Two Defendants Sentenced for $100 Million Nationwide Tax Fraud Conspiracy
KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that an Alabama man and a California woman were sentenced in federal court today, in separate but related cases, for their roles in a tax fraud conspiracy that attempted to receive nearly $100 million in fraudulent refunds from the IRS. Co-conspirators from eight states were involved in filing fraudulent tax returns in the largest federal false claims case that has ever been prosecuted in Missouri.
Billy Ray Hall, 75, of Newton, Ala., was sentenced by U.S. District Judge Brian C. Wimes to three years and one month in federal prison without parole. The court also ordered Hall to pay $1,141,062 in restitution.
Maria Haro Campos, 43, of Vista, Calif., was sentenced by U.S. District Judge Howard F. Sachs to 20 months in federal prison without parole.
Conspirators prepared and filed a total of 284 fraudulent tax returns from July 1, 2008, to Sept. 21, 2011. Each of the returns contained false claims that the taxpayer listed was due a refund due to over-withholding of taxes, based on fictitious forms 1099-OID. In actuality, the clients had not received interest income from the banks and lenders listed on their Forms 1099, nor had any money been over-withheld. Conspirators claimed that a total of $96 million dollars in fraudulent tax refunds were due. The IRS mistakenly paid out $3.5 million on these fraudulent claims.
On Dec. 18, 2013, Hall pleaded guilty to participating in a conspiracy to defraud the United States by filing fraudulent tax returns. Hall admitted that he was a regional manager for a fraudulent Form 1099-OID scheme led by co-defendant Gerald A. Poynter, also known as “Brother Jerry Love,” 48, of Kansas City, Mo.
Hall introduced people to Poynter and encouraged them to participate in the OID process, either as a tax filer or as a branch manager. He also gathered information from some filers and provided it to Poynter. As Poynter’s regional manager, Hall had at least four branch managers beneath him. Hall had at least 20 clients of his own, resulting in at least 51 individual income tax returns claiming $14.28 million in fraudulent refunds. Of those, the IRS paid out $1,141,062 in fraudulent refunds.
Poynter and Hall conducted a training seminar in December 2008 at the Doubletree Hotel in Atlanta, Ga.. At the seminar, Poynter gave a presentation outlining his “OID process,” during which he pointed out that the IRS would issue refunds even if the name listed on the OID form was Spongebob Squarepants or Spiderman. Poynter told attendees they would use a rented office rather than process the OID returns at home to avoid their homes being raided by the FBI. He talked about attracting attention from IRS criminal investigators, and he provided pointers on how to avoid that outcome. Poynter also joked that his going to prison was a possibility. Despite hearing these statements, Hall continued to be involved. Hall sponsored other meetings where Poynter provided information to third parties concerning the OID process. Hall spoke about OIDs at another seminar with Poynter in Monroe, La. Hall admits that he ignored the many red flags that Poynter’s process was too good to be true and was in fact illegal.
On April 7, 2011, Campos pleaded guilty to her role in the conspiracy. Campos acted as the southern California branch manager for Poynter. She recruited new clients and facilitated their 1099-OID processes. She collected tax information and up-front fees, which she forwarded to Poynter for processing.
Campos furthered the conspiracy by aiding two of her clients in obtaining a total of $1,207,349 in fraudulent refunds. Campos unsuccessfully attempted to obtain refunds in the amount of at least $21 million for other clients. In total, Campos introduced at least 10 individuals or married couples to the conspiracy, including one couple who received a fraudulent refund of $805,749.
Campos traveled to Kansas City, Mo., from California on several occasions to meet with Poynter for training and to deliver records. Campos knew that Poynter’s scheme was fraudulent, and was intended to defraud the U.S. Treasury of millions of dollars. When interviewed by law enforcement, Campos admitted that she was aware of problems caused by Poynter’s 1099-OID scheme and that she continued to participate in the conspiracy even after she knew it was illegal.
Poynter was sentenced on March 13, 2014, to 13 years in federal prison without parole after pleading guilty to his role in the conspiracy and to filing a fraudulent tax return. The court also ordered Poynter to pay $951,930 in restitution to the government.
Hall and Campos are among 12 defendants who have pleaded guilty, including Kristi Jones, 41, of Riverside, Mo.; Shirley Oyer, 72, of Overland Park, Kan.; Jennifer Wilson, 37, of Cumming, Ga.; Mark J. Murray, 52, of Newton, Ala.; John V. Perdido, 58, of Temecula, Calif.; Earl Lee Davis, 55, of Monroe, La.; Robert E. Morris, 68, of Rocklin, Calif.; and Karen A. Olson, 42, of Wood Dale, Ill. Marian Fine-Kennedy, 36, of Eugene, Ore., pleaded guilty in a separate but related case.
In addition, Nkosi Gray, 40, of New Fairfield, Conn., and Kimberly Johnson, 43, of Chickamauga, Ga., were each convicted at trial of filing false claims for a tax refund. Gray and Johnson each filed fraudulent tax returns that falsely claimed refunds due to over-withholding of taxes. Gray received a $278,874 refund and Johnson filed a claim for a $61,959 refund on behalf of another person.
1099-OID Tax Fraud Scheme
Conspirators utilized 1099-Original Issue Discount forms as part of their scheme.
These forms are legitimately used by tax filers who must pay taxes on income they receive from the interest on their bond investments. Tax on certain bonds must be paid as income accrues. Bond holders receive annual forms, called 1099-Original Issue Discount (OID), from the debt issuers. Bond holders then file these OID forms with the IRS, along with their income tax forms.
However, the scheme described in the indictments utilized the 1099-OID forms in a nonsensical manner. Clients of the conspirators, working with their branch managers, assembled financial documents such as mortgage and loan statements, car payments, foreclosure records, bank statements, credit card statements, and other records of debt and spending. Poynter and his staff used this debt information – rather than any actual bond income – to prepare and/or finalize false tax returns and improperly calculated Forms 1099-OID.
These tax returns falsely claimed that the filers had received income from bond proceeds and that federal income tax had been withheld. The fraudulent returns claimed the government had over-withheld taxes from the clients’ OID bond income, making the clients appear entitled to more than $96 million in tax refunds.
In reality, Poynter’s clients had not earned – or paid tax on – any bond income. No bond payer had issued any 1099-OID forms. Instead, the bond income that was listed was calculated by what the indictment describes as an “arbitrary and capricious formula.” Conspirators simply added up the taxpayers’ debts and spending and listed those creditors as “payers” of bond interest.
OID Fraud Web Site
A Web site has been established to provide information about the status of this investigation. Updates about this investigation and related cases will be posted at www.justice.gov/usao/mow/divisions/OIDfraud.html
This case is being prosecuted by Assistant U.S. Attorney Daniel M. Nelson. It was investigated by IRS-Criminal Investigation.