Increased Use of Nonprofits in Fraud Cases: Utah CEO of a "Charity" That Distributed Medical Supplies Sentenced for Tax Evasion

 

In our practice we have seen an increase in the number of charities or nonprofits in the health care or government contracts field. Often the problem is that the parties to not know how to run the charity according the federal and state tax rules. In addition, they often do not realize that both the federal agencies and states are able to use significant powers over non-profits.

In two recent related cases two men were involved in a federal tax fraud case involing a health care business charity.  What happened here? The CEO of a medical supply charity business, Ashley James Robinson, entered into a secret arrangement with a purported donor, Gurcharan “Jazzy” Singh. Mr. Singh provided medical supplies to the charity, making it appear as if these supplies had been donated to the charity thereby getting his company a deduction. 

Mr. Robinson then arranged for the charity to sell the goods to a third-party, passing most of the sale proceeds back to Mr. Singh. As compensation, Mr. Singh then paid Mr. Robinson, not the charity, up to 10% of the total proceeds. Mr. Robinson did not declare the income from Mr. Singh as income. 

As is common in these cases, over years the money adds up. According to court documents, from 2016 through 2019 Mr. Robinson that did not report a total of approximately $1,163,818 in income. As a result, Mr. Robinson caused a tax loss to the IRS of approximately $427,145. That is the loss amount. That will also be the restitution amount to be repaid. The more that can be repaid prior to sentencing, the better it will be obtaining a favorable sentence. 

The government also likes to allege facts showing that the person charged used the money to live lavishly or high on the hog as might be said in the South. Here the government alleged that Mr. Robinson used the funds to pay off the mortgage on his principal residence and to buy multiple luxury vehicles, including a Maserati, a Mercedes Benz and an Audi for a co-worker.

Mr. Robinson and his counsel must have decided that the defense was not strong and he pleaded guilty today to willfully evading the proper assessment of income tax. At sentencing, he was sentenced to federal prison for 1 year and one day (an excellent sentence since it allows him to serve just half the time.) The sentence implies that Mr. Robinson plead early, had mitigating circumstances in his background, and did not have any prior felonies. In addition to his prison sentence, U.S. District Judge Jill N. Parish for the District of Utah ordered Robinson to pay approximately $485,982 in restitution to the United States.

Mr. Singh has already been sentenced in the Central District of California to the same sentence of one year and one day.  These are relatively short sentences and hopefully these men can put this behind them, learn the lessons needed, and get on with their lives and back to their family.  We have seen so many clients get through these issues, and they do make it through the other side. 

Manafort Is Not Only One Charged With Failing to File an FBAR. Los Angeles Man Pleads Guilty to Not Reporting over $1 Million Held in Israeli Offshore Accounts.

The Justice Department just publicized this plea relating to FBAR at the same time that Paul Manafort has a jury deciding whether or not he willfully failed to file an FBAR. This may satisfy some pundits who claim that no one is ever prosecuted for failing to file an FBAR. This recent case relates to a bank with U.S. branches that had already signed a deferred prosecution agreement. The bank had likely been cooperating to reveal U.S. customers with foreign accounts.

On August 20, 2018, Ben Zion Birman pleaded guilty in U.S. District Court in Los Angeles to willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR), which would have disclosed his foreign bank accounts.

According to court documents, Mr. Birman held offshore accounts in Israel at Bank Leumi Le-Israel B.M. ("Leumi") from 2006 to 2011. Mr. Birman indicated in his plea that he willfully failed to file with the Department of Treasury an FBAR for calendar year 2010, despite having over $1 million in Bank Leumi accounts. 

The factual basis of the plea agreement alleges that in an effort to further hide his money, Mr. Birman instructed Bank Leumi to hold bank mail from delivery to the United States, and obtained access to his offshore funds through the use of “back-to-back” loans, which were designed to enable borrowers to tap their concealed accounts. These lending arrangements permitted Mr. Birman to have funds issued by Leumi’s U.S. branch that were secretly secured by funds in his undeclared accounts in Israel.

Physicians Performing Work Outside the U.S. Need to Be Careful of IRS and FBAR Rules: Recent Case of Beverly Hills Plastic Surgeon Who Did Procedures in Dubai and Plead Guilty to Failing to Disclose A Foreign Bank Account to the IRS

Physicians have been more likely the past 10 years to travel abroad and perform medical procedures there. Whether it's Russia, Dubai, Mexico, Canada or Korea, two issues to be aware of are reporting the existence of foreign financial accounts and reporting the earnings on a U.S. tax return. 

A recent case shows the perils of not following the Internal Revenue Service (IRS) and foreign bank account reporting rules carefully.

The basic rule on foreign bank accounts is that United States citizens who have an interest in or authority over a financial account in a foreign country with assets over $10,000 are required to disclose and report the foreign financial account to the United States Department of Treasury for each year the financial account exists.

The case study here which all can learn from is as follows. According to the plea agreement filed in this case, Dr. Marc Edward Mani, a Beverly Hills plastic surgeon, began to travel to Dubai in 2011 to perform plastic surgery for a foreign medical center. 

Billing for Prescriptions Not Dispensed to Patients Results in 4 Year Sentence for Los Angeles Medical Clinic Manager After Federal Trial

Federal prosecutors used to devote healthcare fraud resources to mainly government programs and allow private insurance carriers to handle the cases with special investigation units or with state prosecutions. A recent case shows how private insurance healthcare fraud is being pursued forcefully. This is in large part due to the overlap between private and public and the fact that the federal government pays subsidies for tens of millions of people who have private insurance.

The recent case was one of ghost billing. On March 28, 2017, Michael Huynh, the office manager and purported part-owner of a Los Angeles area medical clinic in Reseda was sentenced to 51 months in federal prison for his role in billing private insurance plans for prescription medication that was never dispensed to insured patients and failing to report such income on his federal income tax returns. Following a seven-day trial in September 2016, Mr. Huynh was found guilty of one count of conspiracy to commit healthcare fraud and 11 counts of filing false tax returns.

Mr. Huynh, age 67, was sentenced by United States District Judge Otis D. Wright II. In addition to the prison term, Judge Wright ordered Mr. Huynh to pay just over $1.9 million in restitution to the victim insurance companies and back taxes – estimated to be nearly $950,000 – to the Internal Revenue Service.

      

The evidence introduced at trial showed that between January 2004 and November 2009 Mr. Huynh and a pharmacist (Farhad N. Dany Sharim,  a co-owner of Century Discount Pharmacy in Reseda) participated in a healthcare fraud scheme that billed private insurance plans for prescription medication that was never dispensed to insured patients. Mr. Sharim, age 57, previously pleaded guilty to conspiracy to commit healthcare fraud and will be sentenced by Judge Wright on May 1.

The evidence at trial was that Mr. Huyhn provided Mr. Sharim with fabricated prescriptions purportedly for patients of the medial clinic who were insured by healthcare benefit programs. Mr. Sharim's pharmacy then submitted false and fraudulent bills for prescription drugs that had not been dispensed to the patients and received substantial payments from various health care benefit programs to which it was not entitled. Mr. Sharim allegedly paid Mr. Huyhn and/or the medical clinic more than $1.1 million.

In addition to the healthcare fraud scheme, Mr. Huynh was charged with filing false federal tax returns for tax years 2007 through 2011 that underreported the medical clinic’s gross receipts and sales by more than $1.6 million.

Posted by Tracy Green, Esq.

Green and Associates, Attorneys at Law

Office: 213-233-2260

Email: tgreen@greenassoc.com

Medical Device CEO by Sacramento Federal Judge Sentenced to One Year in Prison for Tax Evasion

On December 2, 2016, Briant Benson, a President and CEO of multiple medical device companies, was sentenced in Sacramento, California by U.S. District Judge Garland E. Burrell Jr. to 12 months and one day in prison for tax evasion. 

The year and one day sentences is more favorable that a one year sentence since it will qualify Mr. Benson for a 6 month sentence and halfway house. This sentence followed Mr. Benson's guilty plea in August.

According to court documents, during the years 2004 through 2006, Mr. Benson failed to file tax returns or pay any personal income tax to the Internal Revenue Service, despite receiving at least $2 million dollars in income as the President and CEO of multiple medical device companies. One of them Bentec Medical makes tubing and catheters, among other things, and the company was not involved in the allegations. 

Los Angeles Doctor Convicted After Trial of Federal ‘Structuring’ Charges for Making Cash Deposits to Avoid Federal Reporting Requirements

On November 18, 2016, Los Angeles doctor Washington Bryan II was convicted by a jury after a three-day trial of 29 counts of federal “structuring” charges for making a series of cash deposits totaling approximately $478,000 between October 2011 and January 2013. 

The government alleged that Dr. Bryan made deposits of less than $10,000 into four separate accounts for the purpose of preventing banks from reporting the deposits to the federal government, which is required for every cash transaction of more than $10,000. 

For each of the 29 counts, the Prosecution provided evidence that Dr. Bryan made cash deposits into multiple bank accounts on the same day that added up to more than $10,000. The government contended that going to two or three banks in the same day, sometimes just minutes apart, to conduct a transaction that could have been completed at one bank has no benign explanation.  In order to prove criminal intent and knowledge of the structuring laws, the government presented evidence to the jury that Dr. Bryan received a letter in 2007 from Wachovia Bank informing him of the reporting requirement and alerting him that his pattern of currency deposits at the time appeared to be violating federal law. 

Federal prosecutors presented evidence and argued that Dr. Bryan structured the cash deposits for the purpose of concealing income he received from thousands of prescriptions that he issued for narcotic painkillers and HIV medications out of his Brentwood office. If one of the cash deposits had been $10,000 or more, the bank would have filed a currency transaction report (CTR) with IRS. The government was also able to introduce evidence at trial that Dr. Bryan was disciplined by the Medical Board of California for excessively prescribing narcotic medications, including OxyContin, and place on three years of probation. The prosecution contended that cash structuring began after Bryan was placed on probation and while he continued to routinely prescribe high dosages of painkillers to patients – most of whom paid $500 in cash each time they visited Bryan’s Brentwood office and obtained prescriptions, sometimes without ever seeing the doctor.

Dr. Bryan is to be sentenced by United States District Judge R. Gary Klausner on February 27, 2017.  The statutory maximum sentence is 145 years in federal prison, however, the sentencing laws are complex and it is unlikely the sentence will be anywhere near the maximum. 

Attorney Commentary: This case shows that even if the cash was deposited in all the banks and reported to the IRS as income, a violation of the federal structuring laws may still result in a criminal case. This case appears to have been used as a means to prosecute the doctor instead of pursuing charges of violating prescribing laws. The case may have gone to trial because the plea offer made by the Prosecution was considered to be unduly harsh. In some cases, it is better to go to trial and let the evidence go before the jury and court so that the sentencing will more properly reflect the facts and evidence. Every case is different and this will result in a harsh result for the physician as well.

Posted by Tracy Green, Esq.
Green and Associates, Attorneys at Law
Email: tgreen@greenassoc.com
Phone: 213-233-2260

Ohio Psychiatrist Sentenced to Prison for Tax Evasion in Filing False Tax Returns. Lesson: Do Not Wait Till Things Go This Far - Get Help

On November 21, 2016 an Oregon, Ohio psychiatrist was sentenced to serve 18 months in prison in the U.S. District Court for the Northern District of Ohio for tax evasion. 

According to court records, from as early as 2005, Dr. Sandra Vonderembse failed to pay taxes and filed and caused to be filed with the Internal Revenue Service (IRS) false and fraudulent tax returns that included false statements regarding her income and the amount of tax due and owing. 

Why did this case go criminal? It is the false statements that get the "tax evasion" count rather than the lesser non-fraud offense of "subscribing false tax returns."  Additionally, from 2009 through 2011, Dr. Vonderembse falsely claimed to have no taxable income and to owe no taxes, despite earning more than $240,000 each year while working as a psychiatrist. It is due to Dr. Vonderembse allegedly using nominee entities to conceal income from the IRS, and sending fake financial instruments to the IRS in purported payment of her taxes.  

San Diego Physician Convicted of Eight Counts of Tax Evasion at Trial In Using A Trust to Not Pay Taxes

On January 28, 2016, a federal jury in San Diego convicted Dr. William Bailey, a  physician of osteopathic medicine, on eight counts of tax evasion (26 United States Code Section 7201 B).

According to evidence presented at trial, between 2004 and 2011 Dr. Bailey earned over $1.1 million in compensation for his services as a physician at two different local clinics and paid no taxes. Dr. Bailey allegedly concealed his income by having his paychecks directed to an account in the name of a trust.

In his own testimony at trial, Dr. Bailey admitted that he cut and pasted other documents to create the trust himself and signed the name of another person as the creator of the trust. As the grantor, sole trustee and also the beneficiary of the so-called trust, the income was attributed to Dr. Bailey as an individual.

Dr. Bailey spent the $1.1 million he deposited in the trust account to pay his personal expenses, including the purchase of a home, two cars, a time share and approximately $400,000 in credit card bills. Despite earning a significant income, Dr. Bailey reported no taxable income on the tax returns he filed. Evidence presented at trial showed that Dr. Bailey owed a total of $315,000 in unpaid taxes for the period from 2004-2011.

Dr. Bailey is scheduled to be sentenced on April 20, 2016, at 9:00 a.m., before U.S. District Judge Cathy A. Bencivengo. The maximum penalty on each count is 5 years imprisonment and a potential fine of $250,000 per count.  

Los Angeles Nightclub Owner and Sacramento Construction Company Owner Arrested for Workers' Compensation Insurance Fraud, EDD Payroll Tax Fraud. Get Compliant and Seek Professional Advice When Faced With Audits.

On January 8, 2016, two criminal cases were filed against individual company owners for workers' compensation insurance fraud and payroll tax evasion in Los Angeles and Sacramento. 

These are not related cases but show the the Department of Insurance’s effort to pursue more workers’ compensation premium fraud and tax evasion cases for misclassifying employees as independent contractors or paying employees cash under the table. The State views this as its efforts to combat the underground economy.

In the Sacramento case, William Huffman (owner of Capitol City Contractors) was charged with  nine felony counts of workers' compensation insurance fraud and tax evasion. The Sacramento County District Attorney's Office is prosecuting this case and contends that losses total $187,707. The State contends that Mr. Huffman allegedly underreported $755,899 in payroll to avoid paying workers' compensation premiums for dozens of employees.

How did this case arise? An insurer notified the Department of Insurance of suspected fraud. A forensic audit of the company's bank records was conducted and it is contended that detectives discovered evidence that Mr. Huffman was paying employees under the table and classifying some payroll checks as expenses for supplies and materials.

Attorney Commentary: We have helped numerous companies during the audit stages of workers’ compensation or EDD audits given the potential for criminal charges. During these audits, there are things that can be done to prevent the cases from being perceived as criminal intent to defraud cases. Compliance and immediate business changes can also help avoiding criminal charges. False documentation, false statements and other facts can cause problems. Companies often handle these audits on their own without detached counsel to advise them on how to proceed when there are sensitive issues and potential past non-compliance.

Medical Marijuana Physicians & Businesses Are Attacked By The Feds (IRS) For Taxes Who Disallow Deductions Under Little Known Provision 280E. It's Hitting These Businesses Hard. Don't Let This Catch Your Business By Surprise.

The country’s rapidly growing marijuana industry (including physicians who write the recommendations) has a tax problem.

Even as more states embrace legal marijuana, shops and dispensaries say they are being forced to pay crippling federal income taxes because of a decades-old law (26 U.S.C. § 280E) aimed at preventing drug dealers from claiming their smuggling costs and couriers as business expenses on their tax returns.

The latest audits are not just aimed at dispensaries but at medical marijuana physicians.  Imagine being audited and finding out that all your deductions are being disallowed and you are to pay hefty taxes on gross revenue even if seventy-five percent of it went to pay employee wages, rent, supplies, costs of goods sold, etc. You get the picture of what the IRS is doing here.

Congress passed that 280E in 1982 after a cocaine and methamphetamine dealer in Minneapolis who had been jailed on drug charges went to tax court to argue that the money he spent on travel, phone calls, packaging and even a small scale should be considered tax write-offs. The provision, still enforced by the I.R.S., bans all tax credits and deductions from “the illegal trafficking in drugs.”

This has caught many in the medical marijuana business including physicians by surprise. Many people invested in dispensaries only to find out this fact after they invested millions of dollars.

Here is the text of 26 U.S.C. § 280E, Expenditures in connection with the illegal sale of drugs:

“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances(within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is  conducted.”

This week’s New York Times article on this issue by Jack Healy highlights the issues. “Marijuana business owners say it prevents them from deducting their rent, employee salaries or utility bills, forcing them to pay taxes on a far larger amount of income than non-marijuana businesses with the same earnings and costs. They also say the taxes, which apply to medical and recreational sellers alike, are stunting their hiring, or even threatening to drive them out of business.”

The gap between the federal position on this issue and the states is hitting business owners hard. Remember that 23 states, plus the District of Columbia, allow medical or recreational marijuana. The federal government does not and this affects businesses in many ways.  For example, banks will not allow medical marijuana businesses to have accounts since marijuana possession is a federal crime in national parks (including those in California and Colorado).

As Jack Healy of the NYT writes, while “President Obama and top federal officials have allowed states to pursue legalization, marijuana advocates say the dissonance between increasingly permissive state laws and federal prohibitions is creating a morass of complications and uncertainty.” It is time for the federal government to not use this as a revenue generator but to engage in fairness and consistency. The tide is turning and this is nothing less than extortion on small to medium size businesses since they know that large companies have avoided this business for this exact reason. Either that or the medical marijuana business needs to get together and lobby Congress on a states’ rights issue which is certainly popular in the South and Southwest.

If you are in this business or are audited by the I.R.S., it is critical that you hire an accountant and lawyer familiar in this field. Do not go to any audits on your own. Be prepared for these issues and think ahead. In addition, get involved politically and make this madness stop.

Posted by Tracy Green, Esq.

Green and Associates, Attorneys at Law

800 West 6th Street, Suite 450

Los Angeles, California 90017

Office: 213-233-2260

Mobile: 310-710-6434

Email: tgreen@greenassoc.com

Los Angeles Publisher Of Russian-Language Newspapers And Magazines Sentenced To 8 Years For Cash-Back Payments Related To Health Care Fraud

On December 7, 2009, a publisher of Russian-language newspapers and magazines, Andranik Petrosian, of Burbank, California was sentenced to 96 months in prison by United States District Judge Stephen V. Wilson in the Central District of California. In addition to the prison term, Judge Wilson ordered Petrosian to pay $521,845 in restitution to the Internal Revenue Service.

This sentence followed his trial in April 2008 where a federal jury convicted him of conspiracy to defraud the Internal Revenue Service and making false statement to special agents with the IRS.

The allegations in this case were that Mr. Petrosian used his publications – which included the newspaper Contact Weekly and the magazines Kakadu and Tet-a-Tet – as fronts to launder more than $10 million for medical companies some of which were alleged to be entirely fraudulent. It was essentially a phony or inflated invoice arrangement - masquerading as a check cashing arrangement.

As detailed in the indictment, the "cash back" or laundering arrangement worked as follows. Beginning in 2003 and continuing through 2007, the medical companies wrote checks to Mr. Petrosian's companies for advertising or graphic design services that were significantly in excess for the services provided. Mr. Petrosian's companies provided invoices for the "advertising" or "graphic design services" which allowed the medical companies to falsely deduct the entire payments on their tax returns. While Mr. Petrosian did place advertisements in his publications, these advertisements were worth only a small fraction of the price paid by medical companies across the Southwest.

Mr. Petrosian would deposit the checks made payable to his businesses and, subsequently, would give cash back, less a fee of up to 10%, to his "advertisers." The "advertisers" would use the false invoices to fraudulently substantiate expenses used in the preparation of their tax returns which were subsequently filed with the IRS.

In the trial, it was alleged that Mr. Petrosian returned approximately 90 percent of the money from the checks back to the medical company administrators in cash. The cash was allegedly handed over in white envelopes during back-office meetings at Petrosian’s office on Glenoaks Boulevard in Burbank. Mr. Petrosian allegedly obtained large quantities of cash, either by smuggling cash into the United States derived from wire transfers to Armenia, or via an elaborate Hawalla-type money-changing system.

It was also alleged that the medical company administrators used the cash Mr. Petrosian returned to make cash payments to patients and cappers/marketers. Based on my experience in these cases, these arrangements were also used as a means of the businesses who are "advertising" to obtain tax free money for other purposes as well.

The U.S. Attorney's Office contended that Mr. Petrosian's operation fueled medical insurance fraud schemes by providing a steady stream of untraceable cash. In one such scheme, it was alleged that a clinical laboratory used the cash Mr. Petrosian provided to make illegal kickback payments to clinics in exchange for the clinics referring blood samples to the laboratory for analysis. The payments motivated the clinics to refer patients for medically unnecessary tests that were paid for by Medicare.

At the sentencing hearing, Judge Wilson said the evidence at trial showed that Petrosian was at the “fulcrum” of a money-laundering scheme that helped perpetrators of health care fraud avoid paying federal taxes.

Posted by Tracy Green. Should you have any questions regarding your own situation or this post, you can email Tracy at tgreen@greenassoc.com. Green & Associates in Los Angeles, California focuses their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings. They have a specialty in representing licensed health care providers. Their website is: http://www.greenassoc.com/

Virginia Doctor Sentenced For Writing Prescriptions Over Internet And Tax Evasion

On November 4, 2009, Dr. Torrino Jennings of Hanover County, Virginia, was sentenced in Boston federal district by Judge Richard Stearns to one year and a day in prison, to be followed by three years of supervised release, after pleading guilty on July 19, 2009 to seven counts of Introducing Misbranded Drugs into Interstate Commerce and four counts of Tax Evasion. The maximum sentence that could have been imposed was 5 years.

As part of the plea, the doctor admitted that he wrote prescriptions over the Internet for people whom he had never met or examined. It was alleged that the drugs -- shipments of the muscle relaxant SOMA -- were misbranded as a matter of law because they were dispensed without a valid prescription.

The factual basis for the plea agreement was that between 2004 and 2007, Dr. Jennings issued between 50,000 and 100,000 prescriptions over the Internet for SOMA and other drugs to individuals on whom he had never performed a physical examination and whom, indeed, he had never met. He did so based on brief forms completed by individuals for online pharmacies. The online pharmacies paid Dr. Jennings between $5.00 and $7.00 for each prescription he wrote based on one of these forms. It was alleged that virtually no request for drugs submitted by the online pharmacies to Dr. Jennings for endorsement was ever rejected by him.

The tax portion of the case was based on the admission that Dr. Jennings knowingly and intentionally did not report to the Internal Revenue Service hundreds of thousands of dollars he was paid by the online pharmacies for issuing the prescriptions.

This prosecution shows that certain jurisdictions such as Massachusetts which is active in prescription and health care fraud prosecutions will seek to prosecute physicians in other states. The Internet allows other states and federal agencies to have jurisdiction to prosecute. Cases like this are a shock to the physician, his family and his practice. Physicians need legal advice before working at any Internet pharmacies and it cannot be assumed that simply because an Internet pharmacy is large or multi-state that its practices will be deemed legal.

Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green & Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings. They have a specialty in representing licensed health care providers. Their website is: http://www.greenassoc.com/

Property Tax Reassessment Companies And Owners Charged With Criminal And Civil Cases

On May 13, 2009, criminal charges were filed by the Los Angeles County District Attorney’s Office (Consumer Protection Division) against Sean McConville, the operator of a private company that offered to “assist” homeowners with filing property tax reassessment forms for fees. McConville's company is Property Tax Reassessment. The prosecution alleges that McConville operated about a dozen such operations which are under investigation by local and state officials. Bail is set at $70,000.

McConville was charged in Los Angeles County Superior Court Case No. BA 356365 with one felony count of attempted grand theft of personal property and 32 misdemeanor counts of violating the state’s Business and Professions code by false advertising and business solicitation with a misleading governmental term or symbol.

This is not the only case for McConville. Two weeks ago, the Ventura District Attorney's Office charged Sean McConville with 20 felony counts for criminal conduct stemming from his property tax reassessment operations. The California Attorney General's Office also filed a civil lawsuit in San Diego County Superior Court against Sean McConville and his brother Michael McConville and their businesses, "Property Tax Reassessment" and "Property Tax Adjustment Services." The lawsuit seeks and injunction and and at least $2.5 million in civil penalties, and contends that these companies:

■ Made and continue to make untrue and misleading statements with the intent to induce consumers to purchase products and services in violation of Business and Professions Code Section 17500 and 17537.9;

■ Distributed solicitations implying a government connection, approval or endorsement in violation of Business and Professions Code Section 17533.6;

■ Distributed solicitations that appear to be billing statements in violation of California Civil Code Section 1716; and

■ Engaged in unfair competition in violation of Business and Professions Code Section 17200.

The lawsuit alleges that these companies targeted tens of thousands of Californians looking to lower their property taxes with mailers that read like government billing statements, featured official-looking logos and demanded hundreds of dollars in payments for reassessment and reassessment appeal services. The statements warned homeowners that if payments were not received by the "due date" they faced late fees or would have their file marked "non-responsive" or "ineligible for future tax reassessments."

The lawsuit contends that neither company adequately informed consumers that they were not a governmental entity, the solicitations were not a bill, purchase of the services was not required and services were available free of charge from county assessors. It is also alleged that few, if any, of the property tax assessment services homeowners were billed for in 2008 were completed.

Attorney Comment: While we are in the midst of an economic and real estate housing crisis, the government is being aggressive against any businesses that appear to take advantage of any homeowners. Any business in this area must be vigilant about being in compliance with the law. The government contends that the services offered by these companies are offered for free by the Los Angeles County Assessor's Office. In this case, two counties and the state attorney general's office have all charged the companies in criminal and civil cases. It is unusual for three different jurisdictions to pursue charges and cases simultaneously.

Like most fraud cases, the government tends to act where there is deception to the consumer. Where there is misleading content, mailers that appear to be from governmental agencies, there is a greater likelihood that criminal charges will be filed.

Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings.

Accountant Pleads Guilty To Tax Fraud Relating To Tax Shelters

On March 17, 2009, Adrian Dicker, the former Vice Chairman and board member at a major international accounting firm, BDO Seidman LLP pleaded guilty today to conspiring with certain tax shelter promoters to defraud the United States in connection with tax shelter transactions involving clients of BDO Seidman and the now defunct law firm of Jenkens & Gilchrist. Dicker also pleaded guilty to tax evasion in connection with a multimillion-dollar tax shelter that Dicker helped sell to a client of BDO Seidman. This case is pending in Manhattan federal court. He is cooperating with the investigation.

According to Dicker's guilty plea, between 1995 and 2000, Dicker, a United Kingdom chartered accountant, was a partner in the New York office of BDO Seidman. Beginning in 1998 until 2000, Dicker was one of the leaders of the firm’s "Tax Solutions Group." The activities of the TSG were devoted to designing, marketing, and implementing high-fee tax strategies for wealthy clients, including tax shelter transactions.

Prosecutors alleged Mr. Dicker, who retired from the company in 2000 and served on its board until 2003, worked with others in designing and marketing two fraudulent tax shelters -- one known as the "short sale" transaction and another known as short options strategy, or SOS.

The shelters were designed, marketed and implemented by BDO Seidman and the now-defunct law firm Jenkens & Gilchrist PC, with the assistance of an unnamed foreign bank, the government said. The tax-shelter transactions created more than $1 billion in fraudulent tax losses, prosecutors said.

In June 2000, Mr. Dicker and two other leaders in the Tax Solutions Group obtained a compensation agreement from the firm in which they would be paid 30% of the net profits of the unit, which they shared equally, prosecutors said.

Dicker pleaded guilty to one count of conspiracy to defraud the IRS and one count of tax evasion. He faces a maximum sentence of five years in prison on the conspiracy charge and five years in prison on the tax evasion charge. On each count, the maximum fine is the greatest of $250,000 or twice the gross gain or gross loss from the offense. Restitution to the IRS can be imposed on all the charges. Dicker is scheduled to be sentenced on December 11, 2009, by United States District Judge Gerard E. Lynch.

The press release sets forth the details of the factual basis of the guilty plea:

http://www.usdoj.gov/usao/nys/pressreleases/March09/dickeradrianpleapr.pdf

Attorney Commentary: In this case, the facts showing that Dicker personally profited in a generous arrangement was probably one of the key pieces of evidence of why he chose to plead guilty since it would be used to show intent to defraud. Given the alleged loss amount, the maximum sentence in this case would be one that Dicker would have difficulty turning down. We should expect to see an increase in white collar cases where the government is being defrauded whether in tax or health care. It appears that the government wanted to portray Dicker as being the Madoff of tax shelters and there was a great deal of pressure on him to plea or face a trial with a potential lengthy prison sentence if he lost.

Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of individuals, licensed professionals and businesses in civil, business, administrative and criminal proceedings.

Tax Fraud: Los Angeles Preparer Sentenced To Probation

On March 26, 2009, Roland G. Uy, a Woodland Hills, California tax preparer who pleaded no contest last November to two counts of aiding others in filing false tax returns and three other felony counts was sentenced to a four-year suspended state prison term and five years of probation, during which time he must pay $20,000 each year in restitution to the State of California Franchise Tax Board (FTB). The case was prosecuted by the Los Angeles County District Attorney’s Office, the Fraud Interdiction Program.

Under the plea agreement Uy was ordered to pay a total of $159,000 in restitution, and had just over $59,000 by the time of sentencing. If Uy fails to pay the full amount of restitution it could result in prison time for him. According to the District Attorney's Office, Uy filed nearly 1,300 false tax returns on behalf of taxpayers. The FTB will seek civil reimbursements and penalties against clients who participated.

Attorney Commentary: This case shows the important of restitution in fraud cases. Payment of restitution can make the difference between prison time and probation. It often can make the difference between a felony and a misdemeanor. In this case, where the loss was over $150,000, imposition of probation is a good result if the evidence demonstrated his involvement in intentionally preparing false tax returns beyond a reasonable doubt. The term "state prison suspended" means that if Uy violates probation (by not paying restitution when he has the means to do so) or by committing another offense or not complying with the other terms of probation -- his sentence will be 4 years in state prison. This is a lot hanging over his head and gives him great incentive to comply with probation.


Any questions or comments should be directed to: tgreen@greenassoc.com.  Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings.

Fraudulent Trust Package Results In Conviction For Aiding In Preparation Of False Income Tax Return And Tax Evasion in San Francisco

On March 18, 2009, David Marion Simcho was sentenced by United States Judge Marilyn Patel to 27 months in prison, followed by three years of supervised release and ordered to pay $111,769 in restitution for his role in marketing and promoting a fraudulent trust package to eliminate or reduce tax liability and then preparing a false income tax return. He will begin serving his sentence on July 17, 2009. (Case No. CR-06-0542 MHP)

This sentence follows Mr. Simcho's guilty plea on June 2, 2008, to one count of aiding or assisting in the preparation of a false income tax return and one count of income tax evasion. The plea came almost two years after his indictment on August. 3, 2006, when Mr. Simcho of Southlake, Texas, was indicted by a federal grand jury. He was initially charged with 17 counts of aiding or assisting in the preparation of a false income tax return and four counts of income tax evasion.

This case was quite old (the conduct went back almost 10 years) and shows how cases can take years to investigate, prosecute and be resolved. According to the plea agreement, Mr. Simcho admitted that in 1999 he marketed and sold a trust package to a client and represented it as a legitimate means to eliminate or reduce tax liability when he knew otherwise. The trust package transferred the title of the client’s personal assets into the name of the trust. The client then became the “manager” of that trust. The client remained in control over all assets that were in the name of the trust.

Mr. Simcho then prepared an amended 1999 federal income tax return for the client which contained false items including a false Schedule C claiming $166,249 in personal expenses as deductible business expenses, a false Schedule A which claimed a charitable gift in the amount of $120,000 when there was no such charitable gift, and a false Form 4797, which represented that a $205,120 loss resulted from an exchange of like-kind property when no property had been exchanged.

Mr. Simcho also admitted that during the 2001 tax year he received taxable income from the sales of trusts and a salary from his employment with Property Protection Services, LLC. He admitted that he knowingly and willfully omitted this income from his 2001 federal income tax return.

The investigation was the result of information provided to the IRS by a Certified Public Account who said that Mr. Simcho prepared an inaccurate amended tax return for one of his clients. At the same time, an IRS Revenue Agent was performing an audit on those same clients. The Revenue Agent confirmed the allegations and referred the case on Simcho to Criminal Investigation Division (IRS-CID).

Electronic court filings and further procedural and docket information are available at https://ecf.cand.uscourts.gov/cgi-bin/login.pl.

Any questions or comments should be directed to: tgreen@greenassoc.com or call 213-233-2260. Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings. She has significant experience in defending individuals, licensed professionals and businesses in search warrants and administrative and criminal investigations. The firm website is: http://www.greenassoc.com/

Medicare And Tax Fraud: DA's Office Charges Physician -- Lesson On Bail And Importance Of Hiring Attorney During Investigation Phase

The Los Angeles County District Attorney’s Office reported that a Buena Park physician John S. Han who operates Pain Medical Center in Norwalk and his wife Sonya Han were arrested at their home. During the arrest, Franchise Tax Board (FTB) special agents executed a search warrant and seized more than $514,000 in cash and cashier checks.

The felony complaint charges Dr. Han with 16 state counts of grand theft for allegedly false Medicare claims totally $22,296. This is small in comparison to the allegation that Dr. Han billed Medicare for more than $10 million in services between 2001 to 2005. The bail set on Dr. and Mrs. Han was high. He is being held on $2.4 million bail. She is being held on $1.3 million bail.

As attorneys who protect people's rights under the Constitution, please remember that an indictment or felony complaint contains allegations that a defendant has committed a crime. Every defendant is presumed innocent unless proven guilty in court.

This is a joint investigation between the District Attorney’s Office, the United States Health and Human Services Office of Inspector General (OIG) and FTB. This case shows a recent trend of the Los Angeles County District Attorney’s Office cooperating with federal health care authorities.

The federal government normally would not charge Medicare fraud for a loss of $22,000. The state, however, will charge for these amounts. Although we do not know the facts of this case, this doctor’s pain management clinic may have also been a red flag that brought the government to investigate him.

For more: http://da.co.la.ca.us/mr/020509c.htm

Commentary Regarding Bail And Importance Of Obtaining Representation Long Before Charges Are Filed:

First, bail is an important factor in criminal cases. It is much more difficult to represent someone and prepare their defense while they are incarcerated. This is a bigger problem with state cases, in contrast to federal cases, since the District Attorney’s Offices have a stronger tendency to set a high bail in white collar and fraud cases. In state cases, we see bail being used as a weapon and a way to ensure that the client spends some time in jail since often these cases can end in probation or minimal jail time. One problem that is not the District Attorney’s fault is that the felony bail schedules in state court use the amount of loss as a baseline for the amount of bail.

In this case, the alleged unpaid taxes were used to set the bail amount. It is often difficult to raise this amount of bail and it can take some time to get a full bail hearing and get the bail reduced to a manageable level. Bail is supposed to depend upon whether the person is a flight risk, is at risk to the community and community ties.

Setting a high bail makes it difficult for the professional to be able to work while the case is pending, makes it almost impossible for him or her to help prepare a defense in a document intensive case and complicates the case significantly. For example, since this case does not allege any patient care issues, the doctor normally would be able to continue to operate his medical office while charges are pending even though he or his attorney would need to inform the Medical Board of the pending charges. A doctor's medical practice could fall apart during an incarceration period of any significant length.


Second, if you think you are under investigation, it is important to get an attorney at an early stage. Even while your attorney is trying to persuade them why criminal charges should not be brought, they can make contact with the prosecuting agencies and establish a record that you are aware of the investigation, have no intent to flee and are willing to self-surrender. These letters and contacts help significantly in reducing the bail amount. If you are originally from a foreign country, the attorney can offer to hold your passport and demonstrate no intention to leave the U.S. In addition, the attorney can work on getting a bail package in advance before charges are filed that will satisfy the court that no illegal proceeds are being used for bail.

There is usually evidence of an investigation which one should not ignore. Things showing an investigation include: visits by government investigators, interviews of known persons, audits and other contacts. You will not make a criminal case happen by hiring an attorney who can find out if the case is being handled civilly, administratively or criminally. It is important to assess the case as early as possible and see what damage control needs to be done. Do not stick your head in the sand and hope it all goes away. These types of cases are very stressful for the individuals and having an attorney to handle those issues for you will help you deal with a pending investigation.

Posted by Tracy Green, Esq. Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates. She is highly experienced in bail matters in state and federal court, and is an experienced Los Angeles health care fraud attorney, Los Angeles physician attorney, and Los Angeles Medicare fraud attorney. Green and Associates is located in Los Angeles, California.

The firm focuses its practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings. They have a specialty in representing licensed health care providers and in health care fraud related matters in California and throughout the country. Their website is: http://www.greenassoc.com/