FOR IMMEDIATE RELEASE|
TUESDAY, APRIL 6, 2004
TDD (202) 514-1888
PROMOTERS OF SHAM TRUSTS PLEAD GUILTY TO TAX FRAUD CHARGES
WASHINGTON D.C. - Eileen J. O’Connor, Assistant Attorney General for the Tax Division, United States Department of Justice; Paul Warner, United States Attorney for the District of Utah; Nancy Jardini, Chief, Internal Revenue Service Criminal Investigation Division; and James H. Burrus, Jr., Special Agent-in-Charge, SLC Division, Federal Bureau of Investigation, announced today that at the federal courthouse in Salt Lake City, Utah, Michael Behunin pled guilty to a felony charge of conspiracy (18 U.S.C. §371) to commit mail and wire fraud and to defraud the Internal Revenue Service (IRS). In addition, they announced that a co-conspirator, David J. Orr, pled guilty yesterday to the same violation.
Messrs. Orr and Behunin were indicted in April 2003 - along with Todd R. Cannon, Lanny White, and Max Lloyd - for conspiring to commit mail and wire fraud and to defraud the Internal Revenue Service. They face a maximum potential sentence of five years imprisonment followed by up to three years supervised release, a $250,000 fine and liability for the costs of prosecution. As a condition of his plea agreement, Mr. Behunin, who is an attorney with an advanced degree in tax law, agreed to surrender his license to practice law. No sentencing dates were set.
“Putting your money in a sham trust does not exempt it from taxation,” said Assistant Attorney General Eileen J. O’Connor. “If someone tries to convince you to buy a trust as part of a scheme to avoid taxation while otherwise retaining control of your assets, you should seek advice from an honest tax professional who doesn’t stand to profit from the scheme.”
“At this time of the year, when residents of Utah are focusing on filing their state and federal tax returns, this case gives us a graphic reminder of the many abusive tax schemes for sale,” said U.S. Attorney Paul M. Warner. “The pleas taken in this case serve as timely reminders that these tax schemes are illegal and will be investigated and prosecuted to the fullest extent of the law. It is only fair to the vast majority of law-abiding citizens who pay an honest and fair tax that we aggressively pursue those who do not.”
“Promoting abusive trusts and tax schemes for the purpose of committing tax evasion isn't tax planning; it's criminal activity,” said Nancy Jardini, Chief, IRS Criminal Investigations. “We will continue to shut down fraudulent tax schemes and hold the promoters of these schemes accountable for their actions.”
“These schemes exemplify the worse elements of white collar crime -- the combination of greed, brains, and initiative,” said James H. Burrus, Jr., Special Agent in Charge, FBI, Salt Lake Division. “Those involved had the skills to make a positive difference in the Salt Lake City community, but used that talent to bilk investors and the U.S. Treasury. These pleas are the ending of a sad tale and send a message that men and women of the Department of Justice, the U.S. Attorney's Office, the IRS, and the FBI will not allow these schemes to flourish.”
In his plea agreement, Mr. Orr admitted that, starting as early as 1993, he had operated businesses under the names Advanta Strategies and World Contractual Services, which promoted fraudulent trust schemes designed to evade federal income taxes. In his plea agreement, Mr. Behunin also admitted participating in the conspiracy. Further, Mr. Orr admitted that, with his coconspirators, he sold the fraudulent trust scheme to approximately 300 clients for substantial fees. In seminars, promotional materials and opinion letters, they fraudulently misrepresented to clients that their tax liabilities could be lawfully reduced by placing businesses, homes, investments and other assets into a trust’s name. Further, Messrs. Orr and Behunin admitted fraudulently continuing to promote the trust scheme as legal, even after IRS audits disallowed the scheme. Mr. Orr admitted his actions, which included the filing of more than 2000 false and fraudulent federal income and trust tax returns, caused the losses of federal tax revenue totaling between $5 million and $10 million. Mr. Behunin admitted his actions caused the federal tax losses totaling between $950,000 and $1.5 million.
Mr. Orr also admitted that he and his co-conspirators fraudulently obtained between $5 million and $7 million from clients by misrepresenting the safety of and expected return on investments they marketed, as well as their own investment expertise. He further admitted causing client assets to be commingled and misappropriated.
Mr. Behunin also admitted to participating in a fraudulent railroad bond investment scheme, causing customers to lose between $350,000 and $500,000. He prepared documents containing false and fraudulent misrepresentations, in hopes the documents would increase the value of the railroad bonds. Mr. Behunin admitted he knew his co-conspirators were deceiving customers regarding the safety of the investment and the purported returns on this investment.
Tax Division trial attorneys Albert Kleiner, Nicholas Dickinson, and Kevin Downing prosecuted the case. Special agents of the Internal Revenue Service and Federal Bureau of Investigation provided essential assistance to the successful investigation and prosecution of the case.
On March 18, 2004, Todd Cannon and an unindicted conspirator, Lance Hatch, pled guilty to a conspiracy charge. Messrs. White and Lloyd are awaiting trial on the indictment. The charges contained in an indictment are only allegations. In the American justice system, a person is presumed innocent unless and until he or she is proven guilty in a court of law.