FOR IMMEDIATE RELEASE|
THURSDAY, MARCH 18, 2004
TDD (202) 514-1888
SELLERS OF BOGUS TRUST PROGRAM PLEAD GUILTY TO TAX 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, Todd R. Cannon and Lance B. Hatch each pled guilty to a felony charge of conspiracy (18 U.S.C. §371). Mr. Cannon pled guilty to a charge of conspiracy to commit mail and wire fraud and to defraud the Internal Revenue Service (IRS). Dr. Hatch pled guilty to a charge of conspiracy to defraud the IRS. Mr. Cannon and Dr. Hatch face maximum potential sentences of five (5) years’ imprisonment followed by up to three (3) years’ supervised release, a $250,000 fine and liability for the costs of prosecution. United States District Judge Ted Stewart has not yet scheduled sentencing hearings.
In April 2003, Mr. Cannon was charged by indictment - along with David J. Orr, Michael Behunin, Lanny White and Max Lloyd - with conspiracy to commit mail and wire fraud and to defraud the IRS. In his plea agreement, Mr. Cannon, who is an attorney, admitted that he had participated in marketing a “trust” scheme under the business names World Contractual Services, Advanta Strategies and, later, CornerStone West. Mr. Cannon admitted that, beginning in 1997, he held himself out as “Legal Counsel” for World Contractual Services and as trustee for numerous “trusts” used by the scheme. He further admitted he had represented to prospective customers and others that the trust scheme was legal when, in fact, he knew that it was illegal. He admitted that he had allowed his fellow conspirators to fraudulently use and invest almost $1 million of client funds for purposes other than those promised to the clients. Mr. Cannon also admitted that his actions cost the Federal Treasury almost $3 million in lost tax revenue.
Dr. Hatch, a chiropractor, was charged by an information that alleged that he promoted and sold the fraudulent trust scheme to approximately 300 clients. Dr. Hatch admitted in his plea agreement that he purchased the trust package for himself in 1993, and that it had been created to conceal income from the IRS. He admitted that he later began selling the trust package to others for fees of $2,000 to $3,000 each. Dr. Hatch admitted that while the “trust” was used to create the false appearance that the client had given up control of his or her businesses and assets to an independent trustee, and that the client did not have to pay taxes on any income earned from those sources, ownership and control “never changed... after the client purchased the ‘trust’ package.” He also admitted that he had filed a lien against a client’s assets in order to help the client impede IRS collection efforts of an outstanding tax debt. Dr. Hatch admitted that his actions cost the Federal Treasury more than $1 million in tax revenue.
“People who join in schemes to conceal their income from the IRS do so at their peril," said Assistant Attorney General Eileen O’Connor. “They risk losing their money to the hustlers and con artists who promote tax schemes. They will still owe the taxes, plus interest and possible penalties. And they can be prosecuted by the Department of Justice and sent to federal prison.”
U.S. Attorney Paul Warner said today's cases represent more in a long line of prosecutions in Utah targeting people peddling tax schemes and reminded those Utahns tempted to get involved in similar schemes to take note. "A hallmark of abusive schemes is the creation of a series of events that appear to be arm's length transactions but really have no economic reality and very little real purpose other than tax reduction. These schemes are frauds and we will continue to aggressively prosecute them," Warner said.
“IRS has made the investigation of abusive tax schemes a national priority," said Nancy Jardini, Chief, IRS Criminal Investigation. "Trusts established to hide the true ownership of assets and income are considered fraudulent trusts and we are aggressively pursuing promoters of these sham trusts. In addition, the IRS warns 'buyer beware' because buying in to a sham trust is often financially detrimental to the investor."
“Abusive trust and fraud schemes corrupt the faith and confidence the public should have in the tax consulting industry,” said James H. Burrus, Jr., Special Agent-in-Charge, SLC Division, Federal Bureau of Investigation. “These schemes are driven by unscrupulous, greedy operators who use tax myths to prey on business owners and individuals. We are proud to have been a part of this case with our law enforcement partners at the Department of Justice, the IRS and the United States Attorney’s Office.”
Tax Division Trial Attorneys Albert Kleiner, Nicholas Dickinson and Kevin Downing prosecuted the case. Additionally, special agents of the Internal Revenue Service and Federal Bureau of Investigation contributed to the successful investigation and prosecution of the case.
Messrs. Orr, Behunin, White and Lloyd are awaiting trial on the indictment. The charges contained in the 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.