FOR FURTHER INFORMATION CONTACT
AUSA VICKIE E. LEDUC or
MARCIA MURPHY at 410-209-4885
December 10, 2012
FOR IMMEDIATE RELEASE
SSA RETIREE PLEADS GUILTY TO EMBEZZLING OVER $400,000
AND TO TAX EVASION
Baltimore, Maryland - Salvatore Petti, age 76, of Ellicott City, pleaded guilty today to wire fraud and tax evasion in connection with a scheme to evade paying taxes on income earned from an SSA employee association and on funds embezzled from the association.
The guilty plea was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Rick A. Raven of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office.
“Mr. Petti’s willful criminal behavior of falsifying records to conceal theft of his employer funds was unlawful,” said Rick A. Raven Special Agent in Charge, IRS Criminal Investigation, Washington DC Field Office. “IRS Criminal Investigation will continually pursue individuals like Mr. Petti, who choose not to report all of their income earned and fulfill their tax obligations.”
According to his plea, Petti worked for the Social Security Administration (SSA) for more than 40 years, retiring in 1995.
Petti also served as the treasurer for the Employees Activities Association (EAA) of the SSA, located in Woodlawn, Maryland. The EAA provided social, recreational, welfare, health and athletic activities for its members, the employees of the SSA. EAA included two for-profit entities and three non-profit entities. Petti was responsible for coordinating with the outside accounting firm that performed accounting and tax preparation services for the EAA. Petti prepared monthly and annual reports that the accounting firm used to prepare EAA’s financial statements and tax returns. Between 2005 and 2008, Petti earned an annual salary from the EAA of approximately $60,000.
In 2009, the SSA Office of Inspector General (SSA OIG) began an audit of the EAA and discovered that Petti had not reported any EAA income to the IRS between 2006 and 2008. The auditors told Petti in February 2010 that Petti’s EAA income would be reported to the IRS.
Indeed, by February 2009, Petti had not reported to the IRS any EAA income from at least 1998 through 2009, although Petti did report his income from SSA. Petti was able to evade paying taxes on his authorized salary from EAA by classifying himself as an independent contractor, when he in fact knew that he should have been classified as an employee. Unlike other employees of EAA who had income, Social Security, and Medicare taxes withheld from their paychecks, Petti did not.
In March 2010 after he learned that the SSA OIG discovered his unreported income, Petti filed amended tax returns for the years 2006 through 2009, reporting the income he was authorized to receive from the EAA. Petti, however, included false expenses for purported “office expenses,” “supplies,” “travel” and “utilities.”
Unbeknownst to the EAA and the SSA OIG, Petti was also embezzling substantial funds from the EAA, on top of the authorized salary he was entitled to receive. Between 2005 and 2009, Petti was properly classifying some checks he issued to himself as “accounting expenses” in the EAA accounting system which he maintained. These checks constituted Petti’s authorized salary from EAA. In addition, however, Petti was also improperly classifying other checks issued to himself in other accounting classifications, such as “administrative expense” and “general expenses,” in order to conceal his theft from EAA. Additionally, because Petti knew that the outside accounting firm audited the non-profit entities but not the for-profit entities, Petti issued the checks to himself from the for-profit entities’ bank accounts in order to hide the unauthorized income from the accounting firm. By doing so, Petti was able to hide approximately $416,000 of unauthorized payments to himself between 2005 and 2009. Petti did not report the $416,134 of additional, unauthorized income on either his original tax returns for years 2005 through 2009 or on his amended tax returns in 2006 through 2009.
Petti will be required to forfeit approximately $83,000 in proceeds held in bank accounts, and from the sale of a personal seat license for the Baltimore Ravens and three Marriott timeshares. Petti will also be required to pay restitution of $299,724 to the EAA for the funds he embezzled; and $270,769 to the IRS for unpaid taxes for years 1998 through 2009.
Petti faces a maximum sentence of 20 years in prison for wire fraud and five years for tax evasion. U.S. District Judge J. Frederick Motz scheduled his sentencing for April 3, 2013, at 9:30 a.m.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
United States Attorney Rod J. Rosenstein thanked the SSA - OIG for its assistance in the case. Mr. Rosenstein commended the IRS Criminal Investigation for its work in the investigation and praised Assistant U.S. Attorney David I. Sharfstein, who is prosecuting the case.