Richmond Man Pleads Guilty for Orchestrating Multi-Million Dollar Rehabilitation Tax Credit Scheme
RICHMOND, Va. – Justin Glynn French, 40, of Richmond, Va., pleaded guilty today to stealing millions from federal and state tax credit programs intended to rehabilitate historic buildings.
Neil H. MacBride, United States Attorney for the Eastern District of Virginia; Ken Cuccinelli, Attorney General of Virginia; Michael F.A. Morehart, Special Agent in Charge of the FBI’s Richmond Field Office; Rebecca Sparkman, Special Agent in Charge of the Internal Revenue Service Criminal Investigation’s Washington, D.C., Field Office; and Colonel W. Steven Flaherty, Superintendent of Virginia State Police, made the announcement after the plea was accepted by United States District Judge John A. Gibney, Jr.
“Justin French stole millions from taxpayers to get rich and establish a prominent place the real estate market in Richmond,” said U.S. Attorney MacBride. “Today, Mr. French admitted that his greed led him to defraud federal and state programs that were intended to revitalize historic Richmond all for his own benefit. Mr. French would not have been caught without the close partnership of state and federal law enforcement.”
“Justin French stole from the commonwealth and the federal government by fraudulently obtaining tax credits that were meant to encourage the redevelopment of historic structures,” said Attorney General Cuccinelli. “He got rich off the backs of taxpayers and now he will be held accountable for his actions. Stopping him and successfully prosecuting him has proven to be a stellar example of cooperation among state and federal law enforcement.”
French pled guilty today to wire fraud and engaging in unlawful monetary transactions through a criminal information. He faces a maximum penalty of 30 years in prison, restitution to the victims, a fine of up to $500,000, and three years of supervised release when he is sentenced on May 3, 2011.
According to the statement of facts filed with the plea agreement, Justin French was the owner and operator of French Consulting Company, a Richmond-based real estate development company. He actively sought state and federal historic tax credits as his company worked to rehabilitate a number of historic properties throughout the Richmond area.
At the state level, the Virginia Department of Historic Resources (VDHR) administered the Virginia Historic Rehabilitation Tax Credit program. That program allowed the property owner to receive a state income tax credit equal to 25 percent of the amount spent on eligible rehabilitation expenses. At the the federal level, the U.S. Department of the Interior National Park Service (DOI-NPS) administered the Federal Historic Preservation Tax Incentives program. This program encouraged private sector rehabilitation of historic buildings through tax credit equal to 20 percent of the amount spent on eligible rehabilitation expenses.
Through court documents, French admitted that since 2005, he has initiated the historic rehabilitation tax credit application process on at least 35 properties in Richmond, and approximately 20 were completed. As of August 2010, French had an additional 16 projects in the early stages of the tax credit approval process, which were aimed at producing additional requests for federal and state tax credits.
One of these projects formed the heart of the wire fraud charge French pled guilty to today. On March 7, 2008, French purchased a property located at 1509 Belleville Street in Richmond. In correspondence with the bank that funded a loan for the project, French stated that he had purchased the property for $700,000 and expected the rehabilitation costs to be approximately $200,000.
In November 2008, French began the application process seeking federal and state rehabilitation tax credits for this property. On March 20, 2009, he submitted the final tax credit applications and required CPA cost certification for 1509 Belleville Street to the VDHR. In those applications, he represented the rehabilitation costs as $1,571,503. On March 26, 2009, the VDHR approved French’s state application and awarded him $392,875.75 in state tax credits. On April 17, 2009, the DOI-NPS approved French’s federal application authorizing him $314,300.60 in federal tax credits for this project.
Today, French admitted that the tax credits he requested for this property were grossly inflated. The actual authorized expenses for the purpose of obtaining state and federal historic rehabilitation tax credits should have been approximately $336,000 (including the 20 percent developer fee), as opposed to the $1,571,503 represented to state and federal authorities. If the actual amounts consistent with the bank loan file had been submitted to the state and federal authorities, French would have received approximately $84,000 (including the allowable 20 percent developer fee) in Virginia tax credits (as opposed to $392,875.75 in Virginia tax credits) and $67,200 (including the allowable 20 percent developer fee) in federal tax credits (as opposed to $314,300.60 in federal tax credits). The combined total of federal and state tax credits French illegally obtained by inflating the rehabilitation expenses for 1509 Belleville Street was approximately $555,976.35.
French’s subsequent transactions with a number of private investors who purchased these tax credits resulted in his pleading to engaging in unlawful monetary transactions. As part of the investment process, French caused the mailing of subscription agreements via United States mail to the individual investors. Those investors, in turn, executed the subscription agreements and returned those documents along with their investment funds to the defendant. In February 2009, those individual investors provided the defendant with approximately $228,800 in exchange for purchasing the state tax credits related to 1509 Belleville Street. These investor funds were deposited into a First Market Bank business checking account for the 1509 Belleville Street project. French subsequently transferred $218,000 of those funds to his personal money market savings account at First Market Bank.
Overall, French agreed in his plea agreement that the intended and actual tax credit losses connected to the 1509 Belleville Street and other rehabilitation projects was between $7 million and $20 million. The defendant also agreed to pay full restitution for the losses he caused in connection with the ongoing rehabilitation tax credit scheme, which will be determined as the victims and loss amounts are identified in the ongoing investigation.
French has further agreed to an order of forfeiture imposing a monetary judgment of $7 million, representing the proceeds of the fraudulent scheme. At this time, he has agreed to forfeit the assets listed in the First Consent Order of Forfeiture entered today. The investigation to identify additional assets remains ongoing.
This case was investigated by the Federal Bureau of Investigation Richmond Office, the Internal Revenue Service Criminal Investigation Division, the U.S. Department of the Interior Office of Inspector General, the U.S. Department of Energy Office of Inspector General, the Virginia State Police, the Raleigh, North Carolina Police Department, and the National White Collar Crime Center. The Virginia Department of Historic Resources also assisted law enforcement in the investigation. Assistant United States Attorneys Michael Gill and Laura Marshall and Special Assistant Attorneys Patrick Dorgan and Shannon Dion are prosecuting the case on behalf of the United States.A copy of this press release may be found on the website of the United States Attorney's Office for the Eastern District of Virginia at http://www.justice.gov/usao/vae. Related court documents and information may be found on the website of the District Court for the Eastern District of Virginia at http://www.vaed.uscourts.gov or on http://pacer.uspci.uscourts.gov.