Some of the things I've been thinking about and trying to connect:

• Not Kevin's informaton at StrangelyPerfect.tv  showing many negative option scams set up companies in the UK (details here)
• The recent Trend Micro paper detailing a cybercrime hub operating out of Estonia which extends into Europe and the United States (pdf available here)
• The potential significance of hidden negative option "bizop kit" victims alleging the presence of  trojan horses on the CDs they received in the mail
• The economic relationship between Estonia and The Isle of Man

AGAIN – these are very loosely connected thoughts…or maybe not even connected at all…in fact I don't even present any possible conclusions

Today I was asking Lynndel Edgington of Eagle Research Associates about a comment Not Kevin made over at StrangelyPerfect.tv:

"Setting up a UK Ltd company at Companies House is very easy and no they don’t ask for proof of id or anything. You only need to register for Vat if/when your turnover exceeds a certain amount, so that comes after registration (if at all).
There are however quite strict regulations about your obligations as a Director, filing accounts on time etc. See:
http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073870537

Not sure how these companies would get their stuff from Companies House if they are using false addresses, filing accounts for all those companies would be a nightmare too (if done properly) – which is another reason it’s odd that there are so many of them which just multiplies the work and could make it very confusing! Perhaps they are not planning to stick around long enough to bother with legalities like filing accounts!? (Allegedly) (You can be in business for around 18 months I think before your first years accounts are due)."

I suggest you read the full discussion here to get the full context.

As Lynndel pointed out, Not Kevin really answered his own question:

(Lynndel): "They don't plan on being around long enough to worry about reports/accounts are due.  This is get in quick, get the cash and get out before the authorities come calling.  The only ones who get caught are those who get greedy and try to milk it longer than they should.  They forget they can wait a couple of months, and then do it all over with a new name and a slightly different look and do it all over again."

Seemingly related to all of this is the fascinating research recently performed by Griffith University's Professor Jason Sharman

Which appears to indicate that the U.S. and the U.K. themselves may be the "dirtiest tax havens" which is fascinating as Sharman concludes:

""The United States, Great Britain and other OECD states have chosen not to comply with the international standards which they have been largely responsible for putting in place."

According to Switzerland's Le Temps Newspaper:

"With a small budget, and using classified ads that proliferate on the Internet or in the press, this professor of the Center for Governance and Public Policy at Griffith University (Australia) made bids to set up shell companies in 22 countries — some labeled as tax havens; others are very respectable members of the OECD."

The following are excerpted from Jason Sharman's presentation of his key findings of his recent study:

Summary of the research

"The research involved electronically soliciting offers of anonymous corporate vehicles from 45 different corporate service providers in 22 different countries, and collating the various responses. Anonymous shell companies in isolation can sometimes be useful in disguising financial crime, but generally depend on associated bank accounts. And so the next step was trying to set up bank accounts linked to these shell companies. To the extent that the shell companies are anonymous (that is, where the beneficial owner remains unknown), the bank account will also be de facto anonymous. Seventeen of the 45 attempts to solicit anonymous corporate vehicles met with success. Of these, 13 of 17 successful approaches were to service providers in OECD countries (seven in the UK, four in the United States, one in Spain, and one in Canada). This compared with only four service providers of 28 willing to provide anonymous shell companies in countries often identified as ‘tax havens’
(Hong Kong, Singapore, Belize and Uruguay)."

Interesting details from Jason Sharman's research:

• "In 2009, the author was able to create a Nevada company and then open an account at one of America’s most prominent banks with
  only a scanned copy of a driver’s licence." 
• "the author purchased an anonymous England and Wales company for GBP515, incorporated within a day"
• The Economist highlighted the following amazing finding from Sharman's study:
  • "One example was Britain, where in 45 minutes on the internet he formed a company without providing identification, was issued with bearer shares (which have been almost universally outlawed because they confer completely anonymous ownership) as well as nominee directors and a secretary. All was achieved at a cost of £515.95 ($753)."

Constantly changing names as a keystone to a "business model"

This isn't really anything new, but I really enjoyed the wording the authors of the Trend Micro Cybercrime Hub report used to describe it:"The criminal outfit uses a lot of daughter companies that operate in Europe and in the United States. These daughter companies’ names quickly get the heat when they become involved in Internet abuse and other cybercrimes. They disappear after getting bad publicity or when upstream providers terminate their contracts. This does not cause much harm to the operation as a whole, however, as the same cybercriminal just continues its business under a new name. In fact, constantly changing names is part of the company’s business model"

The potential significance of hidden negative option "bizop kit" victims alleging the presence of viruses and/or trojan horses on the CD-Roms they received in the mail

There were several comments made on various sites that the bizop kit CDs contained trojan horses, which can be used to steal data or as the Trend Micro paper reveals –  hijack Google queries and even seamlessly replace advertisements on legitimate sites.

Of course a trojan horse would always be a concern, but imagine if the cybercriminal organization behind the planting of trojan horses operated out of a country where credit card fraud and internet-based financial fraud were ongoing concerns.

I have no idea if any of the allegations about the trojans were true or how pervasive the allegations were.

According to the U.S. Department of State's information on Estonia:

"Credit card fraud is an ongoing concern, as is Internet-based financial fraud and “Internet dating” fraud.  Travelers should take precautions to safeguard their credit cards and report any suspected unauthorized transaction to the credit card company immediately.  Racially motivated verbal harassment and, on occasion, physical assault of Americans and other nationals of non-Caucasian ethnicity has occurred.   If an incident occurs, it should be reported to the police and to the Embassy."

The economic relationship between Estonia and The Isle of Man

This is significantly outside my scope of expertise so I could be completely grasping at straws here or someone may look at it and wonder why I'm stating the obvious:

• Estonia is a country where credit card fraud and internet-based financial fraud are ongoing concerns
• Isle of Man (IOM) is a self-governing British Crown Dependency where offshore banking is a key sector of the economy and according to the IOM government is developing a global reputation for a diverse array of niche, quality sectors including:
  • High-tech manufacturing
  • E-Business
  • E-Gaming
  • Ship and super yacht management
  • Aircraft registration
  • Agricultural and fisheries produce
  • Film and television production
  • Space commerce
  • Entrepreneur/trading gateway
• In it's most recently "report card" on the Isle of Man's observance of AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) the IMF expressed concerns about Customer Due Diligence (CDD) measures (see item 30 here), where one of the observations is:
  • "It was not evident to the assessors in all cases that the financial institutions were taking fully into account the increased risk of dealing on such a scale with nonresident non face-to-face business, and the assessors noted an uneven level of controls in practice in some institutions when relying on third parties to have properly conducted CDD measures."
• The recent agreement between the IOM government and the Estonian government:
  • "The agreement between the two governments is based on the model published by the Organisation for Economic Co-operation and Development (OECD). In addition to this agreement signalling that the Isle of Man and Estonia wish to develop their bilateral economic relations, the DTA will also act to prevent tax evasion, and delivers the OECD’s agreed international standard on tax transparency and exchange of information."

At this point I still have no idea if there are any real connections between all of this data

IR-2009-41, April 13, 2009

Video: English American Sign Language Text

WASHINGTON — The Internal Revenue Service today issued its 2009 “dirty dozen” list of tax scams, including schemes involving phishing, hiding income offshore and false claims for refunds.

“Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times,” IRS Commissioner Doug Shulman said. “There is no secret trick that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”

Tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

The IRS urges taxpayers to avoid these common schemes:

Phishing

Phishing is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Phishing scams often take the form of an e-mail that appears to come from a legitimate source, including the IRS. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Taxpayers who receive unsolicited e-mails that claim to be from the IRS can forward the message to phishing@irs.gov. Further instructions are available at IRS.gov. To date, taxpayers have forwarded scam e-mails reflecting thousands of confirmed IRS phishing sites. If you believe you have been the target of an identity thief, information is available at IRS.gov.

Hiding Income Offshore

The IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Recently, the IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts. The IRS draws a clear line between taxpayers with offshore accounts who voluntarily come forward and those who fail to come forward.

Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. The IRS has also identified abusive offshore schemes including those that involve use of electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.

Filing False or Misleading Forms

The IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims. The new scam has evolved from an earlier phony argument that a “strawman” bank account has been created for each citizen. Under this scheme, taxpayers fabricate an information return, arguing they used their “strawman” account to pay for goods and services and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property. Often, the donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

Return Preparer Fraud

Dishonest return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others, which are pending in court.

Frivolous Arguments

Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty. More information is available on IRS.gov.

False Claims for Refund and Requests for Abatement

This scam involves a request for abatement of previously assessed tax using Form 843, Claim for Refund and Request for Abatement. Many individuals who try this have not previously filed tax returns. The tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses Form 843 to list reasons for the request. Often, one of the reasons given is "Failed to properly compute and/or calculate Section 83-Property Transferred in Connection with Performance of Service."

Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited.

Disguised Corporate Ownership

Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

Zero Wages

Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS. Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS.

The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to divert income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.

Fuel Tax Credit Scams

The IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

How to Report Suspected Tax Fraud Activity

Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS Web site at IRS.gov. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.

Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

A grand jury in Seattle, Washington, has indicted ROBERT MIRACLE, MUKHTAR KECHIK, and FAHIMI FISAL in a twenty-three count Indictment charging Conspiracy, Mail Fraud, Wire Fraud, Money Laundering, and Tax Evasion. The Indictment alleges that the men operated a $65-million “Ponzi” scheme. MIRACLE, 48, was arrested at his home in Bellevue this morning, and will be arraigned on the Indictment this afternoon at 2:30. KECHIK, 52, and FISAL, 32, both are Malaysian nationals. Warrants have been issued for the arrest of KECHIK and FISAL.

According to the Indictment, MIRACLE operated a number of companies allegedly involved in oil development in Malaysia and Indonesia, including: Laramie Petroleum, Inc.; MCube Petroleum, Inc.; Diski Limited Liability Company; Basilam Limited Liability Company; and Halmahera-Rembang Limited Liability Company. MIRACLE and his co-defendants represented to investors that these companies were making money from oil-field development and from the sale of oil-field services. In fact, the funds of later investors were used to pay off the investments of earlier investors. Between September 2004 and October 2007, MIRACLE took in more than $65 million from investors and paid out more than $36 million in returns to investors, using funds from later investors. The remainder of the investor monies—more than $28 million—was used in a failed effort to develop oil and gas on fields in Indonesia, as well as to pay for a lavish lifestyle for MIRACLE and his cohorts.

According to the Indictment, as part of the conspiracy, MIRACLE allegedly mislead investors both about his business background, and about the success of the companies he promoted. MIRACLE falsely claimed to have been employed by NASA and Disney. MIRACLE also allegedly falsely claimed that his companies actually were producing and selling oil and gas. Between 2004 and 2007, MIRACLE issued a number of press releases and “investor updates” touting his companies’ successes. According to e-mails referenced in the Indictment, the conspirators plotted to make false financial statements, which they referred to as “simulation files,” that falsely showed that the companies were producing oil and gas, and receiving revenues from the sale of that oil and gas. MIRACLE also allegedly created false bank documents to support their fraud.

As part of the Indictment the government is seeking to forfeit a two-carat diamond ring MIRACLE purchased for more than $38,000 and a painting that MIRACLE purchased in Italy for $27,000. The Indictment also alleges that MIRACLE used investor funds to take ten of his family members on a week-long cruise at a cost of more than $77,000, and that he evaded taxes on more than $527,000 of income in 2005 by falsely classifying the money that he received from his companies that year as loans to him from the companies, rather than as salary.

The charges contained in the Indictment are only allegations. A person is presumed innocent unless and until he or she is proven guilty beyond a reasonable doubt in a court of law.

The case is being investigated by the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigation Division, and the Washington State Department of Financial Institutions.

The case is being prosecuted by Assistant United States Attorneys Carl Blackstone and Andrew C. Friedman, and Special Assistant United States Attorney Tyler Letey. For additional information, please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110 or Emily.Langlie@usdoj.gov.

Promoter of Fraudulent Tax Shelter and Louisiana Attorney Indicted on Tax Charges

Tax Elimination Strategy Allegedly Resulted in Loss to the Treasury Exceeding $100 Million

WASHINGTON – John B. Ohle III, a former member of the tax shelter promotion group at a national bank, has been charged with conspiring with lawyers at the law firm of Jenkens & Gilchrist (Jenkens) and others to defraud the United States in the sale of a tax shelter known as "HOMER," the U.S. Attorney’s Office for the Southern District of New York, the Tax Division of the Department of Justice and the Internal Revenue Service (IRS) announced today.

According to the indictment, between 1999 and 2002, Ohle was a supervisor in the Chicago office of a national bank’s "Innovative Strategies Group" (ISG). The indictment states that ISG provided estate planning and tax shelter strategies for high net worth clients, including a tax shelter called "Hedge Option Monetization of Economic Remainder" or HOMER. ISG sold 36 HOMER strategies to wealthy clients in 2001, according to the indictment, creating almost $430 million in fraudulent tax losses and resulting in the evasion of approximately $100 million in taxes.

The indictment alleges that Ohle and his co-conspirators marketed HOMER as a legitimate tax elimination strategy, despite the fact that HOMER was actually designed as a carefully planned series of steps to fraudulently produce the tax loss amounts desired by the clients. Jenkens allegedly issued a false and fraudulent opinion letter that found that it was "more likely than not" that the transaction would withstand IRS challenge. Ohle and two Jenkens lawyers are alleged to have known that the opinion letter contained false representations, including that the clients had a substantial non-tax business purpose in engaging in the HOMER transaction; that the clients created the HOMER trust for estate planning purposes; and that the clients exchanged the options for third-party notes for sound economic reasons. In order to participate in the HOMER transaction, the indictment states that the client had to pay fees of six percent of the desired tax loss.

Ohle has also been charged in a separate conspiracy with William Bradley, a Hammond, La., attorney and friend of Ohle, to defraud the IRS and commit wire fraud in relation to a scheme to fraudulently obtain referral fees on HOMER transactions. The indictment asserts that Ohle, Bradley, Chicago businessman and co-conspirator Douglas Steger, and others created false and fraudulent invoices to obtain referral fees to which they were not entitled for HOMER deals.

The indictment asserts that Ohle and his co-conspirators schemed to run the funds through Bradley and Steger’s bank accounts, as well as the bank account of a business acquaintance of Ohle in San Francisco. Ultimately, according to the indictment, Ohle ended up with more than $700,000, Steger took more than $200,000, and Bradley took $25,000 in fraudulent fees. At Ohle’s direction, Steger, who pleaded guilty in July to tax charges related to the scheme, reported fraudulent fees on his tax return that should have been reported by Ohle, and then eliminated taxes on those fees and the fees he retained through the use of a fraudulent shelter. Bradley paid another Chicago businessman $184,000 of the false and fraudulent referral fees Bradley generated, which the businessman reported on a corporate return but on which he paid no taxes due to his also claiming false expenses at Ohle’s suggestion, according to the indictment.

Ohle also is charged with attempting to evade the taxes of three HOMER clients and his own personal taxes for 2001 and 2002. According to the indictment, Ohle filed false personal tax returns in 2001 and 2002 that failed to report at least $642,634 and $1.4 million, respectively in income, and concealed the receipt of income through the use of nominees. Ohle eliminated taxes due on his 2002 return through the use of a fraudulent shelter.

The indictment seeks forfeiture of Ohle’s home in Wilmette, Ill., Ohle’s condominium in New Orleans and Ohle’s sports memorabilia collection.

"Hard-working Americans who pay their taxes should know that we are committed to vigorously investigating and prosecuting those who design and promote fraudulent tax shelters," said John A. Marrella, Deputy Assistant Attorney General of the Justice Department’s Tax Division. "These schemes cheat not only the United States Treasury, but all of the honest taxpayers who play by the rules."

Ohle faces up to 38 years in prison and fines of up to $2 million or twice the gross tax gain or loss on the charges. Bradley faces up to five years in prison and fines of up to $250,000 or twice the gross tax gain or loss on the charge.

"Today's indictment demonstrates our resolve to hold accountable those who play fast and loose with the tax code," said Eileen Mayer, IRS Criminal Investigation Division Chief. "At some point such conduct passes from clever business strategies and lawyering to theft from the people. We simply can't tolerate flagrant abuse of the law and of professional obligations by tax practitioners, that by virtue of their prominence set the standard of conduct for others. Bankers, accountants and attorneys should be the pillars of our system of taxation, not the architects of its circumvention."

The prosecution is being handled by Nanette L. Davis, Assistant Chief with the Northern Criminal Enforcement Section of the Tax Division, and Stanley J. Okula Jr., an Assistant U.S. Attorney in the Southern District of New York. The indictment was unsealed today in Manhattan federal court.

An indictment is merely an allegation and a defendant is presumed innocent until proven guilty beyond a reasonable doubt.

###

08-1017

United States Department of Justice
U.S. Attorney, District of New Jersey
970 Broad Street, Seventh Floor
Newark, New Jersey 07102

NEWARK – A husband and wife from Middlesex County who operated a tax preparation business pleaded guilty today to participating in a scheme to defraud investors out of nearly $2.5 million and to evading the payment of federal income taxes, U.S. Attorney Christopher J. Christie announced.

Charles Neely, 60, and Janet Neely, 54, of South River, pleaded guilty today before U.S. District Judge William J. Martini to conspiring to commit mail fraud, mail fraud and tax evasion. The Neelys also agreed to forfeit property to the United States, including seven tow trucks (from a family towing business), a bank account worth approximately $60,000 and a 2002 Pontiac Trans Am and a 2002 Cadillac Deville. All were alleged to have been derived from proceeds of the fraud. Bail was set at $500,000 for each defendant.

According to separate criminal Informations to which they pleaded guilty, the Neelys owned and operated Neely Associates, a tax preparation business in East Brunswick. Through Neely Associates, Charles and Janet also purported to provide investment services to clients, even though neither of them was licensed by the State of New Jersey to provide such services.

In executing their scheme to defraud, Janet Neely solicited clients to invest money with Neely Associates and induced them to do so with false representations that their money would be invested in municipal bond funds, would be safe and would earn tax-free interest on their investments. To further induce investors to invest with Neely Associates, the Neelys created and provided to investors fabricated account statements that made it appear as if the investors’ money had been invested as promised.

From approximately January 2002 through approximately February 2008, the Neelys admitted that they defrauded approximately 47 investors out of almost $2.5 million. Several of the investors were senior citizens, and many of the investors entrusted the Neelys with their life savings.

Instead of investing the money they stole from investors as promised, the Neelys admitted that they used it for their own personal benefit. According to the Informations, the Neelys gambled away some of the investors’ money at casinos in New Jersey and elsewhere, and spent some of the money on cruises, cars, tow trucks, collectibles, electronics and other personal items.

The Information also charges that the Neelys failed to disclose the income they were receiving from the investors to the Internal Revenue Service, and thus evaded the payment of income taxes for tax years 2003 through 2006.

The Neelys specifically acknowledged that, in one example, they defrauded an investor with the initials G.L., a 75-year old who resided first in Harrison and later in Lakewood, out of approximately $350,000, by promising him that they would invest his money and manage his finances to provide him financial security for the rest of his life.

The Neelys also admitted that they filed false joint federal income tax returns for tax years 2003 through 2006, that they did not disclose to the IRS the money they had received from the investors, and that they owe the IRS almost $600,000 in outstanding taxes.

This case arose from an investigation begun by the Middlesex County Prosecutor’s Office. After receiving information that the Neelys had defrauded the investor with the initials G.L., Middlesex conducted search and seizure warrants (seizing the seven tow trucks, two cars and bank account), and arrested the Neelys on state fraud charges. Upon learning that the Neelys had also defrauded numerous other victims throughout the state of New Jersey, the Prosecutor’s Office contacted the Federal Bureau of Investigation, Internal Revenue Service, Criminal Investigation Division and the U.S. Attorney’s Office. A joint investigation with Middlesex County followed, leading to today’s guilty pleas.

The Neelys each face a maximum statutory prison sentence of five years on the conspiracy count, 20 years on the mail fraud count, and five years on the tax evasion count. The sentencing court may impose the sentences on each count consecutively. The Neelys also face a statutory maximum fine of $250,000.

In determining an actual sentence, Judge Martini will consult the advisory U. S. Sentencing Guidelines, based upon a formula that takes into account the severity and characteristics of the offenses and the defendants’ criminal histories, if any. However, the Sentencing Guidelines are only advisory, and Judge Martini has wide discretion in imposing sentence. There is no parole in the federal system, and defendants who are given custodial terms must serve nearly all that time.

The government is represented by Assistant United States Attorney Maureen Nakly of the

– end

Defense counsel for Charles Neely: Lawrence Bitterman, Esq.
Defense counsel for Janet Neely: Joseph Benedict, Esq.

FBI Home Page | Newark Press Releases | Newark Home Page

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

• Baltimore Press Releases
• Baltimore Home Page
• FBI Home Page