cheeses are manufactured in insanitary conditions and that the company’s procedures are inadequate to ensure the safety of its products.

The injunction announced today followed an Oct. 20, 2015, decision by the district court that Serra Cheese violated the Food, Drug and Cosmetic Act by distributing adulterated, ready-to-eat cheese products.  The company sells these products to customers in Michigan, Illinois, New York and Pennsylvania.

“The Department of Justice is committed to preventing the unlawful distribution of adulterated food and enforcing laws designed to protect consumer health and safety,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Department of Justice’s Civil Division.  “The Department of Justice will continue to work with the FDA to enforce laws designed to protect the American people from adulterated food.”

The district court’s Oct. 20, 2015, decision concluded that inspections by the FDA in 2013 showed that Serra Cheese repeatedly introduced adulterated cheese into interstate commerce and caused the cheese to become adulterated while held for sale after shipment in interstate commerce.  The inspections, which occurred in January and November 2013, resulted in the collection of samples that showed that Listeria innocua was present in numerous locations throughout Serra Cheese’s facility.  Analysis of other samples showed significant levels of non-pathogenic E. coli in the finished cheese products, indicating exposure of the products, directly or indirectly, to feces.

Furthermore, according to the district court’s Oct. 20, 2015, decision, Serra Cheese’s own testing, conducted in March 2015, revealed the presence of Listeria spp. at multiple locations in the company’s facility, including on its production floor.

The injunction requires Serra Cheese to take specific steps to remedy the violations found by the court.  The defendants are required to submit a written plan to test the cheese in its existing inventory to detect the presence of certain microorganisms.  In addition, defendants are required to conduct ongoing testing of certain finished cheese products pursuant to a plan approved by FDA.  If, as part of the ongoing testing of finished cheese products, any such product tests positive for L. mono or pathogenic E. coli, defendants must immediately cease production and distribution and notify FDA that production and distribution have ceased.

In addition, under the injunction, the defendants must submit to the FDA a sanitation program that establishes adequate methods, facility and controls for receiving, preparing, processing, packing, holding, and distributing articles of food to minimize the risk of introduction of pathogenic Listeria or any other poisonous or deleterious substances, or contamination with filth, to ensure that defendants’ foods are not adulterated under the Act.  For example, the plan must include thoroughly cleaning, sanitizing, renovating and rendering the facility and all equipment suitable for use in receiving, preparing, processing, packing, holding and distributing articles of food to prevent such articles from becoming adulterated and instituting standard sanitation operating procedures to ensure that the facility and equipment are continuously maintained in a sanitary condition.

The government is represented by Trial Attorney David A. Frank of the Civil Division’s Consumer Protection Branch and Assistant U.S. Attorney Peter Caplan of the Eastern District of Michigan, with the assistance of Associate Chief Counsel Yen Hoang of the U.S. Department of Health and Human Services’ Office of General Counsel’s Food and Drug Division.  

Following the order today by U.S. District Judge Carl J. Barbier to enter the consent decree settling United States of America v. BP Exploration & Production Inc., et al., Attorney General Loretta E. Lynch released the following statement:

“The approval of this agreement will open a final, hopeful chapter in the six-year story of the Deepwater Horizon tragedy,” said Attorney General Loretta Lynch.  “Today’s action holds BP accountable with the largest environmental penalty of all time while launching one of the most extensive environmental restoration efforts ever undertaken.  I want to thank everyone who made this outcome possible, including my predecessor, Attorney General Eric Holder, and the federal agencies and states that developed the comprehensive restoration plan.  The Department of Justice will continue to stand with the people of the Gulf as they seek to rebuild and protect the marine life, coastal systems, and beautiful beaches that have made the region a treasured natural resource.”

Defendant Concealed Bank Accounts in Panama and Costa Rica from the IRS

An Anchorage, Alaska, plastic surgeon was sentenced to 48 months in prison on Friday for wire fraud and tax evasion, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Karen L. Loeffler of the District of Alaska.

“Tax evasion knows no geographic bounds,” said Acting Assistant Attorney General Ciraolo.  “This case demonstrates that there is no longer any country where it is safe for a defendant like Dr. Brandner to hide money from the government.  The Department of Justice, along with its law enforcement partners, will continue to aggressively pursue individuals who conceal assets and income abroad in an effort to evade their responsibilities under our nation’s tax laws.” 

Dr. Michael D. Brandner, 67, was convicted by a federal jury in November 2015 of four counts of wire fraud and three counts of tax evasion.  The charges arose from a scheme to conceal over $5 million of assets in secret bank accounts in Panama and Costa Rica from the Internal Revenue Service (IRS) and Dr. Brandner’s wife.  According to the indictment and evidence introduced at trial, shortly after his wife filed for divorce in late 2007, Dr. Brandner collected millions of dollars in marital assets and secretly drove from Tacoma, Washington, to Costa Rica in Central America.  In Costa Rica, he opened two bank accounts into which he deposited over $350,000 in cash and hid a thousand ounces of gold in a safe deposit box.  He then traveled to Panama where he opened an account under the name of a sham corporation and deposited $4.6 million into the account in 2008.

Dr. Brandner concealed both the existence of the bank accounts and the interest income he earned on those accounts from the court in the divorce proceedings and from the IRS.  Dr. Brandner owed the IRS $500,000 in additional taxes for the 2008 through the 2010 tax years.  In 2011, Dr. Brandner repatriated over $4.6 million once the divorce was final only to have the funds seized by U.S. Immigration and Customs Enforcement Homeland Security Investigations (ICE HSI) special agents.  He then lied to federal agents about his control of the funds.

In addition to the prison term, U.S. District Judge Sharon Gleason in Anchorage ordered Dr. Brandner to serve two years of supervised release, and pay $25,922.95 toward the costs of prosecution. 

Acting Assistant Attorney General Ciraolo and U.S. Attorney Loeffler thanked special agents of IRS-Criminal Investigation and HSI, who investigated the case and Trial Attorney Ignacio Perez de la Cruz of the Tax Division and Assistant U.S. Attorney Bryan Schroder of the District of Alaska, who jointly prosecuted the case.

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

In July 2013, a man was watching a movie at a theatre in Michigan, wearing body armor and carrying a firearm. When approached by police, he presented a counterfeit Central Intelligence Agency (CIA) badge and credentials.

In January 2014, a man attempted to gain access to the secure area of Reagan National Airport using a counterfeit CIA badge, but was prevented from doing so after Transportation Security Administration officers noticed inconsistencies with the man’s statements and credentials.

In August 2015, a man was indicted for impersonating a federal law enforcement agent. He used a counterfeit Homeland Security Investigations (HSI) badge and credentials to enter the Naval Nuclear Training Command in South Carolina while armed with a Sig Sauer pistol.

All three of these situations have one thing in common; the badges and credentials originated from a German-based company called Master Equipment.

Master Equipment is operated by 34-year-old Roberto Craciunica, a Romanian man believed to be residing in Germany. Craciunica was indicted in October 2015 in the Eastern District of Virginia for a variety of charges related to manufacturing and distributing counterfeit badges, including trafficking in counterfeit goods; smuggling; and possession, sale or transportation of false seals. Interpol has also issued a Red Notice for Craciunica’s arrest.

From January 2010 to September 2015, Craciunica’s company, Master Equipment, manufactured and distributed counterfeit U.S. law enforcement badges from HSI, the CIA and the Federal Bureau of Investigation without authorization. Craciunica sold these badges through websites like www.badge-police.com and www.master-equipment.org. Craciunica and his co-conspirators instructed buyers to pay for the counterfeit badges by sending funds through Western Union and Paypal. They then shipped the counterfeit badges from Kaarst, Germany, to buyers in the United States. Individuals utilized the badges and credentials to impersonate federal agents and officers of the U.S. government, and in some situations, attempted to gain access to restricted areas.

As part of this investigation, HSI Washington, D.C., special agents seized counterfeit badges and seals purchased from Web domains operated by Master Equipment and Craciunica.

The Washington Metropolitan Airport Authority, the U.S. Marshals Service for the Eastern District of Virginia and the U.S. Marshals Service Headquarters Tactical Operations Division assisted with the investigation.

Filed More Than 335 False Tax Returns Seeking Over $400,000 in Tax Refunds and Attempted to Threaten Witness

A Montgomery County, Alabama resident pleaded guilty today to one count of wire fraud and one count of aggravated identity theft, 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, James Vernon Battle, 30, used stolen personal identification information to prepare and file at least 335 false federal income tax returns for tax years 2013 and 2014 that fraudulently claimed more than $400,000 in tax refunds.  Battle obtained the stolen personal identification information from Wendy Huff.  Huff worked at two loan companies in Montgomery, Alabama.  Battle directed the Internal Revenue Service (IRS) to issue the requested refunds via prepaid debit cards and U.S. Treasury checks.  Those prepaid debit cards and checks were sent to various addresses in Montgomery, including Huff’s residence.  Battle also brought several U.S. Treasury checks to Huff’s workplace where she used her position to cash them.  Huff returned half of the proceeds to Battle and kept the balance for herself.    

Battle faces a statutory maximum sentence of 20 years in prison for the wire fraud charge and a mandatory minimum sentence of two years in prison for the aggravated identity theft charge, which will be in addition to any other term of imprisonment he receives.  He also faces substantial monetary penalties and restitution.

Wendy Huff previously pleaded guilty and is scheduled to be sentenced on July 14.  A sentencing date has not been scheduled for Battle.

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

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

Attorney General Loretta Lynch and Belgian Deputy Prime Minister and Minister of Security and the Interior Jan Jambon met today at the U.S. Department of Justice in Washington, D.C., and pledged continued support and cooperation between their two countries.  The Attorney General and the Deputy Prime Minister discussed cooperation and collaboration in the fight against terrorism.

A federal jury sitting in the Eastern District of Pennsylvania returned a guilty verdict today against an Aldan, Pennsylvania, man on charges related to a tax fraud scheme, announced the Department of Justice. 

Jean Baptiste Alvarez, aka Alex, 43, was found guilty of conspiracy to defraud the United States with respect to false claims, aggravated identity theft and misuse of social security numbers.  U.S. District Court Judge Michael Baylson scheduled a sentencing hearing for July 26. 

Alvarez faces a statutory mandatory minimum sentence of at least two years in prison with a maximum possible sentence of 24 years in prison, up to three years of supervised release, a possible fine and a $500 special assessment.

According to evidence presented at trial, Alvarez unlawfully provided to Peterson Rene, charged elsewhere, the personal identifying information (PII) of hundreds of real persons.  Specifically, Alvarez sold Rene patient information labeled “census sheets” that were created by and kept in the normal course of business, at the Kirkbride Center health care facility in Philadelphia, where the defendant worked.  These “census sheets” list PII of patients, including names, social security numbers and dates of birth.  From 2012 through 2015, Alvarez and Rene conspired with others to use the stolen identifying information on tax returns for the purpose of obtaining payment of false, fictitious and fraudulent tax refunds.

The case was investigated by IRS-Criminal Investigation, the FBI and the Office of Inspector General-Social Security Administration.  It is being prosecuted by Assistant U.S. Attorney Terri A. Marinari and Trial Attorney Ann M. Cherry of the Justice Department’s Tax Division.

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

A grand jury returned an indictment on March 23, which was unsealed yesterday, charging a Jersey City, New Jersey, resident with one count of corruptly endeavoring to obstruct the internal revenue laws and one count of theft of public money, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.

According to the indictment, Derrick M. Madison, placed hundreds of telephone calls to the Internal Revenue Service’s (IRS) electronic payment system in an attempt to fraudulently obtain credit for hundreds of millions of dollars in fictitious and fraudulent tax payments to the IRS he did not actually make.  As part of his scheme, Madison received a U.S. Treasury check in the amount of $170,681.22 based on one such fraudulent overpayment to the IRS, which he deposited into his bank account.  Madison was arrested on the charges March 28.

If convicted, Madison faces a total statutory maximum sentence of three years in prison and a $250,000 fine on the charge of obstructing the IRS and 10 years in prison and a $250,000 fine on the theft of public money charge.  A trial date has not yet 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. 

Acting Assistant Attorney General Ciraolo thanked special agents of IRS-Criminal Investigation, who investigated the case and Trial Attorneys Eric Powers and Jeffrey Bender of the Tax Division, who are prosecuting the case.

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

With tax season in full swing, the Justice Department urged the public today to avoid dishonest tax-return preparers who fleece their customers and illegally drain the U.S. Treasury.  Noting that every taxpayer is ultimately responsible for the contents of his or her own return, Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division also warned the public to be wary of anyone who guarantees a refund or who claims to sell a sure-fire way to reduce your taxes.

Dishonest Return Preparers Cost Their Clients and the United States

U.S. taxpayers filed approximately 150 million returns in 2014.  According to statistics available from the Treasury Inspector General for Tax Administration, the Internal Revenue Service (IRS) identified more than 2.1 million of those returns that claimed fraudulent refunds totaling more than $15.7 billion.  As in past years, the IRS has designated return preparer fraud as one of 2016’s “Dirty Dozen” tax scams to avoid during return filing season.  In 2015, the Tax Division permanently shut down more than 35 fraudulent tax-return preparers located all over the United States.  The defendants in those cases spanned the spectrum from large-scale return preparation franchises to small, independent return preparers.

“Every year, thousands of federal income tax returns are prepared by people who care much more about making a quick buck than about preparing accurate returns,” said Acting Assistant Attorney General Ciraolo.  “Most tax return preparers are honest.  But some preparers who charge clients a percentage of their tax refund intentionally prepare false returns to increase their clients’ refund, and thus their own fees.  Likewise, some preparers who charge by the form will intentionally prepare incorrect forms that their clients don’t need in order to increase their compensation.  Taxpayers might think that they’re getting a good deal on their taxes, or that as long as someone else prepares the return, they’re not responsible.  They’re wrong.  Taxpayers who have their return prepared incorrectly are required to pay the tax they owe, or pay back the refund they weren’t entitled to get.  These clients might also owe interest and penalties, which can be substantial.  Fortunately, there are red flags that taxpayers can look for and avoid when choosing a return preparer.”

Your refund should never be deposited directly into a preparer’s bank account.

In United States v. Elton L. Barnes, No. 2:14-cv-05621 (C.D. Cal.), the court barred a return preparer who caused other people’s tax returns to be deposited to bank accounts in his name.

Never sign a blank return or a blank form, or sign a return or a form without reading it first.

By law, a return preparer must provide a client with a completed copy of the return no later than the time the customer is asked to sign the return.  In United States v. Syed N. Ahmed et al., No. 2:15-cv-11461 (E.D. Mich.), the United States alleged that the defendants’ Liberty Tax Service franchises asked customers to sign blank forms that stated that the customers had non-existent businesses, which were then used to maximize the customer’s refund.  Although the defendants did not admit to the allegations in the complaint, they agreed to an order from a federal court permanently shutting down the stores.

Don’t use a preparer who mischaracterizes your expenses.

In United States v. Lawrence Preston Siegel, No. 3:15-00643 (S.D. Cal.), the defendant prepared returns that falsely characterized personal purchases as deductible expenses.  For instance, one customer’s return deducted purchases at Tiffany & Co., Louis Vuitton, and Royal Caribbean Cruise Lines as “medical expenses.”  The court permanently barred Siegel from preparing tax returns or providing tax advice for compensation.

Do not use a preparer who fabricates business expenses or deductions, or who claims bogus credits to which you are not entitled, such as the Earned Income Tax Credit, the child care credit, or the education credit.

One of the most common dishonest return-preparation practices is to prepare returns that include non-existent businesses, sometimes based on a client’s hobbies.  In 2015, for example, federal courts shut down tax return preparers in Kahului, Hawaii; Appleton, Wisconsin; and Chicago, Illinois, who fabricated supposed “businesses” for their clients.  Federal courts have also ordered return preparers in Miami, Florida, and Memphis, Tennessee to submit to third-party monitoring at their own expense to make sure they are not preparing returns with fraudulent “businesses.”

Some other fraudulent schemes and practices that have been stopped through injunction orders entered by federal courts throughout the country include:

• Fabricating fake Form W-2 (Wage and Tax Statement) information;
• Claiming bogus education and first-time homebuyer credits;
• Claiming phony child and dependent care credits or residential energy credits;
• Claiming fraudulent fuel tax credits;
• Falsely exempting foreign earned income;
• Inflating unreimbursed employee business expense deductions; and
• Fraudulently inflating or decreasing a client’s income or deductions to maximize the Earned Income Tax Credit.

In January 2016, a federal court in Orlando, Florida entered a preliminary injunction against Jason Stinson, who ran a series of tax return preparer storefronts under the name “Nation Tax Services,” requiring him to shut down the stores pending resolution of the case.  As part of its explanation for why it was ordering Stinson’s stores to shut down in the middle of the case, the court said that Stinson’s business “exposes . . . [his] customers to individual tax liability.  Both the Government and Stinson’s customers will suffer irreparable harm if an injunction is not granted. Moreover, it is in the public’s best interest to protect vulnerable customers from the inaccurate preparation of their taxes, not to deplete Government resources, and to maintain the public trust in the tax system.”  The case is United States v. Jason Stinson et al., No. 6:14-cv-1534 (M.D. Fla.).

The IRS advises taxpayers who ask a tax professional to prepare their return to be careful in the professional they select.  The IRS offers some basic tips and guidelines to assist taxpayers in choosing a reputable tax professional and is also offering taxpayers a number of instructional YouTube videos to help them prepare their own taxes for the upcoming filing season.  Several options, including free assistance with preparation and electronic filing for the elderly and individuals making $50,000 or less, are available to help taxpayers prepare for the current tax season and receive their refunds as easily as possible.

Tax Division Sues to Shut Down Promoters of Fraudulent Tax Schemes

In addition to return preparers who deliberately falsify returns, the Tax Division targets those who peddle schemes that purportedly reduce taxes—but in fact rely on false statements or financial sleight-of-hand. 

In United States v. Wayne Reeves et al., No. 12-cv-1916 (D. Nev.), the court found that defendants Wayne Reeves and Diane Vaoga advised their clients “to set up sham trusts and have their wages directed into accounts for those trusts as a way to improperly reduce their tax liability.”  They advised their clients that the income the clients received from the trusts was “nontaxable and did not need to be reported on tax returns.”  The court further found that Reeves prepared tax returns that “willfully attempted to understate his clients’ correct tax liabilities,” and that Vaoga assisted him in doing so.  In January 2015, the court permanently barred both Reeves and Vaoga from preparing returns or giving tax advice to others.

In November 2015, the Tax Division sued to shut down an alleged tax scheme based on a purported solar energy generation facility in Utah.  The case is United States v. RaPower-3 LLC et al., No. 2:15-cv-00828 (D. Utah).  The United States’ complaint alleges that the defendants purportedly sell “solar thermal lenses” to customers, and tell their customers that they are entitled to claim depreciation expenses and the solar energy credit for the lenses—even though the defendants allegedly know or have reason to know that their customers are not in the business of producing and selling solar energy and that the defendants’ purported solar energy facilities do not actually produce solar energy in a manner that meets the Internal Revenue Code’s requirements for claiming the credit.

And in the same month, in United States v. James Tarpey et al., No. 2:15-cv-00072 (D. Mont.), the Tax Division sued to shut down an alleged timeshare donation scheme.  According to the United States’ complaint in that case, the defendants have their customers give rights in a timeshare to “Donate for a Cause,” a tax-exempt entity operated by Tarpey.  The complaint alleges that the customers receive an appraisal that grossly overvalues the donated timeshare rights and use that appraisal to claim a large charitable donation deduction, even when the true market value of the timeshare right is a small fraction of the appraised value. 

“The Tax Division is committed to stopping those who promote fraudulent tax shelters and other schemes or who prepare false returns,” Acting Assistant Attorney General Ciraolo said.  “Along with our colleagues at the IRS, we will find dishonest preparers and fraudulent tax-scheme promoters and work to shut them down.  We will hold accountable those who willfully assist taxpayers to file false returns.  And in appropriate cases, we will prosecute them.  But everyone can help stop fraud and protect our public finances.  Pay attention to your tax return and make sure that it’s right.  If you think that a tax return preparer is deliberately preparing incorrect returns, or you suspect someone is selling a phony tax-loss scheme, report that person to the IRS.”

The IRS website has information about how to report a dishonest return preparer, as well as information about how to report other types of tax fraud.  The Justice Department’s website has a list of tax-return preparers and tax-scheme promoters whom the courts have shut down. 

In addition to the civil enforcement through injunctions that stop their illegal actions, many return preparers and promoters also face prosecution.  Examples of those investigations can be found for fiscal years 2014 and 2015.

Divesture Protects Competition and Consumers in 15 Metropolitan Areas

The Department of Justice’s Antitrust Division announced today that it will require Iron Mountain Inc. to divest records management assets in 15 metropolitan areas in order to proceed with its $2.6 billion acquisition of Recall Holdings Ltd.  The Antitrust Division filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to block the proposed acquisition and simultaneously filed a proposed settlement that, if approved by the court, would resolve the competitive harm alleged in the lawsuit. 

Iron Mountain and Recall both offer records management services – storing, protecting and organizing large volumes of hard-copy records at secure, off-site locations – in many cities across the United States.  To address the division’s competitive concerns, the parties will divest records management assets in the following 15 metropolitan areas where they are two of the three largest providers of these services and there are few, if any, significant remaining competitors: Detroit; Kansas City, Missouri; Charlotte, North Carolina; Durham, North Carolina; Raleigh, North Carolina; Buffalo, New York; Tulsa, Oklahoma; Pittsburgh; Greenville/Spartanburg, South Carolina; Nashville, Tennessee; San Antonio, Texas; Richmond, Virginia; San Diego;  Atlanta; and Seattle.

“Iron Mountain’s proposed acquisition of Recall would have harmed records management customers in 15 metropolitan areas by dramatically reducing competition in these markets,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “As a result of today’s settlement, these customers will continue to enjoy the fruits of competition – lower prices and higher quality services.”

The transaction is also being reviewed by the Australian Competition and Consumer Commission, the United Kingdom’s Competition & Markets Authority and the Canadian Competition Bureau.  The department cooperated closely with them throughout the course of its investigation, with frequent contact between the agencies.

Iron Mountain is a Delaware corporation headquartered in Boston.  Iron Mountain is the largest records management company in the United States, providing document storage and related services throughout the nation.  For fiscal year 2014, Iron Mountain reported worldwide revenues of approximately $3.1 billion. 

Recall is an Australian company headquartered in Norcross, Georgia.  As the second-largest records management company in the United States, Recall provides document storage and related services throughout the nation.  Recall’s worldwide revenues for fiscal year 2014 were approximately $836.1 million.

As required by the Tunney Act, the proposed settlement, along with the department’s competitive impact statement, will be published in the Federal Register.  Any person may submit written comments concerning the proposed settlement during a 60-day comment period to Maribeth Petrizzi, Chief, Litigation II Section, Antitrust Division, U.S. Department of Justice, 450 5th Street, N.W., Suite 8700, Washington, D.C. 20530.  At the conclusion of the 60-day comment period, the U.S. District Court for the District of Columbia may enter the proposed final judgment upon finding that it serves the public interest.  

Today the Department of Justice, along with other federal agencies, published a final rule that will provide religious liberty protections to beneficiaries of social services provided by faith-based organizations that receive federal financial assistance and will affirm that such organizations are able to compete for government funds on the same basis as other organizations.  

For example, under the new regulations, a religious organization that is awarded a grant to carry out a social service must notify any beneficiary, in writing, that he or she may not be discriminated against based on religion and may request an alternative provider if he or she objects to the religious character of the organization.  In addition, the regulations specify that all decisions about federal financial assistance must be based on merit, not on an organization’s religious affiliation or lack thereof.  The regulations—which are being published after public notice and comment—formally implement Executive Order 13559, entitled “Fundamental Principles and Policymaking Criteria for Partnerships with Faith-Based and Other Neighborhood Organizations.”

Among other things, the department’s final regulations:

• Require that all decisions about awards of federal financial assistance from the department must be made on the basis of merit, not on the basis of religion, religious belief, or lack thereof and must be free from political interference, or even the appearance of such interference.
   
• Reaffirm that faith-based or religious organizations are eligible to participate in any department program for which they are otherwise eligible on the same basis as any other organization.
   
• Clarify that organizations that receive direct federal financial assistance from the department may not engage in “explicitly religious activities” unless they are offered separately, providing examples of such activities.
   
• Prohibit organizations that receive federal financial assistance from the department from discriminating against beneficiaries or prospective beneficiaries on the basis of religion, a religious belief, a refusal to hold a religious belief, or a refusal to attend or participate in a religious practice.
   
• Require faith-based or religious organizations providing services under a program supported by direct federal financial assistance from the department to provide written notice of certain protections to beneficiaries and prospective beneficiaries, including the following statements—

1. The organization may not discriminate against beneficiaries or prospective beneficiaries on the basis of religion, a religious belief, a refusal to hold a religious belief, or a refusal to attend or participate in a religious practice;
    
2. The organization may not require beneficiaries or prospective beneficiaries to attend or participate in any explicitly religious activities that are offered by the organization and any participation by beneficiaries in such activities must be purely voluntary;
    
3. The organization must separate in time or location any privately funded explicitly religious activities from activities supported by direct federal financial assistance;
    
4. If a beneficiary or prospective beneficiary objects to the religious character of the organization, the organization will undertake reasonable efforts to identify and refer the beneficiary or prospective beneficiary to an alternative provider to which the beneficiary or prospective beneficiary has no objection; and
    
5. Beneficiaries or prospective beneficiaries may report an organization’s violation of these protections, including any denials of services or benefits by an organization, by contacting or filing a written complaint with the Office for Civil Rights or the intermediary that awarded funds to the organization.

The final regulations become effective 30 days after publication in the Federal Register and recipients of federal financial assistance must comply with the regulations 90 days after publication in the Federal Register.  For more information, click here.

Up to $8 million to support community policing and implementation of the recommendations of the President’s Task Force on 21st Century Policing

The Office of Community Oriented Policing Services (COPS Office) today announced the opening of the application period for its Community Policing Development (CPD) Program.  Up to $8 million is available to fund projects that support implementation of the recommendations of the President’s Task Force on 21st Century Policing Report.  These recommendations aim to strengthen public trust and foster strong relationships between local law enforcement and communities, while also promoting effective crime reduction.

The CPD Program is designed to address critical topics in the law enforcement field by building on the principles of community policing through training and technical assistance, the development of innovative community policing strategies, applied research, guidebooks and best practices that are national in scope.

This year, the program will fund projects related to six topic areas: The Microgrant Initiative for Law Enforcement, Critical Response Technical Assistance, Community Policing Emerging Issues Forums, Community Policing Training Projects, Law Enforcement Led 21st Century Policing Demonstration Projects and 21st Century Policing Implementation Projects.

“The funding announced today reflects this Administration’s commitment to and support for law enforcement,” said COPS Office Director Ronald Davis.  “Through this program, the COPS Office will provide substantial assistance to law enforcement in its efforts to build community trust and enhance public safety and national security.”

The CPD Program is a competitive solicitation, open to all public governmental agencies, profit and nonprofit institutions, institutions of higher education, community groups and faith-based organizations.  For more information on program requirements, application instructions, frequently asked questions and other information, visit the CPD Program page on the COPS Office website.

The COPS Office is a federal agency responsible for advancing community policing nationwide.  Since 1995, the COPS Office has invested more than $14 billion to advance community policing, including grants awarded to more than 13,000 state, local and tribal law enforcement agencies to fund the hiring and redeployment of more than 127,000 officers and provide a variety of knowledge resource products including publications, training and technical assistance.  For additional information about the COPS Office, please visit www.cops.usdoj.gov.

The former President of the North Carolina Board of Funeral Service and his business partner were sentenced to prison yesterday for their involvement in a conspiracy to defraud the Internal Revenue Service (IRS), announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Ripley Rand of the Middle District of North Carolina.

Kenneth Dale Stainback, 62, of Burlington, North Carolina, the secretary of McClure Funeral Service (McClure) and former president of the North Carolina Board of Funeral Service, was sentenced to 14 months in prison and three years of supervised release. Stephen Ray Smith, 60, of Mebane, North Carolina, the president of McClure, was sentenced to six months in prison and three years of supervised release.  The court ordered both defendants to pay $158,530.11 in restitution to the IRS for the corporate tax loss. The court also ordered Stainback and Smith to pay $12,213 and $116, respectively, in restitution to the IRS for their individual tax loss.  The court also ordered Stainback and Smith to pay $8,000, respectively, in fines. 

According to court documents and statements in court, Stainback and Smith conspired to defraud the United States by filing false corporate tax returns for McClure.  Stainback, Smith and another co-conspirator bought McClure in 2004 and began diverting gross receipts from the business and omitting that income from the corporation’s tax returns.  The co-conspirators opened a checking account at Mid-Carolina Bank for the purpose of diverting funds from McClure, including commission checks payable from insurance providers and checks from clients for payment of services.  The co-conspirators wrote checks to themselves from this account, with Stainback and Smith receiving the vast majority of the diverted funds.  Stainback also opened another bank account at SunTrust Bank, which he used to embezzle additional funds from McClure without the knowledge of his co-conspirators.  The co-conspirators also pocketed cash payments from clients of McClure.  To conceal discovery of their scheme, the co-conspirators deleted and altered invoices in the business’s accounting system.  Even after they were aware that the IRS was conducting an examination of the business, Stainback and Smith continued to divert funds from McClure.

“As Messrs. Stainback and Smith have learned, cheating the IRS and stealing from the U.S. Treasury brings serious penalties, including prison, fines and the potential loss of professional licenses,” said Acting Assistant Attorney General Ciraolo.  “Taxpayers who think they can skim funds from their own businesses and conceal their criminal conduct by falsifying records underestimate the ability of the IRS and Department of Justice to detect, investigate and prosecute these crimes.”

During the 2009 through 2012 fiscal years, Stainback, Smith and the other co-conspirator diverted more than $419,000 from McClure.  Because the co-conspirators also deleted and falsified invoices, the amount diverted underestimates the amount the co-conspirators excluded from the corporate tax returns.  The co-conspirators caused a corporate tax loss of $158,530.11 and additional individual tax loss based on their failure to report the diverted funds on their individual income tax returns.  

Acting Assistant Attorney General Caroline D. Ciraolo and U.S. Attorney Ripley Rand commended special agents of IRS – Criminal Investigation who investigated the case, and Assistant U.S. Attorney Clifton T. Barrett of the Middle District of North Carolina and Trial Attorney Kathryn A. Kimball of the Tax Division, who prosecuted the case.

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

Deputy Attorney General Sally Q. Yates released the following statement following President Obama’s clemency announcement today:

“Today’s announcement by the President to commute the prison sentences of another 61 individuals demonstrates his commitment to ensuring a fair and just criminal justice system. The clemency initiative that the President announced in 2014 is an important part of the Department’s overall criminal justice reform efforts.   Through cooperative bipartisan efforts with Congress, the U.S. Sentencing Commission and reform advocacy groups,  we hope to soon realize systemic change in the length of prison sentences for these low-level drug offenders and to provide better tools for a safe and successful reentry into the community.  The Department fervently shares the President’s commitment to equal and fair justice under law and we will continue to work tirelessly to achieve this goal.”  

Today, the Department of Justice announced the launch of 10 regional Elder Justice Task Forces.  These teams will bring together federal, state and local prosecutors, law enforcement, and agencies that provide services to the elderly, to coordinate and enhance efforts to pursue nursing homes that provide grossly substandard care to their residents. 

“Millions of seniors count on nursing homes to provide them with quality care and to treat them with dignity and respect when they are most vulnerable,” said Acting Associate Attorney General Stuart F. Delery.  “Yet, all too often we have found nursing home owners or operators who put their own economic gain before the needs of their residents. These task forces will help ensure that we are working closely with all relevant parties to protect the elderly.”

The Elder Justice Task Forces will include representatives from the U.S. Attorneys’ Offices, state Medicaid Fraud Control Units, state and local prosecutors’ offices, the Department of Health and Human Services (HHS), state Adult Protective Services agencies, Long-Term Care Ombudsman programs and law enforcement.   

“The Department of Justice has a long history of holding nursing homes and long-term care providers accountable when they fail to provide their Medicare and Medicaid residents with even the most basic nursing services to which they were entitled,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “By bringing everyone to the table, we will be able to more effectively and quickly pursue nursing homes that are jeopardizing the health and well-being of their residents.”

The 10 Elder Justice Task Forces will be launched in the following Districts: Northern District of California, Northern District of Georgia, District of Kansas, Western District of Kentucky, Northern District of Iowa, District of Maryland, Southern District of Ohio, Eastern District of Pennsylvania, Middle District of Tennessee and the Western District of Washington.

“We believe that by actively participating in the Elder Justice Task Forces announced today through joint investigations, sharing information and regular meetings; we will strengthen our efforts nationally to protect the most vulnerable of our population who reside in our nursing homes and other care facilities,” said Keesha Mitchell, President of the National Association of Medicaid Fraud Control Units and the Director of the Ohio Medicaid Fraud Control Unit.

“The HHS Office of Inspector General (OIG) continues to pursue nursing home operators who provide potentially harmful care to residents who are often unable to protect themselves,” said Chief Counsel to the Inspector General Gregory Demske of HHS.  “Creating these task forces sends a message to those in charge of caring for these beneficiaries that grossly substandard care will not be tolerated.”

“The Administration for Community Living was created to help ensure that older adults and people with disabilities are able to live the lives they want, with the people they choose, fully participating in their communities,” said Becky Kurtz, Director of the Office of Long-Term Care Ombudsman Programs at the Administration for Community Living.  “Our mission includes supporting their basic right to live with dignity, free from abuse.  We appreciate the Department of Justice’s leadership on this important initiative and applaud its long-standing commitment to elder justice efforts.”

“Our most vulnerable citizens deserve the highest quality care and attention,” said Executive Director Kathleen Quinn of the National Adult Protective Services Association.  “This initiative will help insure that long-term care facilities provide it. The Department of Justice is to be commended for this, and indeed all its efforts, to protect the millions of elder abuse victims in this country.”

The Elder Justice Task Forces reflect the department’s larger strategy and commitment to protecting our nation’s seniors, spearheaded by the department’s Elder Justice Initiative.  The Elder Justice Initiative coordinates and supports the Department’s law enforcement efforts and policy activities on elder justice issues.  It plays an integral role in the department’s investigative and enforcement efforts against nursing homes and other long-term care entities that deliver grossly substandard care to Medicare and Medicaid beneficiaries.  The Elder Justice Initiative will be providing litigation support and training to the Elder Justice Task Forces.  Learn more about the Justice Department’s Elder Justice Initiative at http://www.justice.gov/elderjustice/.

The pest control corporation Terminix International Company LP (TERMINIX LP) and its U.S. Virgin Islands operation Terminix International USVI LLC (TERMINIX, USVI), were charged today with multiple violations of the Federal Insecticide, Fungicide and Rodenticide Act for illegally applying fumigants containing methyl bromide in multiple residential locations in the U.S. Virgin Islands, including the condominium resort complex in St. John where a family of four fell seriously ill last year after the unit below them was fumigated, the Department of Justice and the Environmental Protection Agency (EPA) announced today.   

In a plea agreement, TERMINIX LP and TERMINIX, USVI agreed to pay a total of $10 million in criminal fines, community service and restitution payments.  Except for completing one government contract at the Port of Baltimore, TERMINIX LP has stopped using pesticides containing methyl bromide in the United States and U.S. Territories.  Under the agreement TERMINIX, USVI will pay $5 million in fines and $1 million in restitution to the EPA for response and clean-up costs at the St. John resort.  TERMINIX LP will pay a fine of $3 million and will fund a $1 million community service project in the U.S.V.I.  The plea agreement is subject to approval by the district court.

“When misused, highly toxic pesticides can have catastrophic consequences, and that’s why those who are certified to apply them must do so responsibly and lawfully,” said Assistant Attorney General John C. Cruden for the Justice Department’s Environment and Natural Resources Division.  “The facts in this case show the Terminix companies knowingly failed to properly manage their pest control operations in the U.S. Virgin Islands, allowing pesticides containing methyl bromide to be applied illegally and exposing a family of four to profoundly debilitating injuries.  While on probation the companies are required to demonstrate to the EPA changes to their internal management and systems to ensure this type of tragedy does not reoccur.”

“This prosecution demonstrates the importance of complying with environmental laws and regulations,” said U.S. Attorney Ronald W. Sharpe of the District of the Virgin Islands.  “Tragically, the defendants' failure to do so resulted in catastrophic injuries to the victims and exposed many others to similar harm.  The United States Attorney’s Office is committed to the enforcement of environmental laws and will take all necessary steps to hold those who violate these laws criminally accountable and to protect residents and visitors of the Virgin Islands.”

“When you break a law that protects public health, there are real victims and real consequences, as this case tragically shows,” said Assistant Administrator Cynthia Giles for EPA’s Office of Enforcement and Compliance Assurance.  “This incident illustrates how important it is for EPA to enforce environmental laws and hold anyone accountable for endangering our safety.  Today’s charges should send a clear message to the industry, and directs important funds toward training programs to help ensure this can’t happen again.”

In 1984 EPA banned the indoor use of methyl bromide products.  The few remaining uses are severely restricted.  Pesticides containing methyl bromide in the U.S. are restricted-use due to their acute toxicity, meaning that they must only be applied by a certified applicator.  Health effects of acute exposure to methyl bromide are serious and include central nervous system and respiratory system damage.  Pesticides can be very toxic and it is critically important that they be used only as approved by EPA.

After the government began its investigation, TERMINIX LP voluntarily ceased its use of methyl bromide in the U.S. and in U.S. territories, except for one remaining supervised government contract.

According to the information filed in federal court in the U.S. District Court of the Virgin Islands today, the defendants knowingly applied restricted-use fumigants at the Sirenusa resort in St. John for the purpose of exterminating household pests on or about Oct. 20, 2014, and on or about March 18, 2015.  The companies were also charged with applying the restricted-use pesticide in 12 residential units in St. Croix and one additional unit in St. Thomas between September 2012 and February 2015.  

According to the factual basis of the plea agreement, TERMINIX, USVI provided pest control services in the Virgin Islands including fumigation treatments for Powder Post Beetles, a common problem in the islands.  These fumigation treatments were referred to as “tape and seal” jobs, meaning that the affected area was to be sealed off from the rest of the structure with plastic sheeting and tape prior to the introduction of the fumigant.  Customers were generally told that after a treatment persons could not enter the building for a two to three-day period.

On or about March 18, 2015, two employees of TERMINIX, USVI, performed a fumigation pesticide treatment at the lower rental unit of Building J at Sirenusa in St. John.  The upper unit in Building J was occupied by a Delaware family of four.  Via various means, methyl bromide from the lower unit migrated to the upper unit of Building J, causing serious injury to and hospitalization of the entire family.   

EPA regional staff responded immediately to the incident in St. John, securing the scene, performing testing and addressing the contamination.  Within days, the EPA sent out a pesticide use warning to pesticides applicators in Puerto Rico and the U.S. Virgin Islands, followed by a broader pesticide notice to regulators in all states, the British Virgin Islands, and to other Caribbean and Latin American countries.

As a special condition of the companies’ three year probation, the defendants shall make good faith efforts to resolve past and future medical expenses for the family through separate civil proceedings.  If they do not do so before the end of the probationary period, they would be subject to an order of restitution and the government may petition the District Court to reopen the sentencing proceedings to seek recovery of past and future medical and other expenses.

The $10 million penalty includes $8 million in criminal fines, $1 million in restitution to the EPA for response and clean-up costs, and a $1 million community service payment to the National Fish and Wildlife Foundation for the purpose of engaging a third party to provide training to pesticide applicators in the U.S. Virgin Islands.

The case was investigated by EPA Criminal Investigation Division working cooperatively with the Virgins Islands government and, the Agency for Toxic Substances and Disease Registry.

Senior Litigation Counsel Howard P. Stewart of the Department of Justice, Environmental Crimes Section, and Assistant U.S. Attorney Kim L. Chisholm of the District of the Virgin Islands are prosecuting the case with assistance of Patricia Hick, EPA Region II Regional Criminal Enforcement Counsel.

The investigation is ongoing.

For more information about EPA’s pesticide program and its requirements, visit www.epa.gov/pesticides/.

Jaelyn Delshaun Young, 20, of Starkville, Mississippi, pleaded guilty today in the Northern District of Mississippi to conspiring to provide material support to the Islamic State of Iraq and the Levant (ISIL), a designated foreign terrorist organization.

The plea was announced by Assistant Attorney General for National Security John P. Carlin, U.S. Attorney Felicia C. Adams of the Northern District of Mississippi and Special Agent in Charge Donald Alway of the FBI’s Jackson, Mississippi, Division.

Young pleaded guilty before Chief U.S. District Judge Sharion Aycock of the Northern District of Mississippi to conspiring with Muhammad Oda Dakhlalla to provide material support to ISIL.  Dakhlalla pleaded guilty to the same charge on March 13, 2016.  Young was remanded to the custody of the U.S. Marshals Service to await sentencing, which will be scheduled at a later date.

The investigation was conducted by the FBI’s Jackson Division Joint Terrorism Task Force and the Washington Field Office.  The case is being prosecuted by Assistant U.S. Attorneys Clay Joyner and Bob Norman of the Northern District of Mississippi and Trial Attorney Rebecca Magnone of the National Security Division’s Counterterrorism Section.

Thirteen Individuals and Three Companies Have Been Convicted or Pleaded Guilty in the Investigation to Date

A former bidder for a Pennsylvania tax liens investment company was sentenced to serve a prison term of 12 months and one day and pay a $25,000 criminal fine for conspiring to rig bids at New Jersey tax lien auctions, the Department of Justice announced today.   

James Jeffers Jr., of Mount Holly, New Jersey, was sentenced today by U.S. District Judge Susan D. Wigenton of the District of New Jersey.  Jeffers was convicted by a jury on Oct. 2, 2015 after a multi-week criminal trial.  The jury found Jeffers guilty of violating Section One of the Sherman Act by conspiring to allocate and rig bids at municipal tax lien auctions that were held in the state of New Jersey from at least 1998 until at least February 2009.  Jeffers’s conviction resulted from his conduct as a bidder for Crusader Servicing Corp., which pleaded guilty in September 2012 to participating in the same conspiracy.  Jeffers also bid for Crusader’s successor company during the conspiratorial period.

Jeffers participated with others in the conspiracy not to bid against one another at municipal tax lien auctions.  Since the conspiracy permitted the conspirators to purchase tax liens with limited competition, each conspirator was able to obtain liens which earned a higher interest rate.  Property owners were therefore made to pay higher interest on their tax debts than they would have paid had their liens been purchased in open and honest competition, the department said.

Today’s charge is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorney’s 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.  For more information on the task force, visit www.stopfraud.gov.

This ongoing investigation is being conducted by the Antitrust Division’s New York Office and the FBI’s Atlantic City, N.J., office.  Including Jeffers, a total of thirteen individuals and three companies have been convicted or have pleaded guilty as part of the investigation. Anyone with information concerning bid rigging or fraud related to municipal tax lien auctions should contact the Antitrust Division’s New York Office at 212-335-8000, visit www.justice.gov/atr/contact/newcase.htm or contact the Atlantic City Resident Agency of the FBI at 609-677-6400.

The U.S. District Court for the Eastern District of Michigan has issued an order permanently barring Mia Jordan, a Southfield, Michigan, tax preparer, from preparing federal tax returns for others, the Justice Department announced today.  Jordan consented to the civil injunction order.

According to the complaint, Jordan operated a business that provided tax return preparation support services under the name MIA-FILE as recently as 2014.  The complaint states that Jordan, through MIA-FILE, prepared approximately 371 tax returns for tax processing years 2013 and 2014.  The Internal Revenue Service (IRS) closed examinations on 94 of the tax returns prepared by MIA-FILE, and 87, or 95 percent, of those examined returns resulted in additional tax assessments, the complaint alleges.  Many of the returns that Jordan prepared for customers allegedly contained false deductions and credits, including inflated deductions for charitable contributions, home mortgage interest and real estate taxes.  The complaint also states that the returns manipulated taxpayer data for the purposes of claiming the Earned Income Tax Credit, for which the customer would otherwise be ineligible. 

The United States alleged in the complaint that the actual purpose of MIA-FILE was to permit Jordan’s cousin, Nataki Davis, formerly known as Nataki Barnes, to continue to prepare tax returns herself and together with Jordan, despite an IRS investigation into Davis’s own abusive tax return preparation practices.  In June 2013, Davis was enjoined for a period of five years from preparing tax returns either individually or through any individual or entity working in concert with her.  On Jan. 8, 2016, the U.S. District Court for the Eastern District of Michigan entered an agreed injunction order permanently barring Davis from preparing returns.

Return preparer fraud is one of the Internal Revenue Service’s (IRS) Dirty Dozen Tax Scams for 2016.  The IRS has some tips on their website for choosing a tax preparer, and has launched a free directory of federal tax preparers.  In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers.  Information about these cases is available on the Justice Department website.  An alphabetical listing of persons enjoined from preparing returns and promoting tax schemes can be found on this page.  If you believe that one of the enjoined persons or businesses may be violating an injunction, please contact the Tax Division with details.

The Department of Justice announced today that Kilgore Flares Company and one of its subcontractors, ESM Group Inc., have agreed to pay a total of $8 million to resolve allegations that they violated the False Claims Act by selling or conspiring to sell defective infrared countermeasure flares to the U.S. Army and, in the case of ESM, knowingly evading customs duties owed to the United States.  Tennessee-based Kilgore Flares manufactures and sells electronics and energetic products, such as flares, to the U.S. military.  ESM Group, located in New York, manufactures magnesium powder supplied to the chemical, welding and pyrotechnics industries.  ESM imported magnesium powder used in the flares from the People’s Republic of China (PRC), which it sold to Kilgore Flares. 

“The Department of Justice is committed to ensuring that contractors do not cut corners in manufacturing critical items sold to the U.S. military,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “These settlements also show that the department will aggressively pursue those who avoid paying duties to gain an unfair business advantage over competitors who abide by the rules.”   

The U.S. military uses infrared countermeasure flares to divert enemy heat-seeking missiles away from U.S. military aircraft.  A primary component of these flares is ultrafine magnesium powder, which combined with other materials, provides ignition and enables the flares to burn at high temperatures and at rates that mimic an aircraft’s engine.  Kilgore’s contracts with the army prohibited the use of magnesium powder from foreign countries (except Canada) in order to maintain domestic manufacturing capability in the interest of national defense. 

The United States alleged that from July 2003 through May 2005, ESM knowingly misrepresented the content of ultrafine magnesium powder imported from the PRC in order to avoid paying antidumping duties owed to the United States.  Antidumping duties protect against foreign companies “dumping” products on the U.S. market at prices below cost.  The U.S. Department of Commerce assesses and U.S. Customs and Border Protection (CBP) collects these duties to protect U.S. businesses and level the playing field for domestic products.  At the time of the imports alleged in this case, ultrafine magnesium powder from the PRC was subject to a 305 percent antidumping duty. 

The government further alleged that from March 2005 through August 2006, Kilgore used the illegally imported Chinese magnesium powder purchased from ESM in the countermeasure flares it sold to the U.S. Army.  The Chinese magnesium powder allegedly violated both the requirement for domestically produced powder and engineering specifications required by the contracts.  

Kilgore and ESM agreed to pay $6 million and $2 million, respectively, to resolve the government’s allegations. 

“Our warfighters– along with everyone who relies upon them, including their families – need to know that the equipment they use is of the highest quality and dependability,” said U.S. Attorney William J. Hochul Jr. of the Western District of New York. “In this case, the magnesium flares made by Kilgore were literally the last line of defense for our brave aviators. Because of today’s resolution, Kilgore will now ensure that similar incidents do not happen in the future.”

Prior to the civil settlements with Kilgore and ESM, five former employees and agents of ESM pleaded guilty to criminal offenses related to the magnesium importation scheme, including ESM’s former president, Charles Wright.  The criminal defendants were ordered to pay more than $14 million in restitution.

“These civil settlements demonstrate the continued commitment of the Defense Criminal Investigative Service (DCIS) and our partner agencies to pro-actively identify individuals and groups intent on providing substandard, substituted products to the U.S. military in exchange for unwarranted exorbitant profits,” said Special Agent in Charge Craig W. Rupert of the U.S. Department of Defense Inspector General, DCIS.  “Such schemes, perpetrated by dishonest contractors and individuals, place the American Warfighter in danger, erode public confidence and undermine the mission of our military services. The DCIS and its law enforcement partners will continue to tirelessly pursue and investigate procurement fraud allegations in order to safeguard our military members and to shield America’s investment in national defense.”

“The components of U.S. military equipment are held to rigorous standards to ensure our military superiority and the safety of our warfighters,” said Special Agent in Charge James Spero of Homeland Security Investigations (HSI) Buffalo. “When short cuts are taken, lives are put at risk. This settlement ensures that the companies involved are held responsible for their actions and further emphasizes HSI’s commitment to ensuring that the sale and distribution of products used by our military is done with integrity.”

The settlement with ESM resolved a lawsuit filed under the whistleblower provisions of the False Claims Act.  The act permits private parties to sue on behalf of the United States those who falsely claim federal funds or, as in this case, those who avoid paying funds owed to the government.  The lawsuit was filed by Reade Manufacturing Company, a domestic manufacturer of magnesium powder.  The act also allows the whistleblower to receive a share of any funds recovered through the lawsuit.  Reade Manufacturing received $400,000 as part of the settlement with ESM.  

The settlements with Kilgore and ESM were the result of a coordinated effort among the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Western District of New York, U.S. Army Criminal Investigation Command, Defense Contract Audit Agency, DCIS, U.S. Immigration and Customs Enforcement’s HSI Buffalo and U.S. Customs and Border Protection.  Additional technical support was provided by the Army Sustainment Command at Rock Island Arsenal, Ill. and the Army Research, Development and Engineering Command at Picatinny Arsenal, New Jersey.      

The lawsuit against ESM is captioned United States ex rel. Reade Manufacturing Co. v. ESM Group, Inc., Civ. No. 10 - CV - 504-S (W.D.N.Y.).  The claims resolved by these settlements are allegations only; there has been no determination of liability except as admitted by the individual defendants in the criminal proceedings.  

A Germantown, Tennessee, resident and business owner pleaded guilty to one count of failing to pay over employment taxes to the Internal Revenue Service (IRS), announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Edward L. Stanton III of the Western District of Tennessee.

“Employers such as Larry Thornton are required by law to withhold taxes from their employees’ wages, hold those funds in trust, and pay over those funds to the IRS,” said Acting Assistant Attorney General Ciraolo.  “Willful failure to comply with this requirement is a crime, and prosecution of those responsible remains among the Tax Division’s top priorities. Those individuals who choose to maintain their business and line their pockets with the trust funds of their employees are stealing from the U.S. Treasury – plain and simple and will face heavy consequences including incarceration.” 

According to court documents, Larry Thornton, 66, was the majority owner, president and chief executive officer of Software Earnings Inc. (SEI), a Memphis company that produced and installed check processing.  Thornton was also the 100 percent owner, CEO and president of First Touch Payment Solutions LLC (First Touch), a Memphis company that provided merchant services for credit card processing.  Thornton, as CEO and president of SEI and First Touch, had ultimate and final decision-making authority regarding SEI’s and First Touch’s business activities and had authority to exercise significant control over SEI’s financial affairs.  As part of his plea, Thornton admitted that he was responsible for collecting, accounting for and paying over to the IRS federal income taxes and Federal Insurance Contributions Act (FICA) taxes that were withheld from the wages of SEI and First Touch’s employees.

Beginning in the second quarter of 2007, Thornton caused SEI to stop paying over the taxes required to be withheld from SEI’s employees’ paychecks and caused SEI to stop timely filing Employer’s Quarterly Federal Tax Returns, Forms 941, with the IRS.  Beginning in the first quarter of 2010, Thornton caused First Touch to stop paying over the taxes required to be withheld from First Touch’s employees’ paychecks and caused First Touch to fail to timely file Forms 941 with the IRS.  Between 2007 and 2011, Thornton collected more than $6.8 million in employment taxes from SEI and First Touch employees’ paychecks, but failed to pay those collected taxes over to the IRS.  Thornton also failed to pay his companies’ matching share of FICA taxes during those years.  During the same years that Thornton failed to comply with his employment tax obligations, he spent over $6.2 million on personal expenses, including house and condominium payments; vehicle, yacht and motorcycle loan payments; personal travel; and start-up funding for his wife’s beauty boutique.  As part of the guilty plea, Thornton admitted that his fraudulent conduct caused a tax loss of more than $8.9 million to the IRS.

“Business owners have a responsibility to withhold income taxes for their employees and then remit those taxes to the Internal Revenue Service on behalf of those employees,” said Special Agent in Charge Tracey D. Montaño of IRS Criminal Investigation.  “Employment tax evasion not only results in the loss of tax revenue to the U.S. government, it also results in the loss of future social security or Medicare benefits for the employees.  Failure to pay over withheld taxes is a serious offense.  IRS Criminal Investigation will vigorously pursue anyone who, at the expense of their hard working employees, collects taxes and uses the proceeds for their own personal gain, rather than to fulfilling their employer obligations.”

Thornton faces a statutory maximum sentence of five years in prison, three years of supervised release, a fine and restitution.  Under the terms of the plea agreement, Thornton has agreed to pay more than $10 million in restitution to the IRS.  The sentencing is set for July 22.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Stanton commended special agents of IRS Criminal Investigation, who investigated the case and Assistant U.S. Attorney Damon Griffin of the Western District of Tennessee and Trial Attorney Robert J. Boudreau of the Tax Division, who are prosecuting the case.

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

Defendant Attempted to Obstruct IRS with False Tax Returns and Threatening Correspondence

A Newington, Connecticut, insurance salesman was convicted of tax fraud today in the U.S. District Court for the District of Connecticut in Hartford following a seven-day jury trial, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.    

Terry DiMartino, 62, was convicted of one count of corruptly interfering with the due administration of the internal revenue laws, two counts of filing false tax returns and five counts of willfully failing to file tax returns.  DiMartino was an insurance salesman for numerous insurance companies located in Connecticut and elsewhere.  Despite earning millions of dollars in insurance commissions over the last decade, DiMartino did not file accurate tax returns or pay the taxes owed.

“As we approach the end of the tax return filing season, today’s verdict serves as a clear reminder that willfully failing to file, filing false returns, and attempting to obstruct the Internal Revenue Service (IRS) are crimes and those U.S. taxpayers who engage in such criminal conduct face prosecution, substantial fines and restitution, and prison,” said Acting Assistant Attorney General Ciraolo.  “The department is committed to working with its partners in the IRS to enforce our nation’s tax laws by holding offenders such as Mr. DiMartino accountable.”

According to the evidence presented at trial, DiMartino attempted to obstruct the IRS by mailing false documents to the IRS, including three false tax returns for the 2007 tax year, one of which requested a fraudulent $14 million refund.  He sent false and threatening correspondence to the IRS in an attempt to defeat the IRS’s assessment, collection and investigative efforts.  He submitted false and threatening correspondence to insurance companies that sought to cooperate with the IRS collection activities.  DiMartino also set up nominee entities which he used to divert his insurance commissions.  He used the nominees to hide and conceal assets to prevent the IRS from collecting on his tax liabilities.  DiMartino has not filed an accurate individual income tax return since the 1996 tax year. 

“The IRS enforces the nation’s tax laws, but also takes particular interest in cases where someone, for their own personal benefit, has taken what belongs to others to include the American taxpayer,” said Special Agent in Charge Manny Muriel, IRS Criminal Investigation.  “Taxes are the price we pay for the public goods and services we want; yet Mr. DiMartino tried to undermine and corrupt the tax system when he attempted to steal $14 million in taxpayer money.   Furthermore, he tried to intimidate insurance companies that sought to cooperate with the IRS.  As the stewards of your tax dollars, the IRS will stand to protect and defend the American taxpayer.”      

U.S. District Judge Alvin W. Thompson set sentencing for July 20.  DiMartino faces a maximum sentence of three years in prison for the charge of obstructing the IRS, three years in prison for each of the false tax return charges and one year in prison for each count of willfully failing to file tax returns. DiMartino also faces monetary penalties.

Acting Assistant Attorney General Ciraolo commended agents of IRS Criminal Investigation, who investigated the case and Trial Attorneys Erin B. Pulice and Jason M. Scheff of the Tax Division, who prosecuted the case.

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