California Court Bars Four Men from Promoting Alleged Stock-Loan Tax Fraud Scheme
Government Lawsuit Says “Derivium” Promoters Disguised Stock Sales as Purported Loans
WASHINGTON – A federal judge in San Francisco has issued permanent injunctions barring four individuals from promoting what a government lawsuit describes as a complex tax-fraud scheme involving several entities located around the globe, the Justice Department announced today. U.S. District Judge Phyllis J. Hamilton signed the injunction orders against Yurij Debevc and Robert Nagy, both of South Carolina; Charles Hsin of New York; and Franklin Thomason of Jilin, China. Debevc, Nagy, Hsin and Thomason agreed to the injunctions without admitting the government’s allegations against them.
The government complaint filed in the case alleges that these four men and other defendants promoted a so-called "90% Stock Loan" program, using entities located in the United States, Hong Kong and the Isle of Man, that falsely purported to enable customers to contribute appreciated stocks or other securities in exchange for payments equal to 90% of the securities’ value without paying income tax on capital gains. Through this scheme, also known as the "Derivium" scheme, named after one of the companies involved, customers were allegedly told that they could avoid income tax because the transaction was a loan rather than a sale. But in fact, the government alleges, customers’ securities were actually sold to raise the funds to pay the customers. According to the complaint, the defendants sold the scheme to approximately 1,700 customers nationwide, in transactions totaling over $1 billion. The complaint alleges that the scheme cost the U.S. Treasury an estimated $230 million or more.
The same court barred another defendant, Scott Cathcart, from promoting the 90% loan program last year, after he agreed to a permanent injunction without admitting the government’s allegations. The government’s request for injunctions against the other defendants, including Charles Cathcart, Scott’s father, remains pending with trial scheduled for Nov. 16, 2009.
"Promoter injunctions are a vital part of the Justice Department’s efforts to stop complex tax schemes that purport to help wealthy taxpayers eliminate income tax on gains," said John DiCicco, Acting Assistant Attorney General for the Justice Department’s Tax Division. He thanked Justice Department trial attorneys Nathan Clukey and Ellen Weis, who handled the case, and revenue agents Marie Allen and Judy Steiner of the Internal Revenue Service’s Small Business/Self-Employed Division, who conducted the investigation.
The Justice Department has obtained injunctions against more than 425 tax-scheme promoters and tax preparers since 2001. Information about those cases is available on the Justice Department Web site.