Tax Fraud Blotter: Bad ODOG

Walls of straw; fuel for fraud; silver and gold and evasion; and other highlights of recent tax cases.

Downey, Calif.: Jose Martin Andrade Flores, 53, owner and operator of American Superior Used Clothing, a chain of second-hand clothing stores across the Los Angeles area, has pleaded guilty to failing to report millions in corporate income on a corporate return for the 2013 tax year.

According to a plea agreement, American Superior recycled used clothing that it then resold at local retail stores. The company also engaged in bulk wholesale transactions with buyers worldwide, as well as selling merchandise at Rose Bowl swap meets and sidewalk locations in East Los Angeles.

From 2012 through 2016, Flores concealed from his corporate preparer cash sales and deposits into foreign bank accounts that were made on behalf of American Superior. As a result, Flores admitted, returns he filed for American Superior for those five years failed to report $3,766,473 in income to the IRS.

Flores specifically pleaded guilty to subscribing to a false corporation income tax return (Form 1120) that he filed for American Superior for 2013. In that year, American Superior had income of approximately $3,440,769 but Flores reported only $2,505,183.

Sentencing is Dec. 3, when Flores faces a maximum of three years in prison. He agreed to pay all back taxes, interest and penalties and has paid the IRS $1,189,331, which includes $439,632 in penalties.

San Diego: CPA Luke Fairfield has been sentenced to 21 months in prison for his role in the criminal enterprise led by former college football player Owen Hanson — an international drug trafficking, gambling, and money laundering organization known as ODOG.

Hanson operated ODOG in the U.S., Central and South America and Australia from 2012 to 2016, trafficking in thousands of kilograms of cocaine, heroin, methamphetamine, ecstasy and other illegal drugs in wholesale and retail quantities. The ODOG enterprise also operated a vast illegal gambling network focused on high-stakes bets placed on sporting events.

The enterprise employed numerous bookies and money runners, and, if a customer did not pay a gambling debt, ODOG used enforcers to threaten, intimidate and injure its customers to force compliance.

As Fairfield admitted when pleading guilty in March 2017, his role included laundering money, aiding in the creation of shell companies to hide ODOG’s criminal proceeds and training ODOG money runners on methods and tactics to hide the enterprise’s activities from law enforcement and banks. On one occasion, Fairfield personally transferred proceeds from Hanson’s Australian drug trafficking to the U.S. using an alias and fake identification. Fairfield also worked with Hanson to track the collection of debts from bookies and gamblers who owed ODOG hundreds of thousands of dollars.

Fairfield is the last of 22 defendants charged in the case to be sentenced.

Charlotte, N.C.: Arthur Joseph Gerard III has been convicted of conspiracy to defraud the government.

According to court documents and evidence, between 2007 and 2016, Gerard helped clients hide income and assets from the IRS using straw companies and bank accounts opened in the names of those companies.

He conspired with his client Reuben DeHaan to hide more than $2.7 million in gross receipts earned by DeHaan through his holistic medicine business. Gerard recruited his friend, Richard H. Campbell Jr., into the scheme to serve as a nominee on DeHaan’s bank accounts. Gerard also helped DeHaan file false documents with the IRS to obstruct collection efforts. Gerard charged DeHaan $1,000 to $2,500 for each straw company he created.

Gerard’s conduct caused a tax loss of some $560,000.

Gerard faces a maximum of five years in prison, as well as a period of supervised release, restitution and monetary penalties. DeHaan and Campbell have each pleaded guilty and have been sentenced.

Hands-in-jail-Blotter
hand in jail

Waynesburg, Pa.: Energy exec Kevin C. Conklin, 56, has been sentenced to a year and a day imprisonment and three years of supervised release and been ordered to pay $672,387.67 in restitution on his conviction of mail fraud and tax evasion.

Conklin was employed by Mountain Energy Co. in Aleppo, Pa., which operated oil and natural gas wells in the western part of the state. Conklin oversaw day-to-day operations and managed the financial matters of the company.

From January 2008 through December 2012, he defrauded Mountain Energy and fraudulently obtained thousands of dollars of the company’s funds. He used checks drawn on the business bank account to pay for personal expenses, including payments for his home, personal credit card bills, college tuition for his daughter, an engagement ring for his son and automobile payments for a personal vehicle.

He concealed the theft from the IRS and the company’s preparer.

New York: Christopher Wolf, operator of a precious metals brokerage, has been convicted of tax evasion and aiding and assisting in the preparation of false returns.

According to court documents and evidence, in 2010 and 2011 Wolf operated Rothchild & Associates in Brooklyn, where he sold precious metals to investors over the phone. He earned commissions from Rothchild but took steps to conceal this income by directing that it be paid to shell corporations he created.

Wolf then caused the filing of false individual and corporate income tax returns that underreported his commission income and claimed phony expense deductions. His fraudulent conduct resulted in a tax loss of some $240,000.

He faces a maximum of five years in prison for tax evasion and three years in prison for aiding and assisting in the preparation or presentation of a false return. He also faces a three-year period of supervised release, restitution and monetary penalties.

Raleigh, N.C.: Sainte Deon Robinson, an officer of a mental health service provider, has pleaded guilty to one count of willful failure to pay over federal employment taxes.

According to court documents, from 2010 to 2013 Robinson failed to pay over federal income, Social Security and Medicare taxes withheld from the wages paid to employees of his mental health service provider, OneCare, where he served in various positions, including president. He failed to pay over $1.6 million in employment taxes for OneCare and for other companies he controlled.

Sentencing is Jan. 7, when he faces a maximum sentence of five years in prison, a period of supervised release, restitution and monetary penalties.

Harrisburg, Pa.: Businessman David Tielle has pleaded guilty to one count of conspiring to defraud the IRS.

According to documents and information provided to the court, Tielle served as director of business development at Keystone Biofuels in Shiremanstown, Pa., and later in Camp Hill, Pa. Keystone purported to be a producer and seller of biodiesel, a type of renewable fuel. Between 2009 and 2012, Tielle participated in a conspiracy to fraudulently claim tax refunds based on the Biodiesel Mixture Tax Credit.

Tielle caused inflated fuel amounts to be reported to the IRS to fraudulently claim tax refunds on fuel Keystone was not producing. To account for the inflated fuel amounts, Tielle created false books and records and engaged in a series of sham financial transactions intended to mirror the false books and records. He also caused Keystone to fraudulently claim refunds on fuel that did not meet the quality standards needed to qualify for the biodiesel mixture credit and on fuel Keystone had not mixed with petroleum.

The total loss resulting from Tielle’s conduct is $4,149,983.41. He faces a maximum of five years in prison, as well as a period of supervised release, restitution and monetary penalties.

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