The following examples of corporate fraud investigations are excerpts from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Former Chief Executive Officer of Digital Consulting, Inc. Sentenced for Conspiracy and Tax Evasion
On July 12, 2007, in Boston, MA, George Schussel was sentenced to 60 months in prison, followed by two years of supervised release and fined $125,000 for tax fraud conspiracy and tax evasion. Schussel was also ordered to meet with the IRS to resolve his outstanding tax liability on millions of dollars that he evaded. Schussel spearheaded a scheme in which he diverted millions of unreported income generated by his company, Digital Consulting, Inc. (DCI), to an off-shore account in Bermuda to avoid paying taxes. To prevent discovery of the scheme, Schussel obstructed an audit by the IRS in March 1998. Schussel also filed false and fraudulent corporate and individual income tax returns for the calendar year 1995, by failing to report to the IRS accurate DCI revenues and income which he and his wife received.
Beaulieu Group Pays $32 Million; Two Executives of Beaulieu Step Down from Corporate Positions
On July 11, 2007, in Rome, GA, Beaulieu Group, LLC (Beaulieu), of Dalton, Georgia, paid $32 million in back taxes, penalties and other costs as a result of filing false tax returns. As part of the plea agreement, Carl M. Bouckaert, chairman and CEO of Beaulieu, and Mieke D. Hanssens, executive vice president, agreed to step down as corporate officers of Beaulieu. In addition, the company was placed on five years probation and the company, as well as the officers stepping down, were ordered not to commit any other federal state or local tax violations. The company is also required to submit quarterly reports to update the court on its business ethics policies. The court reserves the right to inspect records of the company to ensure compliance. Beaulieu, formerly doing business as Beaulieu of America, Inc., pleaded guilty, in June 2007, to filing a false tax return. According to the plea agreement, in 1986, Beaulieu entered into a purchase agreement with a European equipment manufacturer (Barmag AG) for the purchase of four 12-position spinning machines for the production of carpet yarn at the Beaulieu’s Bridgeport, Alabama plant. In 1988, Beaulieu financed the purchase of the machinery through an operating lease. The lease included an option to purchase the equipment at fair market value at any time after the second anniversary of the commencement date of the lease. On March 10, 1993, Beaulieu exercised its right to purchase the equipment for a total amount of $12,000,000. After exercising the buyout provision, Beaulieu capitalized the four Barmag machines and depreciated the cost of the machines during the years 1995 through 2000. On its Partnership Form 1065, for the 1995 through 2000 tax years, Beaulieu knowingly overstated its depreciation deduction for the Barmag equipment, in the total amount of $5,919,093. Beaulieu also purchased 29 Volkmann twisters during the years 1992 through 1995, paying significantly more for each Volkmann twister than if it had purchased the machines directly from the manufacturer. These machines depreciated during the years 1992 through 2000; however, on its Partnership Form 1065, for the 1992 through 2000 tax years, Beaulieu knowingly overstated its depreciation deduction in the total amount of $1,049,836.
Nuclear Engineer Sentenced to Prison for Fraud and Tax Evasion
On June 28, 2007, in Pittsburgh, PA, Mark M. Kaushansky, a resident of Monroeville, PA, was sentenced to 15 months imprisonment, followed by three years of supervised release, and ordered to pay a $20,000 fine. Kaushansky pleaded guilty in September 2006 to obstructing the Internal Revenue Service and eight counts of personal and corporate tax evasion. According to court documents, Kaushansky, a former Westinghouse Electric Corporation nuclear power plant engineer, and his partner, Evgeniy Adamov, former Russian Minister of Atomic Energy, utilized approximately $11 million in funds earmarked by 16 western nations for the upgrade of Soviet era nuclear reactors in Eastern Europe to finance a series of domestic and foreign investment corporations. Over $12 million passed through investment corporations. In his plea agreement, Kaushansky acknowledged criminal acts of evasion in relation to tax returns prepared for corporations and himself resulting in a total tax loss to the United States of $63,000.
Former President of Superior Electric Company Sentenced for Tax and Bank Fraud
On April 30, 2007, in Columbus, OH, Jerry P. Gemeinhardt was sentenced to 34 months in prison, five years of supervised release, and ordered to pay nearly $4.8 million in restitution to the Internal Revenue Service and to National City Bank for tax and bank fraud. Gemeinhardt, of Tampa, Florida, was the president and half owner of the now defunct Superior Electric Company (SEC), a Columbus, Ohio commercial electrical contracting company. In November 2006, he and John P. McShane, his chief financial officer, pleaded guilty to conspiring to defraud the United States. Gemeinhardt also pleaded to a charge of bank fraud. From 1996 through 2003, Gemeinhardt schemed with McShane to falsely characterize as business expenses millions of dollars of payments he made with SEC’s funds for his own personal expenses. The scheme involved falsely coding expenses and burying the expenses on the books and records of SEC. These expenses covered, among other things, the costs of enhancing and operating Gemeinhardt’s 65 foot yacht in Florida, the salary for the yacht captain and first mate, landscaping at Gemeinhardt’s former residence, as well as credit cards for his boat captain and maid. Gemeinhardt received more than $2 million in unreported income from SEC from 1998 through 2001. The scheme also caused both the tax returns filed by SEC and the other 50-percent owner of SEC to be false. The mischaracterization of Gemeinhardt’s personal expenses on the company’s books and records led to an income tax loss of approximately $867,000 on Gemeinhardt’s individual income tax returns for 1998 through 2001.
Former Chief Financial Officer of Superior Electric Company Sentenced to 15 Months In Prison for Tax Conspiracy
On March 28, 2007, in Columbus, OH, John P. McShane, of Delaware, was sentenced to 15 months in prison and ordered to pay $1.6 million in restitution to the Internal Revenue Service for his role in a tax fraud scheme. McShane was the chief financial officer of Superior Electric Company, a Columbus, Ohio commercial electrical contracting company which is now defunct. McShane and his company president, Jerry P. Gemeinhardt, each pleaded guilty in November 2006 to conspiracy to impede and impair the IRS. Shortly after McShane became CFO, he took part in a scheme to falsely characterize as business expenses millions of dollars of payments Gemeinhardt made with company funds for his own personal expenses. These expenses covered, among other things, the costs of improving and operating Gemeinhardt’s 65-foot yacht in Florida, the salary for the yacht captain and first mate, the landscaping at Gemeinhardt’s residence, as well as credit cards for his boat captain and maid. McShane separated the expenses and hid them in other larger accounts. This scheme resulted in Gemeinhardt receiving more than $2 million dollars in unreported income from the company. The mischaracterization of Gemeinhardt’s personal expenses on the company’s books led to an income tax loss of approximately $867,000 on Gemeinhardt’s tax returns.
Somerset, NJ Company Pleads Guilty to Failing to Pay Taxes on More Than $99 Million in Employee Stock Bonuses
On March 22, 2007, in Philadelphia, PA, New Jersey-based E-Star, Inc. was charged with failing to pay federal taxes on more than $99 million in employee stock bonuses. According to authorities, E-Star and its parent company, Hon Hai Precision Industry Company LTD, agreed to plead guilty and pay more than $42 million in fines, taxes, penalties and interest. E-Star, Inc. admitted to paying employee bonuses in stock and to failing to withhold taxes such as Medicare and the Federal Insurance Contributions Act (FICA). In addition, the company did not report the stock bonuses on any IRS tax returns, Forms W-2 or Forms 1099. As an employer, the company was obligated to withhold taxes and report the bonuses on quarterly payroll tax returns. E-Star is a United States branch subsidiary of Hon Hai Precision Industry Company Ltd., a large multinational corporation based in Taiwan that manufactures computer-related equipment. The stock of Hon Hai is publicly traded in Taiwan, but not in the United States.
Former Cable Television Executive Sentenced to 108 Months on Tax and Fraud Charges
On March 5, 2007, in Miami, FL, Charles C. Hermanowski, aka John Stobierski, was sentenced to 108 months in prison, followed by three years of supervised release and ordered to pay a $4 million fine. On December 15, 2006, Hermanowski pleaded guilty to 39 tax and fraud charges arising out of Hermanowski’s operation of a series of Miami-based cable television companies. According to court documents, during the 1990s, Hermanowski operated Americable International, Inc. and a series of affiliates that provided cable television service to various U.S. military installations, as well as civilian customers. Hermanowski oversaw a wide-ranging scheme to create scores of false accounting and financial documents to cover-up the diversion of approximately $50 million for his personal use. As part of this scheme, Hermanowski directed company employees in the creation of a succession of false invoices and other false expenditure documents that were entered into company books and records. Hermanowski would have company employees write checks to “pay” these false expenditures, which Hermanowski would divert for his own use. The diverted funds included over $45 million dollars worth of company checks that Hermanowski had drawn to pay falsified company expenses. Hermanowski falsely endorsed these checks and deposited them into his account at a local bank. Approximately $38 million of these checks corresponded to false invoices for non-existent construction expenses created at Hermanowski’s direction. Another $8 million consisted of proceeds from a long-running scheme to defraud cable television networks, in which Hermanowski directed company employees to regularly under-report and under-pay sums owed to over 50 cable television networks that supplied programming to Americable customers. Hermanowski directed close to $4 million in checks into a secret bank account that he maintained in Liechtenstein and falsified more company records to cover-up his use of another $4 million in company funds to finance his art collection. The various records led to substantial falsifications on Americable corporate tax returns and Hermanowski’s personal returns for 1995 and 1996.
Jury Convicts Former Chief Executive Officer of Digital Consulting, Inc. of Conspiracy and Tax Evasion
On January 25, 2007, in Boston, MA, George Schussel was convicted by jury of tax fraud conspiracy and tax evasion for spearheading a scheme in which he diverted millions of unreported income generated by his company, Digital Consulting, Inc. (DCI), to an off-shore account in Bermuda to avoid paying taxes. Evidence presented at trial proved that Schussel conspired with others from 1988 through 1998, in an elaborate scheme to avoid paying taxes on DCI’s profits. To prevent discovery of the scheme, Schussel obstructed an audit by the IRS in March 1998. Schussel also filed false and fraudulent corporate and individual income tax returns for the calendar year 1995, by failing to report to the IRS accurate DCI revenues and income which he and his wife received. During the period of time Schussel was running his tax fraud scheme, DCI generated its revenue from ticket sales to participants who attended the seminars, trade shows, and other events, as well as from the contracting and selling of booth space to vendors involved in the shows. From January 1988 through May 8, 1998, Schussel conspired to defraud the United States by diverting over $8 million of DCI’s gross receipts to an account he controlled at the Bank of Bermuda Limited. After the diverted funds cleared through the bank in Bermuda, Schussel then transferred the money to an account he controlled at Fidelity Investments. The account in Bermuda was held in the name of Digital International Consulting, Ltd. (DCIL), a sham corporation set up in Bermuda by Schussel to facilitate the diversion of taxable income that he failed to report to the IRS. All of the money diverted to Bermuda was unreported by Schussel in DCI’s corporate tax returns. Schussel diverted over $8.5 million of the company’s revenues to Bermuda during the course of the scheme.
Ventura County Man Pleads Guilty, Admitting Role in Tax Scam that Cost United States over $20 Million
On January 17, 2007, in Los Angeles, CA, Denis Arthur Dupuis, former general manager of Haas Automation and CNC, Inc., pleaded guilty to conspiring with the company’s owner, Gene Francis Haas, to putting bogus expenses on the company books in an attempt to avoid paying more than $20 million in federal income taxes. The scheme began in 2000 after Haas paid approximately $8.9 million to settle a patent infringement lawsuit against a rival firm. According to court documents, Haas blamed his loss in the case on the federal judge who presided over the lawsuit. In September 2000, Haas allegedly created several tax fraud schemes to recover from the government the $8.9 million plus legal fees that he paid the rival company. Dupuis admitted that he was part of a conspiracy with Haas and others that created bogus invoices and paid the fictitious bills with Haas Automation checks. Haas allegedly paid millions of dollars for non-existent industrial equipment and deducted these payments as expenses. According to the indictment, this bogus invoice scheme allowed Haas Automation to deduct more than $37.5 million in false expenses during 2000 and 2001, when in reality nearly all of that money was returned to Haas.
Former Military Channel Chairman of the Board Sentenced for Failing to Report $737,000 in Income; Money Diverted from Corporate Accounts for Personal Use
On January 5, 2007, in Louisville, KY, Leonard Krane was sentenced to 28 months in prison, followed by one year of supervised release for failing to report over $737,000. A jury convicted Krane in May 2006 on one count of tax fraud for failing to report funds he diverted from his employer, the Military Channel, Inc., on his 1998 federal income tax return. According to trial evidence, in 1998, Krane was the Military Channel’s chairman of the board and during that year, he took over $737,000 from the Military Channel’s accounts without authorization from the board of directors or the Military Channel’s officers, employees or investors. Krane used the money to buy cars and houses for various girlfriends, to buy stock in other companies in his own name, and to pay over $335,000 to his ex-wife’s divorce lawyer.
Orlando Resident Sentenced for Filing False Income Tax Returns
On December 1, 2006, in Orlando, FL, James T. O'Neal, Jr., former president of Baker O'Neal Holdings, Inc. (BOH), was sentenced to 43 months in prison, 50 hours of community service, and ordered to pay approximately $8.8 million in restitution. On December 23, 2005, O'Neal pleaded guilty to two counts of filing a false income tax return for the years 1997 and 1998. According to documents filed with the court, BOH was a Delaware corporation doing business in Indianapolis, IN, and Orlando, FL. It was a start-up business with the primary objective of developing and operating automobile dealerships to be located in and around shopping malls (auto malls). American Public Automotive Group, Inc. (APAG) was a subsidiary company of BOH and was the company that raised the funds for bridge financing to BOH. All investments went into APAG and would be used to place a deposit to acquire a small share of an automobile dealership. From 1994 to August 1998, APAG raised over $16 million from investors in pursuit of the automobile mall venture. Most of the funds invested into APAG were transferred to BOH. Some of the funds were used for BOH operations, while some of the funds were loaned to O’Neal to pay his personal expenses. According to the plea agreement, O’Neal authorized $3,075,293 in transfers to pay for personal expenses or BOH assets, which he received the personal benefit of, including automobiles and real estate. O’Neal did not report as income the funds he was loaned from BOH on his tax returns.
Former Vice President of Taxation at Tyco Sentenced to Prison for Filing a False Corporate Tax Return
On November 29, 2006, in Miami, FL, Raymond Scott Stevenson, former vice president of taxation at Tyco, was sentenced to 36 months in prison, one year of supervised release, and ordered to pay a $100,000 fine for filing a false corporate tax return. In September 2006, Stevenson entered a plea of guilty to intentionally failing to report more than $170 million in income on Tyco International Ltd.’s 1999 corporate tax return, which would have resulted in an additional tax liability of approximately $50 to $60 million. Stevenson was Tyco’s top tax advisor and served as Tyco’s vice president in charge of taxation, where his responsibilities included overseeing the preparation and filing of Tyco’s corporate tax returns. As the head of Tyco’s tax department, Stevenson directed a series of transactions designed to reduce Tyco's state tax liability. In doing so, an approximate $170 million federal capital gain was incurred by Tyco. Stevenson ordered that certain documents relating to these transactions be back-dated to avoid having to report the $170 million capital gain on Tyco’s corporate tax return.
Ralphs Grocery Company Pays $70 Million in Criminal Fines; Placed on 3 Years Corporate Probation
On November 14, 2006, in Los Angeles, CA, Ralphs Grocery Company was placed on corporate probation for three years, during which time it will be required to establish court-supervised training and compliance programs. Ralphs and its parent company, Kroger, have agreed to fully cooperate with the government in its continuing investigation. In recent days, Ralphs has paid $70 million dollars in criminal fines and compensation for Ralphs’ workers, their health benefit and pension funds, and their unions, after pleading guilty to several criminal charges for illegally rehiring hundreds of locked-out union members during the 2003-2004 grocery store labor dispute. Specifically, Ralphs pleaded guilty to conspiracy, use of a false social security number, identity fraud, falsifying and concealing material facts in matters within the jurisdiction of the Internal Revenue Service and the Social Security Administration and concealment of facts from an employee benefit plan. Ralphs admitted that it covertly rehired locked-out workers under false names and social security numbers during a lockout of approximately 19,000 Ralphs grocery clerks and meat cutters. The rehiring of locked-out workers under false identities resulted in the submission of false tax information to the Social Security Administration and Internal Revenue Service.
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