Richard Hatch, the first Survivor winner, has now been indicted on ten counts of tax fraud and using funds intended for a charity for personal expenses. Back in January, it was reported that Hatch would plead guilty to one count of tax evasion for not reporting his $1 million prize from Survivor and an additional $326,000+ he received from a Boston radio station during 2000. That deal fell apart in March when Hatch stated that he thought CBS was responsible for the taxes on his winnings. As happens when a person reneges on a plea deal, the government fired back with both barrels, so to speak, with an indictment listing a number of additional sources of income Hatch failed to report and the misuse of funds given to a charity he purportedly set up to run a camp (see U.S. Attorney’s Office for the District of Rhode Island press release here). A CNN.Com report (here) notes that Hatch was on his way to Houston to help Katrina victims when the indictment was disclosed. Burned once, don’t look for the government to offer any sweet deals this time. (ph)
Category: Prosecutions
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A Travis County, Texas, grand jury issued four indictments against the Texas Association of Business (TAB) and one indictment naming the Texans for a Republican Majority Political Action Committee (TRMPAC) for campaign law violations related to the 2002 elections that resulted in Republicans taking control of the Texas legislature and Congressional delegation for the first time in over 100 years. TRMPAC was created by House Majority Leader Tom DeLay, who was not named in any of the indictments. TAB is accused of illegally spending corporate funds on campaigns, while the TRMPAC indictment alleges that it illegally accepted corporate funds. The organizations have also been sued by losing Democrat candidates from the 2002 election for alleged illegal expenditures during the campaign. The grand jury investigation is one facet of the bitter political infighting that has characterized Texas politics for the past few years. An Austin American-Statesman story (here) discusses the indictments. (ph)
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The U.S. Attorney’s Office for the Southern District of Texas (Houston) announced that Larry Michael ("Mike") Nixon entered a guilty plea to two counts of bank fraud related loans from Minnwest Bank in Montevideo, MN, and Old National Bank in Indianapolis, IN. Nixon defrauded the banks by getting loans supposedly to purchase cranes for his company, Delta Crane Co., by sending false documents showing purchases that were never made. Once Nixon got in too far over his head, he took the mature approach to his problems — he decided to fake his death. In 2003, Nixon’s speedboat, named "Living Extra Fast”, hit a barge in Galveston Bay, and while the Coast Guard spent days searching for Nixon, a body was never recovered. According to a press release issued by the U.S. Attorney’s Office (here):
Nixon also admitted that after finding himself and his company, Delta Crane, in debt for approximately $4 to $5 million, and unable to refinance, he decided a boating accident gave him an opportunity to disappear. After having obtained a Tennessee driver’s license using a birth certificate in the name of Patrick Hudgens, Nixon disappeared after a boating accident on Galveston Bay on August 27, 2003. Nixon obtained the birth certificate on the Internet. At the time of his arrest on state charges by authorities in West Virginia, Nixon was using and living under the name Patrick Hudgens.
Nixon has been in custody since his arrest in 2004 on the West Virginia state charge, and life has probably been "extra slow" since then. (ph)
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In court today, the nine individuals indicted in KPMG related prosecutions (see here) pleaded not guilty. Reported by Reuters here and Wall Street Jrl here, the lead prosecutor on the case then made a statement that there are likely to be twelve more individuals indicted soon.
Certainly a statement like this should be enough to get anyone near or associated with KPMG pretty nervous. But fortunately, they will not have to wait very long as the judge set an October 17th deadline for the prosecution to file its superseding indictment.
This deadline actually puts the pressure on all parties, as the government may be seeking pleas from the nine already indicted or the twelve in the forthcoming group. Certainly the government will need some pleas, as it might prove extremely difficult fitting that many attorneys and their clients in the courtroom in one trial.The question now is who will be at the defendant’s table, and who will be in the witness box come October 17th.
(esp)
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Bill Rankin of the Atlanta Journal Constitution reports an indictment of "[a] former finance director" of a local chapter of a well known foundation. See AJC here.
What should you do when you are a reputable foundation and you find fraud or embezzlement in your midst?
If you report it to the government they will investigate, possibly indict, and then you’ll likely find your name in the newspapers. Unfortunately your foundation’s reputable name will be placed in a sentence next to the individual who has been indicted. Even when the newspaper tells how your foundation found the fraud and reported it to authorities, the fear you have is that the incident will taint your organization. Will people be reluctant to give because of your appropriate disclosure of possible criminality within your organization? Hopefully the public will understand that you are doing the right thing in reporting possible wrongdoing to authorities so that they can appropriately investigate.
(esp)
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Former Governor Rowland of Connecticut left office under a cloud after being sentenced to a year and a day in prison. His post-governor employment raised ethics issues at his sentencing and then again, when the state’s attorney’s office tried to have Rowland arrested for violating a criminal ethics prohibition of Connecticut. The Hartford Courant reports here that the judge hearing the case said – no way to arresting Rowland. And as noted in this newspaper story, even those opposed to Rowland appear to agree with this decision.
(esp)
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In a DOJ post here, it tells of several former and current members of the military and law enforcement who were acting as military escorts to drug traffickers. What they failed to realize was that the delivery of the drugs was going to federal agents. Operation Lively Green initially had 17 defendants who plead guilty, and now there are another 16 pleading. What perhaps is interesting here is the choice of charge being bribery and extortion conspiracy.
(esp)
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MCI can breath a sigh of relief with the announcement by U.S. Attorney David Kelley of the Southern District of New York that the company will not be prosecuted for the accounting fraud that led to its collapse into bankruptcy in 2002. The U.S. Attorney’s Office noted that all of the employees with any involvement in the fraud have been terminated, and the convictions of former CEO Bernie Ebbers and CFO Scott Sullivan, among others, means the main perpetrators have been prosecuted and will serve time in jail. The announcement is not surprising in light of the fact that most companies forced into bankruptcy by fraudulent accounting have not been charged criminally (e.g. Enron, Adelphia Communications) because there is so little to gain from a prosecution. The government’s decision does, however, make things easier for the proposed Verizon takeover of MCI, with the vote on the transaction scheduled for Oct. 6. This will be one less item the companies have to discuss in the voluminous merger documents. An AP story (here) discusses the government’s announcement. (ph)
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The Washington Post reports here that Jack Abramoff, former lobbyist, pleaded not guilty yesterday. He is represented by Neal Sonnett, a past president of the National Association of Criminal Defense Lawyers. The indictment and details of the wire fraud and conspiracy to commit mail and wire fraud charges against Abramoff can be found here.
(esp)
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The indictment of nine individuals for conspiracy to defraud the IRS is available from Findlaw here. It is a single-count indictment, although it covers both the tax shelters and an allegation of obstruction of the IRS and Senate investigation of KPMG in 2003. The nine defendants are:
Jeffrey Stein, former vice chairman of tax services and then #2 at the firm; John Lanning, former vice chairman of tax services; Richard Smith, former vice chairman in charge of tax; Jeffrey Eischeid, former partner-in-charge of KPMG’s Personal Financial Planning group (through which the tax shelters were sold); Philip Wiesner, former partner-in-charge of the Washington National Tax group; John Larson and Robert Pfaff, former KPMG partners in San Francisco who formed two limited liability companies that served as the investment adviser for the tax shelter program; R.J. Ruble, a former partner at Sidley Austin Brown & Wood who provided the opinion letters on the tax shelters at $50,000 per (the only non-KPMG defendant named in the indictment).
In addition to Ruble, five of the eight KPMG partners were lawyers (Stein, Smith, Wiesner, Larson, and Pfaff).
While the indictment goes into some detail about the various tax shelters (BLIPS, FLIP/OPIS), the crux of the indictment seems to be the hiding of the status of the shelters, such as the failure to register with the IRS. Moreover, at least one allegation is aimed at Eischeid for trying to obstruct the Senate investigation of the tax shelters in his testimony by taking the approach (according to an internal KPMG e-mail) of "to be forgetful. And so the record will reflect repeated ‘I don’t knows,’ ‘I don’t recalls,’ and ‘I was out of the loops’ — the rope-a-dope/Enron defense." When in doubt, invoke Enron.
For the government to succeed in this case, I think they have to focus on the hiding and not get into a fight about whether the shelters were proper. That is easier said than done because at some point the nature of the shelters will have to be discussed, and it may be in the defendants’ favor that getting a clear explanation of what is (and is not) acceptable tax planning is almost impossible to state simply. These were top-drawer tax partners, leaders in the field, so a fight on the technicalities would probably favor the defendants. To the extent there is hiding of the details of the shelters to avoid a full review of their legality, the government will have an easier case. If any of the defendants agrees to cooperate and provide testimony about steps taken to hide the real nature of the shelters, that would assist the government significantly. Regardless, this prosecution will be a test of whether anyone can identify the thin line between tax advice and tax fraud. (ph — thanks to ProfBlog Leader Paul Caron for passing along the indictment, and all the relevant documents related to the KPMG case are available on the TaxProf Blog here).
MattBray.net 