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Tax Crimes

Michigan Man Sentenced to 30 Years for Ponzi Scheme

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On Dec. 3, 2014, in Grand Rapids, Michigan, David W. McQueen, of Byron Center, Michigan, was sentenced to 360 months in prison and ordered to pay $32,036,997 in restitution to his victims and $926,787 to the IRS. McQueen was convicted on May 9, 2014 of mail fraud, money laundering and tax evasion stemming from a massive Ponzi scheme that spanned three years. The scheme affected more than 800 families, and preyed upon unsophisticated, often elderly investors. According to evidence presented at trial, in 2006, McQueen borrowed funds to invest in a company called Multiple Return Transactions (MRT) which promised 10 percent return on investments. McQueen later created a company called Accelerated Income Group (AIG), through which he promised returns as high as 5-6 percent to investors. McQueen used MRT’s promised returns of 10 percent, to make AIG’s promised returns of 5 percent. McQueen could meet his 5 percent obligations to his investors and then keep 5 percent for himself. However, MRT was merely a Ponzi scheme. Instead of notifying AIG investors that MRT had failed, McQueen continued to tell investors that their money was safe and growing. Without MRT making its monthly payments, McQueen and AIG could not meet their 5 percent monthly obligations to investors based on investment earnings. Instead, McQueen used money from new investors to make promised interest payments. In addition to AIG, McQueen created three other funds that were nothing more than sham corporations designed to raise millions of dollars from investors. McQueen commingled the investor money between his various and purportedly distinct funds and used it to make bogus interest payments and redemption requests to investors, pay commissions to agents or simply spend the money. Despite knowing that he had absolutely no revenue coming in, McQueen took $100,000 of investor money per month tax free for his own personal use and enjoyment.

California Attorney Sentenced to Five Years for Defrauding Investors

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On Nov. 14, 2014, in Baltimore, Maryland, Gregory E. Grantham, of Oceanside, California, was sentenced to 60 months in prison, three years of supervised release, and ordered to forfeit/pay restitution of $17.4 million. Grantham pleaded guilty to wire fraud conspiracy, wire fraud and obstruction of justice. According to court documents, between September 2009 and September 2011, Grantham, a licensed attorney, was employed as General Counsel for IAGU Underwriters, LLC which was operated by Mervyn Phelan. Between mid-2010 and August 2011, Grantham and Phelan became involved in a fraudulent scheme carried out by Patrick Belzner and Brian McCloskey. McCloskey owned a real estate development business known as the McCloskey Group, LLC. Belzner, a home builder, worked with McCloskey. Phelan and IAGU began working with the McCloskey Group trying to locate sources of financing for its projects. Beginning in 2009 and continuing through June 2011, Belzner and McCloskey persuaded a series of private lenders to fund loans to establish that the McCloskey Group had reserves of cash that would supposedly help it obtain loans it was seeking in connection with real estate development projects through IAGU. In return for this temporary use of the lender’s funds, Belzner and McCloskey promised to pay substantial fees or interest. However, once the lenders transferred their funds into the escrow accounts, Belzner directed McCloskey to remove those funds from the escrow accounts without the knowledge or permission of the lenders. Belzner and McCloskey then used the majority of the stolen funds to pay for their personal and business expenses. The total losses resulting from the scheme were approximately $20 million. Grantham and Phelan obstructed grand jury investigation of the fraud scheme. Patrick J. Belzner, aka Patrick McCloskey, was previously sentenced to 15 years in prison for wire fraud conspiracy, wire fraud and tax evasion, and ordered to pay $19.805 million in restitution. Brian McCloskey, Kevin Sniffen, and Mervyn A. Phelan, Sr., are scheduled to be sentenced at a later date.

California Man Sentenced to Twelve Years for $100 Million Fraud

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On Nov. 13, 2014, in Sacramento, California, Deepal Wannakuwatte was sentenced to 240 months in prison and ordered to forfeit multiple properties, vehicles, business interests, and bank accounts estimated to be at least $3.5 million to be used to repay victims. According to court documents, from 2002 to 2014, Wannakuwatte convinced nearly 200 victims, including individuals, corporate entities, and financial institutions, to invest in a number of business opportunities by misrepresenting the financial worth of himself and his companies. He falsely claimed that his companies did tens of millions of dollars in business with federal agencies every year, most notably the Department of Veterans Affairs. In 2013, Wannakuwatte claimed to have more than $125 million in VA contracts alone. In fact, while he did have a contract with the VA, it was only worth up to $25,000 a year. Ultimately, Wannakuwatte obtained well over $230 million from his victims. Contrary to his representations, Wannakuwatte used much of the money he obtained to pay himself and his family, make lulling payments to participants in his fraudulent investment schemes, and pay outstanding debts unrelated to his false representations. A former owner of the Sacramento Capitals professional tennis team, Wannakuwatte purchased properties in Hawaii, Oregon and California. In order to establish his financial credibility, Wannakuwatte showed investors his personal and corporate tax returns where he actually reported and paid taxes that falsely overstated his annual personal income and the annual gross receipts and sales for his companies. He used investors’ money to pay the overstated tax returns.

Minneapolis Couple Jailed for False Income Tax Refunds

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On Nov. 12, 2014, in Minneapolis, Minnesota, Mark Allen Garcia was sentenced to 30 months in prison and Patricia Ann McQuarry was sentenced to 40 months in prison. In addition, both defendants were ordered to serve three years of supervised release and to pay $226,000 in restitution. On May 20, 2014, a federal jury found the two defendants guilty of conspiracy to defraud the United States and false claims against the United States. According to trial evidence, beginning in 2007, Garcia and McQuarry engaged in a scheme to obstruct foreclosure proceedings on their house, avoid responsibility for repaying loans, and steal money from the United States Treasury by filing false individual income tax returns. Garcia and McQuarry attempted to obstruct foreclosure proceedings by sending a host of frivolous documents to their bank, including a “Bonded Promissory Note” for $10,000,000. For tax years 2007 and 2008, both defendants filed self-prepared tax returns falsely claiming to have received hundreds of thousands of dollars in 1099-OID income and that the entire amount had been withheld and paid over to the IRS on their behalf. Both defendants created fake forms 1099 showing false interest income and withholding from various financial institutions. In total, the defendants sought more than $500,000 in false refunds. They attempted to hide the proceeds of their fraud scheme by purchasing real estate near Pine City, Minn., and then transferring the property to a private trust. The defendants also used the stolen money to purchase gold coins and a motorhome.

Kansas Man Sentenced to 41 Months for Collecting False Tax Refunds   

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On Nov. 3, 2014, in Topeka, Kansas, Jerold D. Fisher, of Arma, Kansas, was sentenced to 41 months in prison and ordered to pay more than $4 million in restitution for collecting false tax refunds. Fisher pleaded guilty to one count of filing a false federal tax return. According to his plea agreement, from 2006 to 2009, while Fisher was a registered agent for Fisher Alfalfa Farms, he prepared false federal tax returns both for himself and for his mother in order to receive tax refunds that were not owed to them. In 2006, he started to test the tax system by filing false income tax returns claiming Fisher Alfalfa Farms had withheld taxes from his wages and paid them to the federal treasury.  As he continued to fraudulently receive tax refunds without being detected, Fisher increased the amount of his claims.

California Man Sentenced for Foreclosure Rescue Fraud

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On Oct. 29, 2014, in Sacramento, California, Jeremy Michael “Mike” Head, of Huntington Beach, was sentenced to 120 months in prison for a nationwide foreclosure rescue scam. In September 2014, Mike Head’s brother and co-defendant Charles Head was sentenced to 35 years in prison. According to evidence presented at trial, Mike Head played an important leadership role in a fraud scheme that promised to help homeowners avoid foreclosure and repair their credit. Through misrepresentations, fraud and forgery, the Head brothers and their associates substituted straw buyers for the victim homeowners on the titles of properties without the homeowners’ knowledge. These straw buyers were often friends and family members of the defendants. Once the straw buyers were on title to the homes, the defendants applied for mortgages to extract the maximum available equity from the homes. The defendants then shared the proceeds of the ill-gotten equity and the “rent” that the victim homeowners paid them. Ultimately, the victim homeowners were left with no home, no equity, and with damaged credit ratings. Between January 2004 and March 2006, the scam netted more than $15 million in fraudulently obtained funds from scores of homeowners.

Owner of Accounting Business Jailed for Tax Return Preparation Fraud

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On Oct. 27, 2014 in Statesville, North Carolina, Denise Swanson, of Lenoir, North Carolina, was sentenced to 24 months in prison, three years of supervised release and ordered to pay restitution of $839,830 to client victims and $249,912 to IRS. Swanson previously pleaded guilty to tax evasion for tax year 2010. According to court documents, Swanson was the owner and operator of “Bottom-line Accounting,” a tax preparation and bookkeeping business. From 2006 to 2012, Swanson performed tax preparation services for her clients and their business, which included making related tax payments on their behalf. According to court records, Swanson received funds from her clients that were supposed to be used to pay their various tax obligations to IRS and other state agencies. But instead of making the payments, Swanson embezzled the money and used it to pay for personal expenses. Swanson failed to report the embezzled income on her own individual tax returns for tax years 2006 through 2011.  

North Carolina Businessman Fails to Report More Than $1 Million in Income

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On Oct. 27, 2014, in Raleigh, North Carolina, Jeffrey Wayne Scott was sentenced to 12 months and one day in prison for tax evasion. Scott previously pleaded guilty to one count of willfully attempting to evade his personal income tax for tax year 2007. According to court documents, Scott owned and operated Greenville Loop Seafood (GLS).  For tax years 2006 through 2010, Scott and his wife filed joint individual income tax returns. Scott reported that his taxable income for these five years ranged between $23,934 and $92,999, and paid only $91,800 in federal income taxes for this time period. However, during these five years, the Scotts spent far in excess of this reported taxable income on personal expenditures. Between 2006 and 2010, the Scotts paid for nearly all of their living expenses with checks from GLS. Scott also made a monthly transfer of $10,000 from the GLS business account into a personal brokerage account.  After the purchase of their home in June 2009, Scott stopped transferring funds to the brokerage account, but instead used funds from the GLS business account to pay the mortgage and related expenses. Scott failed to report in excess of $1,270,000 in taxable income for these five years and owed at least $412,844 in additional federal income taxes. Furthermore, despite being aware that he was under criminal investigation, in November 2012, Scott filed a false 2011 corporate income tax return claiming work on his personal residence, including painting and repair work by a plumber, and health bills related to his family dog as business expenses.

Oklahoma State University Professor Sentenced on Federal Fraud Charges

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On Oct. 22, 2014, in Great Falls, Montana, Gary Joseph Conti, of Three Forks, was sentenced to 60 months in prison, three years of supervised release and ordered to pay $1.7 million in restitution. Conti, a former Oklahoma State University professor, was convicted in March 2014 by a federal jury of bankruptcy fraud and convicted in May 2014 of 26 other felony crimes. According to court documents, Conti was part of a multi-million dollar tribal corruption and fraud case on the Blackfeet Indian Reservation. He assisted Blackfeet Tribal officials Frances Onstad and Delyle “Shanny” Augare, and others, obtain millions of dollars in federal monies for a program for troubled and at risk Blackfeet youth called the Po’Ka Project. The federal money was provided based on fraudulent claims as to matching or “in-kind” contributions of third parties which made it appear that the project was becoming self-sufficient. Once the federal money was provided to the Po’Ka program, Onstad and Augare paid Conti $475,000 from August 2008 to August 2011. Conti then kicked-back $225,000 through a children’s charity bank account over which Augare and Onstad had control. An audit by the Department of Health and Human Services’ Office of Inspector General found the projected loss due to fraud and mismanagement at $4.6 million out of the $9 million provided to the Po’Ka Project from 2005 to 2011.

New Jersey Woman Sentenced to Prison for Tax Crime and Defrauding Non-Profit

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On Oct. 14, 2014, in Philadelphia, Pennsylvania, Rochelle Biesenthal, of Brigantine, New Jersey, was sentenced to 12 months and a day in prison, three years of supervised release and ordered to pay restitution of $171,187 to the victim organization and $61,637 to the IRS. On May 28, 2014, Biesenthal pleaded guilty to one count of wire fraud and three counts of tax evasion. According to court documents, Biesenthal engaged in a scheme to defraud a non-profit organization in Philadelphia that provides opportunities for Jewish individuals to engage with their Jewish heritage and reaffirm their Jewish identity. Biesenthal carried out the scheme between 2002 and April 2009, while she was employed as a bookkeeper at the organization. She fraudulently prepared and issued checks and authorized electronic debits from the organization’s bank accounts to herself and to pay her personal and family’s personal credit cards. As
part of the scheme, she defrauded the organization of a total of well over $400,000. In addition, she never reported her unauthorized income in her tax returns in tax years 2007 through 2009 and concealed the true sources of her income.