Lawyer News

Former CEO, Two Associates Sentenced for Tax Fraud

Shelly S. Singhal, Dennis L. Pelino, and Loretta Fredy Bush, formerly of Xinhua Finance Limited (Xinhua Finance), a Chinese company trading publicly in Japan, have been sentenced  to prison terms after pleading guilty to a charge of conspiracy to impede the lawful functions of the Internal Revenue Service.

All three defendants pleaded guilty in February 2013 in the U.S. District Court for the District of Columbia. They were sentenced by the Honorable Chief Judge Royce C. Lamberth.

Basically, these three defendants admitted they ran a scheme in which Singhal set up a company and generated paperwork that this company loaned Pelino and Bush approximately $2,153,663 and $1,380,633, respectively. Singhal then - with the knowledge and participation of the other two defendants - made it appear as if company ownership had been transferred to a foreign national residing outside the U.S.

The defendants acknowledged they did not notify and otherwise acted to conceal from the Internal Revenue Service that the nominal owner of Entrée Capital had effectively abandoned its assets, including the principal balances payable to Entrée Capital by Bush and Pelino. Further, they admitted that they did this to delay the payment of any income tax due and owing on those unpaid amounts as forgiven debt.

They also acknowledged discussing among themselves and with others the fact that since the new owner of Entrée Capital was a foreign national, any information in the foreign national’s possession was possibly beyond the authority of the Internal Revenue Service to obtain.

Singhal did not direct his employees to issue Forms 1099-C (Cancellation of Debt) to Bush and Pelino, which would have notified the Internal Revenue Service that Entrée Capital was treating the principal balances payable to Entrée Capital by Bush and Pelino as forgiven debt.

Bush and Pelino acknowledged filing Forms 1040 (U.S. Individual Tax Return) for the tax year 2009, which returns failed to declare any portion of the $2,153,663 and $1,380,633 owed to Entrée Capital as income to Bush and Pelino, respectively.

Singhal, 45, of Newport Beach, California, and Pelino, 65, of Miami Beach, Florida, were each sentenced to nine months of incarceration. Bush, 54, of San Francisco, was sentenced to one month of incarceration. Following their terms, each defendant will be placed on three years of supervised release. Bush will be required to serve the first 150 days of her release period in home confinement. Chief Judge Lamberth also ordered each defendant to pay $20,000 fines.

Government Sues to Stop South Carolina Tax Return Preparers

The United States has asked a federal court in Charleston, S.C., to permanently bar Stacy Middleton of Charleston, and George Jenkins of Blythewood, S.C., from preparing federal income tax returns for others.

Middleton and Jenkins have prepared federal income tax returns in Charleston and Columbia, S.C., through a business named MBM Tax and Accounting Services LLC. According to the government complaint, the pair allegedly have been preparing returns that unlawfully understate income tax liabilities and overstate refunds through a variety of schemes.

The government complaint alleges that Middleton and Jenkins prepared returns that unlawfully created fictitious deductions and credits as well as overstating and duplicating existing deductions and credits.

The complaint also alleges that Middleton created fraudulent Forms 1099 on behalf of customers, creating fake income to enable Middleton to claim the Earned Income Tax Credit on behalf of those customers.

The Internal Revenue Service said in its suit that it has examined 842 returns prepared by Middleton and Jenkins, and over 93 percent of those examinations resulted in an adjustment to their client’s tax liability.

Altogether, the government complaint alleges that Middleton’s and Jenkins’s activities may have resulted in as much as $55 million of loss to the United States.

Missouri Couple Charged in $2.8 Million Embezzlement, Check Kiting Scheme

Laura Dejong and her husband, Craig Dejong, of Liberty, Missouri have been charged in a two-count federal indictment. Laura Dejong, 54, is charged with one count of mail fraud, and both of the Dejongs are charged in one count of filing a false tax return.

Court documents show that Laura embezzled $2,679,227 from her employer, Kansas City Screw Products Inc., from January 2003 to November 2011. Laura, who was employed as a secretary and bookkeeper for approximately 23 years, allegedly forged checks drawn on the company’s bank accounts.

According to the indictment, Laura Dejong engaged in a “check-kiting” scheme between the company’s two banks in order to falsely inflate the company’s bank account balances, thereby increasing the amount of money she could embezzle. Her check kite began in June 2011. The total amount of checks written by Laura Dejong to cause the check kite increased from $44,000 in June 2011 to $847,000 in November 2011. The total loss from the check kite to Central Bank was $96,000.

The total combined loss for Kansas City Screw Products and Central Bank was $2,775,227.

Records indicate that the Dejongs took at least eight cruises and spent more than $100,000 on payments for the cruises, vacations, and airfare between 2005 and 2011 and spent millions of dollars gambling on slot machines as well as treating themselves to cars, boats RV’s and season Chief’s tickets.

The Dejongs filed joint tax returns for tax years 2005-2010 but did not declare any of the embezzled money. Laura Dejong’s gross annual salary at the time ranged from $22,752 to $33,333. Craig Dejong, 55, was unemployed for four years and listed no income for the two years in which he claimed to be employed as a computer programmer.

As a result of filing false tax returns in those six years the Dejongs owe the Internal Revenue Service a total of approximately $482,711.

Four Indicted in Multi-Faceted Mortgage Fraud Conspiracy

A resident of Verona, Pennsylvania and three residents of Pittsburgh, Pennsylvania have been indicted by a federal grand jury in Pittsburgh on charges of conspiracy, wire fraud, bank fraud, filing false tax returns, and failing to file tax returns.

A 20-count superseding indictment, returned on March 26, 2013, named George Kubini, 48, of 139 Topaz Drive, Verona, Pennsylvania; Dov Ratchkauskas, 46, of 2527 Mount Royal Boulevard, Pittsburgh, Pennsylvania; Sandra Svaranovic, 52, of 2938 O’Neill Drive, Pittsburgh, Pennsylvania; and Arthur Smith, 63, of 6939 Reynolds Street, Pittsburgh, Pennsylvania.

Kubini and Ratchkauskas operated businesses that purchased and sold real estate.The superseding indictment alleges that these two sold properties financed through a complex mortgage fraud scheme and then executed settlement statements they then knew were fraudulent. The superseding indictment also alleges both made false representations to borrowers about making improvements to the properties.

In addition, the superseding indictment alleges that Svaranovic, as part of the conspiracy, prepared fraudulent appraisals that falsely represented the conditions of the properties serving as collateral for the loans and overstated the fair market values of those properties.

The superseding indictment alleges that Smith, who is an attorney specializing in closing real estate transactions, similarly participated in the conspiracy by executing fraudulent settlement statements, by fraudulently withdrawing money from his trust account, and by making misrepresentations to a title insurance company.

The indictment further alleges that Kubini filed false income tax returns with the Internal Revenue Service that understated his adjusted gross income and that Smith failed to file his tax returns for the calender years 2007 through 2009 despite earning sufficient income to trigger his legal obligation to file his income tax returns.

Yikes.

In announcing the charges, the FBI noted that an indictment is an accusation. A defendant is presumed innocent unless and until proven guilty.

Former Detroit Mayor, Father and Friend Convicted on Racketeering, Extortion, Bribery, Fraud, and Tax Charges

A federal jury has returned guilty verdicts against Kwame M. Kilpatrick, 42, of Southlake, Texas, and Bobby W. Ferguson, 44, of Detroit, on charges that they used Kwame Kilpatrick’s positions as mayor of Detroit and Michigan State House Representative to execute a wide-ranging racketeering conspiracy involving extortion, bribery, and fraud. Bernard Kilpatrick, 70, of Detroit, was convicted of a felony tax offense.

Kwame Kilpatrick was convicted of 24 counts extortion, mail fraud, tax violations, and racketeering, Bobby Ferguson was convicted on nine counts of extortion and racketeering and Bernard Kilpatrick was convicted of one count of filing a false tax return.

Co-defendants Victor Mercado, former director of the City of Detroit Water and Sewerage Department, and Derrick Miller, former chief administrative officer of the City of Detroit, were also indicted as being part of the conspiracy, and both pleaded guilty to their roles and are waiting sentencing.

The jury deliberated for about 14 days before returning the verdicts, concluding a five-month long trial before United States District Judge Nancy G. Edmunds.

In making the announcement, United States Attorney Barbara L. McQuade stated, “Although this investigation spanned many years, this case is not about the past. It is about the future. This verdict has sent a powerful message that corruption will not be tolerated in this community. The people of Detroit deserve better and expect better. Candidates should seek public office to make a difference, not to make money for themselves.”

Detroit Preparer Charged with Preparing False Tax Returns

Matthew Bender, a paid preparer of tax returns residing in Detroit, has been charged in a superseding indictment with preparing false tax returns and tax obstruction. The announcement was made by the Justice Department, Internal Revenue Service (IRS), and the Treasury Inspector General for Tax Administration (TIGTA).

Bender had been arrested on a portion of those charges on January 10, 2013. The subsequent superseding indictment charges Bender with 16 counts of assisting in the presentation of false tax returns to the IRS along with one count of corruptly endeavoring to obstruct the due administration of the Internal Revenue laws.

According to the superseding indictment, between 2004 and 2012, Bender prepared returns for taxpayers that falsely claimed refunds and contained false deductions and tax withholdings. The superseding indictment also alleges that Bender filed false tax returns for himself for 2007 and 2009 and failed to file his own tax returns for 2003, 2004, 2005, 2006, 2008, 2010, and 2011.

If convicted, Bender faces a potential maximum sentence of three years in prison and a $250,000 fine on each count.

In making the announcement, the DOJ noted that an indictment merely alleges that crimes have been committed, and a defendant is presumed innocent until proven guilty beyond a reasonable doubt.

This case was investigated by special agents of IRS-Criminal Investigation and TIGTA, the Treasury Inspector General for Tax Administration.

California Woman Convicted of Impersonating Congressional Aide to Deceive Tax Client

Susan Tomsha-Miguel of Atwater, California has been convicted by a federal jury in Fresno, California, for impersonating an aide to a U.S. Congressman in order to deceive a client of her tax consulting and bookkeeping business.

Specifically, Tomsha-Miguel, 52,was convicted of the sole count in the indictment against her: impersonating an officer or employee of the United States. According to an FBI press release, the jury deliberated for only 15 minutes before returning a guilty verdict.

According to court records, a client who owned a commercial business in Merced, California, hired Tomsha-Miguel to resolve a tax dispute with the Internal Revenue Service. Tomsha-Miguel requested help with the tax problems from the office of U.S. Representative Dennis A. Cardoza, who represents the 18th Congressional District.  

As the evidence revealed, Representative Cardoza’s office agreed to help and transmitted written material—including a form printed under his official Congressional letterhead—to Tomsha-Miguel.

According to the evidence presented in court, Tomsha-Miguel then sent her client a counterfeit letter written under Representative Cardoza’s official letterhead and purportedly written and signed by a congressional aide. The letter falsely claimed that due to Tomsha-Miguel’s efforts on behalf of her client, the aide had contacted an IRS official. The counterfeit letter claimed that the IRS official had agreed to make resolving the client’s tax dispute his “number one priority” after he returned from “Washington, D.C., for an emergency strategy meeting with the U.S. Treasury Secretary and others for a planning session in the event a budget does not get passed by both the House and Senate.”

In reality, the aide did not exist, and Tomsha-Miguel had forged the letterhead by copying the official letterhead onto a blank sheet of paper. The evidence also showed that Tomsha-Miguel had written the letter from the non-existent aide herself and then sent it to her client in order to mislead him into believing she had succeeded in alleviating his tax problems.

Tomsha-Miguel faces a maximum potential penalty of three years in prison and a $250,000 fine at sentencing, currently scheduled for June 24, 2013, before U.S. District Judge Lawrence J. O’Neill, who presided over the trial.

Former Chelsea Housing Authority Exec Pleads Guilty to Falsely Reporting Salary

Michael E. McLaughlin, the former executive director of the Chelsea Housing Authority of Dracut, MA., has pleaded guilty before U.S. District Judge Douglas P. Woodlock to four counts of falsifying a record in a federal agency matter with intent to impede and obstruct that matter.

Court documents show that from 2008 through 2011, McLaughlin, 67, falsified his salary figure in the annual fiscal year budgets of the Chelsea Housing Authority and then submitted them electronically to the Massachusetts Department of Housing and Community Development.

In 2008, McLaughlin falsely stated that his budgeted annual salary was $151,945, when his actual salary was $242,908 under his existing contract.

In 2009, McLaughlin falsely reported that his budgeted annual salary was $156,503, when his actual salary was at least $267,199 under his existing contract and his total compensation was at least $292,902

In 2010, McLaughlin falsely reported that his budgeted annual salary was $160,415, when his actual salary was at least $275,215 under his existing contract and his total compensation was at least $324,896.

In 2011, McLaughlin falsely reported that his budgeted annual salary was $160,415, when his actual salary was at least $283,471 under his existing contract and his total compensation was at least $324,896.

McLaughlin faces a maximum sentence of 20 years in prison, followed by three years of supervised release and a fine of $250,000 on each count. Sentencing is scheduled for May 14, 2013.

South Florida Brothers Sentenced for Tax Evasion

Brothers Michael and James Farnell, both residents of Boca Raton, Fla., have been sentenced to prison on charges of income tax evasion.The pair were indicted on April 19, 2012.

Judge William P. Dimitrouleas sentenced Michael Farnell to a term of 18 months in prison and his brother James, Farnell, was sentenced to a term of 42 months. Michael Farnell was remanded into custody.  James Farnell was already in custody.

Sentencing was announced by the Justice Department and Internal Revenue Service (IRS). 

According to statements made in court and publicly filed documents, Michael Farnell and James Farnell sold stock in a privately held Florida-based technology company between 2004 and 2006 but failed to report the capital gains or pay taxes on the capital gains from those stock sales.

In 2004, the U.S. Securities and Exchange Commission (SEC) filed suit against the Farnell brothers for securities violations at another company that they operated the year 2000. A majority of the stock sales at issue in this case violated the injunction from the SEC’s lawsuit. 

The Farnell brothers held their stock in this Florida-based technology company in the name of nominee trusts and proceeds of the stock sales were deposited into bank accounts titled in the name of these nominee trusts.

Neither brother filed tax returns in 2004 and 2005. James Farnell also failed to file a 2006 tax return.

As part of the sentencing, Michael Farnell and James Farnell both agreed that they failed to report additional income paid to them by this Florida-based technology in 2001 through 2003.  

Michael Farnell was ordered to pay restitution of $448,128 and James Farnell was ordered to pay restitution of $434,115, both to the IRS.

New York Man Pleads Guilty in Identity Theft Ring

Young-Woo Ji from Bayside, N.Y. has pleaded guilty in connection with his role in a large-scale identity-theft scheme. Specifically, Ji, 38, pleaded guilty to the charges of conspiracy to commit wire fraud affecting financial institutions and bank fraud, aggravated identity theft and false claims.

If convicted, Ji faces 34 years in prison.

According to court documents, Ji conspired with Sang-Hyun Park, aka “Jimmy,” and others, to defraud banks, credit card companies and other lenders. Park is alleged to have been the leader of a criminal organization headquartered in Bergen County that obtained, brokered and sold identity documents to customers to commit credit card fraud, bank fraud, tax fraud and other crimes. Park pleaded guilty Jan. 9 to his role in the enterprise, and is awaiting sentencing.

The criminal enterprise engaged in the fraudulent build-up of credit scores associated with the Chinese identities. After building-up the credit associated with these identities, Park and his co-conspirators directed, coached and assisted the customers in opening bank accounts and obtaining credit cards. Park and his co-conspirators then used these accounts and credit cards to commit fraud.

Park relied on several collusive merchants who possessed credit card processing machines. For a fee, known as a ‘kkang fee,’ these collusive merchants charged the fraudulently obtained credit cards, although no transaction took place. After receiving the money into their merchant accounts from these fraudulent transactions, the collusive merchants gave the money to Park and his co-conspirators, minus their kkang fee.

Ji admitted that he created a false identity, then used it to fraudulently obtain credit cards. He then used “F.C’s” credit cards to fraudulently build-up credit scores and credit histories for Park’s customers who had obtained 586 identities from the criminal enterprise.

Ji also admitted that he used the F.C. identity to establish a merchant account for ZZ Entertainment Inc., a completely fictitious business. By establishing this account, Ji obtained a credit card processing machine and served as a ‘collusive merchant’ for the criminal enterprise.

Ji acknowledged that between Oct. 5 and 20, 2008, he charged $50,000 in fraudulent credit card charges through his ZZ Entertainment Corp. account and then shared portions of this fraud with Park. I

n total, Ji caused more than $400,000 in financial losses to banks, credit card companies and others.

Ji admitted that he used the 586 identities that he had obtained from Park to file fraudulent tax returns with the IRS. Ji admitted that he used these identities, together with fraudulent Forms W-2, to claim hundreds of thousands of dollars in tax refunds.

Ji’s sentencing is scheduled for May 15.