February 27, 2001
EX-HAWTHORNE MAN CONVICTED IN TAX FRAUD CASE
SENTENCED TO MORE THAN SIX YEARS IN FEDERAL PRISON
A former resident of Hawthorne who filed numerous fraudulent tax
returns in the names of primarily low-income people in order to receive
tax refunds has been sentenced to 6½ years in federal prison, United
States Attorney Alejandro N. Mayorkas announced today
John Shelby Watts, 41, who has resided in a federal jail in down town Los Angeles since he was incarcerated last year, was sentenced Monday by Chief United States District Judge Terry J. Hatter Jr.
Last year a federal jury convicted Watts on 14 felony counts, including conspiracy to defraud the United States, causing false tax refund claims to be presented to the Internal Revenue Service, and witness tampering.
The evidence presented during a trial in May 2000 showed that Watts submitted fraudulent tax returns that sought more than $156,000 in refunds. The IRS paid out just over $56,000 before the scheme was discovered, and Judge Hatter ordered Watts to pay $56,372 in restitution.
Watts conspired with others to defraud the United States by filing false, fictitious and fraudulent tax refund claims to the Internal Revenue Service in 1998. As part of the scheme, Watts filed tax returns in the names of various individuals. Those tax returns claimed tax refunds based on the Earned Income Tax Credit, a refundable tax credit available to certain low-income working individuals. None of the individuals in whose names the returns were filed were entitled to the credit. Those recruited as part of the scheme promised to pay him half or more of the tax refunds they would receive.
Watts recruited individuals in several different ways, including through a non-profit organization called “A Better Child Foundation,” which Watts purportedly founded to provide free school uniforms to needy children. In 1997, Watts approached Los Angeles Unified School District officials and asked that they distribute the foundation’s applications to parents. Parents who returned the applications, which contained their social security numbers and information about their dependent children, were later contacted by Watts and offered the opportunity instead to obtain a payment of up to $900 as financial assistance. Watts then used the information on the applications to file tax returns that claimed the Earned Income Tax Credit based on false earned income amounts that he created.
The false earned income amounts were purportedly attributable to self-owned home businesses, such as hairstyling or babysitting, which the individuals had never told Watts that they had. Watts arranged for the refund checks to be sent to one of three addresses that he controlled. In some cases, he had the recipients cash the checks and provide him with half of the amount, or sometimes more.
The evidence at trial also showed that Watts contacted at least one of the public assistance recipients for whom he filed tax returns and attempted to convince her to give false information to IRS agents investigating the matter.
In a separate case, Watts was sentenced in May 2000 to 42 months in federal prison for his conviction on charges of conspiracy and mail fraud for defrauding $2.5 million for the federal Medicare program. The fraud was conducted through a company Watts and a codefendant operated called United Care Home Health Services, which billed Medicare for home health care services that were never provided.
Judge Hatter ordered that the 78-month sentence in the tax scheme run consecutive to the 42-month sentence in the health care fraud scheme. Therefore, Watts will serve a sentence totaling 10 years.
Watts has been in custody since May 2000, when he was arrested on the first day of his trial for violating the terms of his bond. Judge Hatter ordered him into custody after learning that he had been charged by state officials for allegedly being involved in yet another fraud scheme.
The tax fraud case was investigated by the Criminal Investigation Division of the Internal Revenue Service, Los Angeles Division.
Release No. 01-038
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