LEV L. DASSIN, the Acting United States Attorney for the Southern District of New York, and PATRICIA J. HAYNES, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation Division ("IRSCID"), JOSEPH M. DEMAREST, JR., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation ("FBI"), RONALD J. VERROCHIO, the Inspector-in-Charge of the New York Division of the United States Postal Inspection Service ("USPIS"), and JANE HUGHES, the Special Agent in-Charge of the New York Office of the United States Postal Service, Office of Inspector General ("USPS-OIG"), announced the arrests of LACY BETHEA, GLADYS MARIA PEÑA, and JOSE FRANKLIN DUARTE, for their roles in a scheme to abstract from the U.S. mail millions of dollars in federal tax refund checks that had been sent by the U.S. Treasury.

According to three criminal Complaints unsealed on Tuesday, February 24, 2009, and Wednesday, February 25, 2009:

Since approximately June 2007, federal law enforcement agents have been investigating a massive scheme involving the fraudulent use of stolen Social Security numbers and other identity information to submit fraudulent state and federal tax returns. The investigation to date involves the electronic filing of tens of thousands of federal tax returns and tens of millions of dollars of fraudulently obtained tax refunds.

In brief, the scheme involved the electronic filing of thousands of tax returns using Social Security numbers assigned to residents of the Commonwealth of Puerto Rico. Residents of Puerto Rico are issued Social Security numbers, but typically do not file federal tax returns with the Internal Revenue Service ("IRS") because, in general, such filing is not required as long as all of the Puerto Rico resident’s income is derived from Puerto Rican sources. Here, the fraudulent tax returns falsely claim that the filer resides in one of the fifty states of the United States. The use of Puerto Rican Social Security numbers minimizes the risk that a legitimate federal tax return was already filed by the legitimate holder of the Social Security number.

During the investigation it was determined that, during the one-month period between January 16 and February 18, 2009, approximately 8,000 federal tax returns were electronically filed via Internet websites run by a particular company. Substantially all of those returns were filed from the Dominican Republic, and nearly every one sought a refund. The total amount of refunds sought by those approximately 8,000 federal tax returns was over approximately $90 million. Moreover, 3,300 of those returns, seeking approximately $32 million in refunds, had been “accepted” by the IRS, which means that refund checks would have been sent out. Thus far, however, the IRS has determined that over approximately 2,000 of those returns were fraudulent because the returns indicated that the taxpayer had earned wages from a particular employer in 2008 when, in fact, that was not true.

One of the ways the participants in the scheme arranged to actually receive the refund checks that were sent out was to request that they be mailed to various addresses in New York and elsewhere. The addresses were often clustered around a particular location. Participants in the scheme would then arrange with United States Postal Service letter-carriers to steal the checks from the mail and provide them to the participants in the scheme, normally for a per-check fee. For example, thousands of the returns in question requested that refund checks be sent to addresses on the Bronx postal route assigned to BETHEA, who is a United States Postal Service lettercarrier.

In this case, on February 23, 2009, decoy letters, prepared to resemble federal tax refund checks, were placed in the U.S. mail for delivery on BETHEA’s route. But instead of delivering the checks or returning them to the post office, BETHEA left the post office with them after work. PEÑA is alleged to have received unlawfully abstracted decoy mail on February 23, 2008, and DUARTE is alleged to have attempted to receive unlawfully abstracted decoy mail on that day as well.

BETHEA, 51 of Brooklyn, New York, and PEÑA, 26, of the Bronx, New York, were arrested on the afternoon of February 23, 2009. DUARTE, 36, of the Bronx, New York, was arrested on February 24, 2009. BETHEA is charged with conspiracy to steal United States mail and with delay and destruction of United States mail; PEÑA with conspiracy to steal United States mail and theft of United States mail; and DUARTE with conspiracy to steal United States mail and attempted theft of United States mail. If convicted on both charges BETHEA, PEÑA, and DUARTE each face a total maximum sentence of 10 years in prison and a maximum fine of $500,000 or twice the gross pecuniary loss or gain derived from the offense.

BETHEA was presented in Manhattan federal court on Tuesday, February 24, 2009, before United States Magistrate Judge DOUGLAS F. EATON. He was released on a $100,000 personal recognizance bond. PEÑA and DUARTE were presented in Manhattan federal court yesterday before Judge EATON. DUARTE was detained pending trial. PEÑA was released on a $50,000 personal recognizance bond.

Mr. DASSIN praised the work of the IRS-CID, the FBI, the USPIS, and the USPS-OIG, and thanked them for their work in this case. He added that the investigation is continuing.

Mr. DASSIN also thanked the Dominican National Police and the Attorney General of the Dominican Republic for their assistance and cooperation. Mr. DASSIN noted that police officials in the Dominican Republic have executed more than a dozen search warrants, seized more than a dozen computers, and arrested nineteen persons in the Dominican Republic in connection with the investigation.

This case is being prosecuted by the Office’s Major Crimes Unit. Assistant United States Attorneys DANIEL W. LEVY and HOWARD S. MASTER are in charge of these prosecutions.

The charges contained in the Complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

Scheme Allegedly Involved Filing False Income Tax Returns Using Names of Clients of NYC Human Resources Administration & Center for Employment Opportunities

WASHINGTON – An 18-count indictment charging Odell Folks of Brooklyn, N.Y., Sharon Smith of Bronx, N.Y., Tanya Smith of Waterbury, Conn., and Keith Terry of Dallas, Ga., with conspiracy to file false claims for refund in the form of false income tax returns was unsealed today, the Justice Department and Internal Revenue Service (IRS) announced. The indictment was returned on Nov. 26, 2008, by a federal grand jury in the Eastern District of New York.

According to the indictment, between approximately May 1, 2003, and Feb. 28, 2005, Folks and others engaged in a scheme to defraud the IRS through the submission of false income tax returns filed in the names of other individuals. The indictment alleges that Folks and Sharon Smith submitted the false income tax returns to the IRS in the names of clients of the New York City Human Resources Administration (HRA) and the Center for Employment Opportunities (CEO). HRA offers a wide range of social service programs to individuals receiving public assistance. CEO provides comprehensive employment services for persons with criminal records, including temporary jobs for individuals recently released from prison. The indictment states that both Folks and Sharon Smith were employed as job counselors at CEO.

According to the indictment, Folks and Sharon Smith obtained names and information of HRA and CEO clients and used that information to seek refunds by filing false tax returns with the IRS. Based on the false documents, the indictment alleges that the IRS issued income tax refunds in the form of U.S. Treasury checks and mailed the refunds to false addresses. The indictment further asserts that Folks and his co-conspirators obtained and cashed the refund checks. The indictment also states that Tanya Smith and Keith Terry used their bank accounts to cash some of those false Treasury checks.

Folks also was charged with eight counts of mail fraud, five counts of presenting false claims, and three counts of making and subscribing false income tax returns. Sharon Smith also was charged with seven counts of mail fraud and five counts of presenting false claims. Terry also was charged with five counts of presenting false claims and one count of making and subscribing a false income tax return.

"Stamping out tax refund fraud wherever it is found is a top priority for the Department of Justice and IRS," said Nathan J. Hochman, Assistant Attorney General of the Justice Department's Tax Division. "Those who try to steal the taxpayers’ money should know that there are severe consequences, including the potential for incarceration, steep fines and having to pay back all the stolen refund money."

If convicted of the conspiracy, defendants face the following maximum penalties: false claims – 10 years imprisonment and a $250,000 fine; presenting false claims – five years imprisonment and a $250,000 fine per count; mail fraud – 20 years imprisonment and a $250,000 fine per count; and making or subscribing a false tax return – three years imprisonment and up to a $250,000 fine.

"Refunds are issued to taxpayers who are entitled to them," said Eileen Mayer, Chief, IRS Criminal Investigation. "Criminal Investigation and the Department of Justice will continue to work to aggressively investigate and prosecute those who prepare false tax returns to claim improper refunds."

This case is being prosecuted by Tax Division trial attorney Mark F. Daly and Assistant U.S. Attorney Shreve Ariail of the Eastern District of New York. This case was investigated by the IRS Criminal Investigation Division office in Bridgeport, Conn., and the U.S. Postal Inspection Service in New Haven, Conn.

An indictment is merely a formal charge by the grand jury. Each defendant is presumed innocent unless and until proven guilty in U.S. District Court.

More information about the Justice Department’s Tax Division is available at www.usdoj.gov/tax

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RICHARD WALTERS SENTENCED IN D.C. PROPERTY TAX REFUND FRAUD SCHEME

Brother of Ringleader Deposited $4,900,199 in Fraudulently Obtained D.C. Government
Checks and Received At Least $1,284,574 in Monies and Home Improvements

Greenbelt, Maryland – U.S. District Judge Alexander Williams, Jr. sentenced Richard Walters, age 49, of Bowie, Maryland, today to 51 months in prison followed by three years of supervised release for receipt of stolen property and conspiracy to commit money laundering in connection with a property tax refund scheme in which over $48 million were stolen from the District of Columbia Office of Tax and Revenue, announced United States Attorney for the District of Maryland Rod J. Rosenstein and U.S. Attorney for the District of Columbia Jeffrey A. Taylor. Judge Williams also ordered that Richard Walters forfeit $4,900,199 and, in order to satisfy such money judgment, to forfeit a home in the Virgin Islands, two homes in Bowie, Maryland, a 2005 Bentley, four other vehicles, jewelry and monies held in several bank accounts.

U.S. Attorney Rod J. Rosenstein stated, “Richard Walters and Harriette Walters deposited fifteen District of Columbia government checks totaling almost $5 million into a bank account in the name of his plumbing business over a period of six years. We will seek the forfeiture of all criminal proceeds and property purchased with stolen money because victims deserve restitution and criminals must not be permitted to profit from their crimes.”

According to the plea agreement, Richard Walters is the brother of Harriette Walters, a former manager within the District of Columbia Office of Tax and Revenue. Richard Walters owned and operated a plumbing business called “Helmet’s Plumbing.” From March 2001 to May 2007, Richard Walters, and on occasion, Harriette Walters with Richard’s knowledge, deposited 15 District of Columbia government checks totaling $4,900,199 into a bank account Richard Walters maintained for his plumbing business. Richard Walters knew that the checks had been obtained by fraud as part of a scheme to embezzle funds from the District of Columbia government. The individual checks ranged in amounts from approximately $95,148 to $541,100.

On many occasions, Harriette directed Richard to take the checks to a bank and have Walter Jones, a bank manager, deposit them into the Helmet account. In addition, on several occasions, Richard Walters deposited a fraudulent District of Columbia government check and immediately thereafter directed Walter Jones to prepare cashier’s checks to recipients of Richard’s choosing.

From July 2001 to November 2007, Richard and Harriette Walters distributed funds from the Helmet account, including at least: 46 transactions directing $1,059,307.50 to accounts controlled by Richard Walters; 14 transactions directing $225,266.87 towards projects for a home that Richard Walters was building in the U.S. Virgin Islands; 11 transactions directing $461,000 to Harriette Walters; $47,149 to the Washington Wizards to purchase season tickets; $40,000 to Neiman Marcus; and $18,100 to Saks Fifth Avenue for purchases. Richard Walters also purchased a 2005 Bentley automobile with proceeds of the fraud.

Harriette M. Walters, age 52, of Washington, D.C., pleaded guilty in the U.S. District Court for the District of Columbia on September 16, 2008 and faces a maximum sentence of 20 years in prison for wire fraud and money laundering conspiracy; 10 years for District of Columbia tax evasion; five years for federal tax evasion; and an order to pay restitution in the amount of $48,115,419.09. U.S. District Judge for the District of Columbia Emmet G. Sullivan has scheduled sentencing for Harriette Walters on March 25, 2009 at 11:00 a.m. Alethia O. Grooms, age 52, of Clinton, Maryland and Samuel Earl Pope, age 61, of Washington, D.C. also pleaded guilty to their participation in the scheme, and are scheduled to be sentenced on February 24 and 26, 2009, respectively.

Patricia A. Steven, age 73, of Harwood, Maryland; Robert Steven, age 55, of Edgewater, Maryland; Connie Alexander, age 52, of Bowie, Maryland; Richard Walters, age 49, of Bowie, Maryland; Walter Jones, age 33, of Essex, Maryland; Marilyn Yoon, age 40, of Derwood, Maryland; and Ricardo R. Walters, age 33, of Ft. Washington, Maryland, have pleaded guilty in U.S. District Court for the District of Maryland to their participation in the scheme. Patricia Steven, Robert Steven, Richard Walters and Alexander each face a maximum sentence of 10 years in prison for receipt of stolen property and 20 years in prison for conspiracy to commit money laundering at their sentencing scheduled by U.S. District Judge for the District of Maryland Alexander Williams, Jr. on December 8 at 10:00 a.m., December 8 at 1:15 p..m., November 4, 2008, and February 12, 2009, respectively. Walter Jones faces a maximum sentence of 20 years in prison and a fine of $500,000 or twice the value of the transactions involved, whichever is greater, for conspiracy to commit money laundering at his sentencing on a date which is not yet scheduled. Marilyn Yoon faces a maximum sentence of 10 years in prison and a $250,000 fine for possession of property obtained by fraud at her sentencing on
December 4, 2008.

United States Attorneys Rod J. Rosenstein and Jeffrey A. Taylor thanked the Federal Bureau of Investigation; the Internal Revenue Service – Criminal Investigation; the Inspector General’s Office for the District of Columbia; the District of Columbia Office of Tax and Revenue, Criminal Investigation Division; the Treasury Inspector General for Tax Administration; and the District of Columbia Office of the Chief Financial Officer, Office of Integrity and Oversight for their investigative work. Mr. Rosenstein commended Assistant United States Attorneys Jonathan Su and Deborah Johnston from the District of Maryland and Assistant United States Attorneys Timothy Lynch and David Johnson from the District of Columbia, who are prosecuting the case.

For more information, CONTACT AUSA VICKIE E. LEDUC or MARCIA MURPHY at (410) 209-4885

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