Credit Suisse client latest test to leniency in tax fraud cases
(Bloomberg) A former client of Credit Suisse Group AG who pleaded guilty to hiding $200 million from U.S. tax authorities is at the center of a struggle between the Justice Department, which wants to send a stern message by sending tax cheats to prison, and U.S. judges, who have opted for leniency in past cases.
Dan Horsky, a retired business professor from Rochester, New York, pleaded guilty Nov. 4 to using secret Swiss bank accounts to hide assets and income from the Internal Revenue Service and New York tax authorities. Prosecutors urged a judge to send him to prison for 20 months. Horsky’s lawyers said he deserves probation because he helped with a criminal investigation of the bank and will pay at least $124 million in penalties.
U.S. District Judge T.S. Ellis III is set to impose a sentence on Friday in federal court in Alexandria, Virginia. Dozens of wealthy U.S. tax defendants who used offshore accounts have avoided prison or received terms far below those recommended by advisory guidelines, as judges have consistently ruled against Justice Department prosecutors.
What sets apart tax cheats who use offshore accounts from other felons is often the large checks they write in back taxes, fines and penalties. In Horsky’s case, he’s paying at least $124 million, and could pay more. Prosecutors don’t want that to be a get-out-of-jail-free card.
“While the numbers are quite large, they reflect the enormous scope of the crime Horsky committed,” prosecutors wrote in a Feb. 6 memo to the judge. “By any terms, even after making those payments, the defendant possesses extraordinary wealth. A sentence of incarceration is necessary in order to dispel any indication that one’s freedom can be purchased by paying the government the money it was owed.”
Federal sentencing guidelines suggest Horsky should get 57 to 71 months in prison, although the maximum for his conspiracy plea is five years. Judges aren’t bound by the guidelines.
Horsky’s lawyers asked the judge to give him probation with 500 hours of community service, perhaps mentoring students. His case is similar to those of 56,000 Americans who avoided prosecution since 2009 by voluntarily disclosing their offshore accounts and paying a combined $10 billion in penalties, they said.
Prosecutors disagree. Horsky’s 15-year scheme, involving multiple accounts and nominees to help conceal stock gains that he made, set him apart “from any other prosecution to date involving undeclared foreign financial accounts,” prosecutors said.
Horsky began cooperating in an investigation on three continents in which he provided “voluminous historical, financial, and communications records and his contacts within the financial community,” his lawyers said in a Feb. 4 court filing. The precise nature of his cooperation is described in sealed memos.
Prosecutors are examining how Credit Suisse hid Horsky’s accounts from the Justice Department even as a subsidiary pleaded guilty in May 2014, paying $2.6 billion and admitting it helped thousands of Americans evade taxes, according to people familiar with the matter who weren’t authorized to discuss it publicly. A monitor appointed by New York’s banking regulator continues to review Credit Suisse’s operations after his initial two-year appointment was extended.
“Dan’s cooperation provided extraordinary results for the government,” his attorneys wrote, and it was directed “to an area of longstanding DOJ and IRS investigative and prosecutive interests—foreign bank accounts and foreign bank officials facilitating U.S. tax evasion.”
Horsky spent almost four decades at the University of Rochester’s Simon Business School, where he became a renowned scholar in quantitative marketing. He researched Internet startup companies, particularly in Israel, where he once lived. He lost money in 17 companies he invested in, running up credit-card debt and taking a second mortgage, according to the memo from his lawyers. In 2000, he invested in a British company through a Swiss account, sticking with the firm even as he ran up $350,000 in debts, often using margin loans.
In 2005, shares in the company began to take off, and by 2008, his holdings were worth $80 million after a second firm bought the company. He then reinvested in the second company, and his assets grew to $200 million by 2014. Even as he hid those assets, “he lived his modest life as a university professor,” according to his attorneys.
The case is U.S. v. Horsky, 16-cr-224, U.S. District Court, Eastern District of Virginia (Alexandria).
— David Voreacos