Tax Preparer Sentenced to Six Years in Federal Prison

David B. Fein, United States Attorney for the District of Connecticut, announced that Thomas Thorndike, 62, a Woodbury-based tax preparer, was sentenced today by Chief United States District Judge Alvin W. Thompson in Hartford to 72 months of imprisonment, followed by one year of supervised release, for engaging in tax fraud over the course of several years.
According to court documents and statements made in court, Thorndike was the founder and owner of Cornerstone Financial Services of Woodbury LLC (“CFS”), a tax preparation and financial services business. As the owner of CFS, Thorndike prepared federal tax returns for individuals and businesses in exchange for payment of a fee. In the course of preparing many of his clients’ tax returns, Thorndike improperly reduced the amount of tax due in a variety of ways, including falsely claiming deductions for charitable contributions and falsely claiming deductions for job expenses.
Thorndike also offered clients an opportunity to purchase audit insurance. Purchasers of audit insurance could elect to be represented by Thorndike in connection with any Internal Revenue Service audit of their individual federal income tax returns. If clients were audited by the IRS, Thorndike would provide them with blank Goodwill receipts as well as instructions as to how they should create a list of charitable donations that would correspond with the donation value Thorndike had entered on their returns. He also would direct his clients to create mileage logs that would support deductions he had entered for employment-related travel.
In addition, Thorndike prepared tax returns for his two sons that improperly identified cash payments from him to his children as wages. He also claimed hundreds of thousands of dollars in improper business deductions, including, but not limited to, wage expenses for his children, which actually were personal payments to them; more than $8,000 in personal carpentry work; and a $27,983 “sale of business property” loss stemming from Thorndike’s selling of an engagement ring after his marriage engagement had broken off.
In December 2008, the IRS notified Thorndike that he was the subject of an IRS audit examining his preparation of tax returns for the tax years 2006 and 2007. In connection with the audit, Thorndike assisted in the preparation of, and then submitted to the IRS, falsified documents to support the false deductions claimed on tax returns that were subject to the audit.
The IRS has estimated that Thorndike’s clients received in excess of $1 million in tax refunds to which they were not entitled.
Judge Thompson ordered Thorndike to pay $64,026.69 in back taxes, penalties, and interest for tax losses related to his own fraudulent returns. Thorndike’s clients are required to resolve their own tax liability with the IRS.
This case has been investigated by the Internal Revenue Service-Criminal Investigation and the Federal Bureau of Investigation. The case is being prosecuted by Assistant United States Attorneys Christopher Mattei and Eric Glover.

Court of Appeals Affirms Tony Nelson’s Convictions on Corruption Charges

JACKSONVILLE, FL—U.S. Attorney Robert E. O’Neill announces that the United States Court of Appeals for the Eleventh Circuit yesterday affirmed the convictions of former Jacksonville Port Authority (JAXPort) Chairman Tony Devaughan Nelson on 36 corruption-related charges, including bribery, money laundering, honest services mail fraud, and making a false statement to the FBI. The evidence at trial established that, as chairman, Nelson had demanded and accepted $143,500 in bribes from a dredging contractor at JAXPort. Nelson is serving a 40-month prison sentence.
Nelson argued on appeal that his convictions should be vacated because the federal fraud and bribery statutes under which he was convicted are unconstitutionally vague, the district court improperly instructed the jury on the applicable law, and the court improperly admitted the testimony of JAXPort’s director of procurement. The ACLU Foundation of Florida Inc. and the National Association of Criminal Defense Lawyers also filed a brief on Nelson’s behalf as amicus curiae.
After hearing oral argument, the Court of Appeals issued a split decision, with the majority holding that the challenged statutes “gave Nelson adequate notice of the conduct they prohibit,” that the district court’s instructions correctly “propelled [the jury] to look to Nelson’s state of mind” in taking payments in exchange for his influence, and that the challenged evidence was relevant and not unfairly prejudicial.
The appeal was handled by Assistant United States Attorneys David P. Rhodes and Susan H. Rothstein-Youakim. The underlying case was prosecuted by Assistant United States Attorneys Mac D. Heavener, III and Mark B. Devereaux, and it was investigated by the Federal Bureau of Investigation.

Accused Fraud Fugitive Surrenders at Honolulu Airport

Vida G. Bottom, Special Agent in Charge of the Honolulu Office of the Federal Bureau of Investigation (FBI), announced the Tuesday morning arrest of fugitive Peter Heckmann, age 54, at Honolulu International Airport.
In July 2007, Heckmann (also spelled “Heckman”) was indicted by federal grand jury in Honolulu on seven counts of wire fraud relating to an investment fraud scheme he allegedly operated on the Hawaiian island of Kauai. Heckmann allegedly became aware of the imminent criminal charges and fled Hawaii immediately prior to his indictment. In 2010, the FBI located Heckmann on the Indonesian island of Bali, where he was operating a recording studio and a record label, but he was not captured at that time.
On January 14, 2013, the FBI launched an Internet social media campaign designed to attract international interest in the manhunt. After the intensive publicity roll-out, the Honolulu FBI made contact with Heckmann via e-mail, urging a peaceful surrender. A dialogue between the FBI and the fugitive culminated in Heckmann voluntarily traveling to Honolulu to surrender at the airport at 7:30 a.m. today.
Heckmann was transported to the U.S. District Courthouse in Honolulu where he will have an initial court appearance later today. The statutory maximum penalty for wire fraud is 20 years in prison per count.
The FBI would like to thank Honolulu Airport Customs and Border Protection officials for facilitating today’s arrest.
The public is reminded that an indictment is not evidence of guilt and that all defendants in a criminal case are presumed innocent unless and until proven guilty in a court of law.

Second Defendant Pleads Guilty in Tax Rebate Scam

ROANOKE, VA—For the second time this week, one of three individuals charged with conspiracy and fraud charges related to a scheme to profit from fraudulent United States Treasury checks has pleaded guilty in the United States District Court for the Western District of Virginia in Roanoke.
Thursday in District Court, Khaldoun Khalil Khawaja, 47, of Wesley Chapel, Florida, pled guilty to one count of conspiracy to defraud the United States by buying, selling, and exchanging treasury checks bearing forged endorsements; and one count of conspiracy to commit money laundering.
Earlier this week, Muawua Khalil Abdeljalil, 43, of Roanoke, Virginia, pled guilty to the same two charges as Khawaja, plus an additional count of structuring. A third defendant, Osama Mahmud Mustafa, has not yet been brought to trial.
“Mr. Khawaja conspired with two other men to negotiate fraudulent income tax refund checks and provided a market for the fraudulent checks,” United States Attorney Timothy J. Heaphy said today. “Stolen identity refund fraud is an emerging problem, one we will continue to prioritize. We will vigorously pursue all forms of fraud against the federal government and do what we can to hold those who commit these crimes accountable.”
“Today’s result is a tribute to strong multi-agency investigative work and efforts to eradicate this type of fraudulent scheme,” said Jeffrey C. Mazanec, Special Agent in Charge of the FBI’s Richmond Field Division.
“Return preparer fraud is a priority for IRS-Criminal Investigation and we have committed many resources to investigating and prosecuting cases just like these,” said Thomas J. Kelly, Special Agent in Charge, IRS-Criminal Investigation, Washington DC Field Office. “Today’s plea hearing is a reminder that individuals who scheme to defraud the U.S. government by submitting false claims for profit will be brought to justice.”
The defendants have admitted to purchasing fraudulent income tax return checks and then presenting those fraudulent checks for payment at financial institutions in the Western District of Virginia, the Middle District of Florida, and elsewhere.
In all, the defendants fraudulently deposited more than $17.5 million as a result of the scheme.
At sentencing, Khawaja faces up to 25 years in prison and/or a fine of up to $750,000. Abdeljalil faces up to 40 years in prison and/or a fine of up to $1,250,000 on these charges and an additional marriage fraud count charged in a separate indictment.
The investigation of the case was conducted by the Federal Bureau of Investigation, the United States Secret Service, the United States Marshals Service Asset Forfeiture Program, the Internal Revenue Service-Criminal Investigation, and the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI). The United States Attorney’s Office for the Middle District of Florida and the United States Attorney’s Office for the Western District of Virginia coordinated the prosecutions of the income tax refund fraud cases. Assistant United States Attorney Joseph Mott of the United States Attorney’s Office for the Western District of Virginia prosecuted the case for the United States.

Four Convicted in Sovereign Citizen Investigation

An investigation into the criminal conduct of members of the so-called “Sovereign Citizen” movement has resulted in four defendants being convicted by juries in U.S. District Court in Tacoma, announced U.S. Attorney Jenny A. Durkan. The jury deliberated for five hours before convicting Raymond Leo Jarlik Bell and Ute Christine Jarlik Bell of four counts of filing false, fictitious, and fraudulent claims. Raymond Leo Jarlik Bell was also convicted of 15 counts of assisting in filing false tax returns, three counts of mail fraud, and one count of obstruction of justice. Judge Ronald B. Leighton scheduled sentencing for the couple from Yelm, Washington on June 14, 2013.
Just last week, two other co-conspirators in a related case were convicted of federal charges for their criminal conduct. Kenneth Wayne Leaming, 57, of Spanaway, Washington, was convicted of three counts of filing false liens against federal officials and one count of harboring federal fugitives and being a felon in possession of firearms. His co-conspirator, former Tacoma resident David Carroll Stephenson, was convicted of a single count of filing false liens against a federal official.
“The right to criticize our government is one of the most cherished rights. But this liberty does not include the right to commit crimes,” said U.S. Attorney Jenny A. Durkan. “These defendants repeatedly broke the law with frauds aimed at taxpayers and public servants. We are grateful the jury held them accountable for their actions.”
According to records filed in the case, law enforcement was investigating an on-going tax fraud scheme involving the Jarlik Bells when Leaming and Stephenson’s criminal conduct was uncovered. Both men already had federal criminal convictions. The Jarlik Bell investigation centered on the filing of false tax returns using a scheme known as OID fraud; Raymond Leo Jarlik Bell advised and assisted others in using the scheme. In 2006, the Bells obtained a tax refund in excess of $30,000 using the scheme. Six others who were advised by Jarlik Bell also filed for and received fraudulent refunds they did not deserve. One woman received a tax refund of more than $590,000.
Materials found in a search of the Jarlik Bell home implicated Leaming in separate criminal conduct. When investigators with a warrant searched Leaming’s Spanaway home on November 21, 2011, they found six firearms. Leaming was prohibited from possessing firearms because of a prior felony conviction of operating an aircraft without a pilot’s license. Additionally, investigators determined that two wanted federal fugitives from Arkansas had been living with Leaming in his home. Finally, the search revealed that Leaming and Stephenson, who was an inmate at the time in an Arizona federal prison, had been conspiring to file liens against various federal officials including the Arizona prison warden and the head of the Federal Bureau of Prisons.
Members of the Sovereign Citizen movement profess a belief that both state and federal government entities are illegitimate. Members of this group often engaged in so-called “freedom driving,” i.e., driving about without state-required licenses, either for their vehicles or themselves. When contacted by local law enforcement, members of the group often bombard local officials (from the officer, to local judges, to mayors and other members of local government) with frivolous liens, false claims, and sometimes threats of violence. Many members of this same group had previously come to the attention of federal law enforcement for engaging in various fraudulent tax schemes, wire fraud schemes, and (occasionally) inappropriate communications with various members of federal law enforcement and the judiciary.
Two other defendants active in the Sovereign Citizen movement have already been sentenced to prison for their criminal conduct. David Russell Myrland was sentenced in 2011 to 40 months in prison for making threats against elected officials in Kirkland, Washington. In 2012, Timothy Garrison was sentenced to 42 months in prison for assisting in the filing of false tax returns.
The cases were investigated by the Internal Revenue Service Criminal Investigation (IRS-CI), the FBI, ATF, the Federal Protective Service, and the U.S. Marshals Service.
The cases were prosecuted by Assistant United States Attorneys Vince Lombardi, Jill Otake, Thomas Woods and Matthew Diggs.

Pierce County Man Sentenced to 72 Months in Prison for Interstate Prostitution and Money Laundering Conspiracies and Tax Fraud

A Milton, Washington man who owned a Federal Way Korean bar where Korean National women were promoted for prostitution was sentenced today to 72 months in prison and five years of supervised release, announced U.S. Attorney Jenny A. Durkan. Chang Young Kim, 59, was also ordered to pay $112,050 in restitution and over $1.6 million in back taxes and penalties to the Internal Revenue Service. Kim pleaded guilty in November 2012 to conspiracy to transport individuals for prostitution, conspiracy to engage in money laundering, bribery of a public official, and tax evasion. Kim owned the Blue Moon Korean bar business in Federal Way, which utilized Korean national women working illegally as “bar girls” and prostitutes. Kim was indicted in three separate criminal schemes, some related to the club and others to fraudulent business dealings. At sentencing, U.S. District Judge Ronald B. Leighton said to the defendant, “You were a one-man criminal enterprise...[and] the most instrumental of everyone on a host of fronts.”
During 2010 and 2011, Kim owned the Blue Moon using “madam” Miyoung Roberts, 42, of Auburn, Washington, to recruit and manage more than two dozen “bar girls” and arrange their transportation from Korea to the U.S. Kim and his co-defendants arranged apartments for the women to live in and supervised some of the women’s prostitution activities. During the undercover investigation by law enforcement, Kim offered and paid $15,000 to a Washington State Liquor Control Board investigator, believing the investigator was corrupt and that he was getting advance warning of inspections. The investigator was reporting the bribes as part of the undercover investigation.
In a separate scheme, Kim convinced two clients of his real estate company, Royal Realty, to invest $400,000 in the purchase of a Cle Elum, Washington motel. However, there was no deal to purchase the property, and Kim and two co-conspirators used the money for their own expenses. Finally, Kim attempted to evade more than $1.6 million in income taxes by failing to report income and by putting assets in other people’s names.
In asking for a significant sentence, prosecutors wrote to the court that Kim “has spent a good part of his adult life steeped in fraud and deception....In order to commit these crimes, the defendant was willing to use his family members to further his personal objectives, causing them to place themselves in financial and legal jeopardy. He was willing to violate the law through bribery....It is as though the defendant had no limits as to how far he would go to lie, cheat, and steal.”
“Kim operated a sex club a few blocks away from homes and schools, degrading the quality of life in the community as well as the women involved,” said Brad Bench, Special Agent in Charge of HSI Seattle. “HSI will continue to work closely with its law enforcement partners to attack and dismantle these kinds of enterprises that prey on the vulnerable and often bring other criminal activity into the area.”
“Our communities deserve better than to have human trafficking going on in them,” said Kenneth J. Hines, Special Agent in Charge of IRS-Criminal Investigation in the Pacific Northwest. “IRS special agents bring their unique skills in conducting financial investigations, ranging from tax evasion to money laundering, to the team of law enforcement professionals working to erase this type of crime from our region.”
The case was investigated by U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI), the Internal Revenue Service Criminal Investigation (IRS-CI), the Washington State Liquor Control Board (WSLCB), the Federal Way Police Department, Lakewood Police Department, and the Federal Bureau of Investigation.
The case was prosecuted by Assistant United States Attorney Ye-Ting Woo.

Brodhead Man Sentenced to 15 Months for Wire Fraud

MADISON, WI—John W. Vaudreuil, United States Attorney for the Western District of Wisconsin, announced that Michael W. Booth, 42, Brodhead, Wisconsin, was sentenced today by U.S. District Judge William C. Conley to 15 months in prison for wire fraud. Booth was ordered to pay approximately $196,000 in restitution to the victim company. Booth pleaded guilty to this charge on November 13, 2012.
The American Recovery and Reinvestment Act of 2009 (Recovery Act) authorized the U.S. Department of Agriculture, Rural Utilities Service, to provide grants for the purpose of providing satellite broadband Internet service to rural areas that had no existing broadband service. Hughes Network Systems LLC (Hughes), a satellite broadband service provider, was awarded a $50 million grant under the Recovery Act. Hughes contracted with distributors to market the service and the distributors subcontracted with dealers who dealt directly with customers and arranged for installation of the necessary equipment.
Booth, a subcontractor, owned the Satellite Store LLC located in Monroe, Wisconsin, and provided Internet services to rural Wisconsin residents. In June 2011, Hughes noticed a large number of customers signed up for services by the Satellite Store had not made payments after installation of Internet services. A subsequent investigation revealed that the defendant created 273 fictitious customers and falsely represented that the customers had agreed to payment terms pursuant to debit cards. The defendant caused Hughes to pay him a commission and installation fee of $245 to $400 for each installation. Ultimately, the defendant’s conduct caused a total loss of approximately $196,000 to Hughes.
The charges against Booth were the result of an investigation conducted by the Federal Bureau of Investigation. The prosecution of the case has been handled by First Assistant U.S. Attorney Stephen P. Sinnott.