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Thursday, September 11, 2014

Owner of Tax Return Preparation Franchise and Health Provider Business Sentenced to Prison for Tax Fraud, Healthcare Fraud and Money Laundering

A man formerly of Raleigh, North Carolina, and now of Miami, was sentenced today to serve 135 months in prison for tax fraud, healthcare fraud and money laundering crimes in two separate cases in federal court, announced Deputy Assistant Attorney General Ronald A. Cimino of the Justice Department’s Tax Division and U.S. Attorney Ripley Rand for the Middle District of North Carolina. 


Claude Arthur Verbal II was also ordered to serve three years of supervised release following his prison term, to pay restitution of $4,078,584 to the Internal Revenue Service (IRS) and to pay $2,382,378 to the North Carolina Department of Health and Human Services.  On April 9, Verbal pleaded guilty to one count of conspiracy to defraud the United States, one count of aiding and assisting the preparation of false tax returns, one count of healthcare fraud and one count of money laundering. 


“Mr. Verbal’s sentence sends a clear message to those who operate fraudulent tax return businesses,” said Deputy Assistant Attorney General Ronald A. Cimino of the department’s Tax Division.  “The Justice Department will continue to prosecute and seek just punishment against those who prepare fraudulent tax returns.”


The Tax Case


Verbal was the owner of Nothing But Taxes (NBT), a tax return preparation franchise with 10 branches throughout the state of North Carolina that operated from 2005 to at least 2012.  Verbal personally prepared false tax returns for clients of NBT and taught and encouraged his employees to do so as well.  Verbal and NBT employees frequently offered clients a dramatically larger tax refund if the client agreed to make a cash payment to their tax preparer.  These cash payments were over and above the flat return preparation fee that NBT charged every client, whether or not their return was falsified. 


From 2005 to 2007, Verbal personally prepared dozens of false tax returns on a computer at NBT’s location on Fayetteville Street in Durham, North Carolina.  One such return was a 2006 tax return for an NBT client that falsely reported the client had a Schedule C business and a dependent, which Verbal knowingly prepared and electronically filed with the IRS.  


The most common types of falsifications at NBT were false dependents, false Schedule C businesses, false tip income, false Earned Income Tax Credits and false education credits.  Verbal falsified returns using these items and taught his managers and line employees how to do so as well.  Verbal and many of his employees facilitated the purchase and sale of false dependents at NBT by purchasing the names, dates of birth and social security numbers of individuals from the community for use as false dependents on other clients’ tax returns. 


“Mr. Verbal’s fraudulent schemes victimized taxpayers in multiple ways, damaged the Medicaid program and the many patients who rely on it,” said U.S. Attorney Ripley Rand for the Middle District of North Carolina.  “We will continue to work with law enforcement and the victimized agencies to shut down these types of fraud schemes, hold the fraudsters accountable, and return the ill-gotten gains to the programs for which they were intended.”

In November 2010, one of Verbal’s employees informed a U.S. probation officer of the fraudulent practices at NBT’s location on Fayetteville Street.  The probation officer informed Verbal of this fraud and he falsely denied knowledge of it.  Afterward, Verbal took steps to keep the profitable Fayetteville Street location open and to continue operating as usual, but to also further distance himself from the fraudulent practices.  In order to do this, Verbal transferred the electronic filing privileges for that NBT branch to a nominee.  Verbal and others jointly persuaded a relative of Verbal who allowed Verbal to use their name to apply for new electronic filing privileges for the Fayetteville Street location.  In exchange, Verbal and his wife paid the relative $10,000, and the relative had no role in operating NBT, no professional tax experience and no knowledge of the fraud that was occurring at NBT.


Later, in 2012, the IRS shut down electronic filing privileges at all 10 NBT branches due to persistent fraud.  Verbal re-applied for electronic filing privileges twice for all NBT locations, first in the name of the relative and, when that attempt failed, in the name of another relative who had no knowledge of NBT’s business.


The Healthcare Fraud Case


According to court documents, Verbal was the owner and operator of Infinite Wellness Concepts (IWC), a Medicaid behavioral health provider with locations in Burlington, Durham and Greensboro, North Carolina.  IWC was contracted to provide group therapy, intensive in-home services, and enhanced mental health and substance abuse services.  Verbal acquired at least $1 million in fraudulently obtained funds from the Medicaid program.  The fraudulent activities included:  


·          changing diagnosis codes so that codes with higher reimbursement rates could be billed;

·          falsely inflating the number of clients treated during group therapy;

·          billing for services not rendered and submitting false treatment notes in support of the services not rendered using forged signatures from counselors and therapists;

·          unqualified personnel conducting therapy; and

·          creating fraudulent clinical assessments and creating clinical assessments prepared and signed by unqualified preparers. 


Verbal used the proceeds of the tax and healthcare fraud schemes to make extensive purchases of luxury cars, homes and jewelry.  The money laundering charge to which Verbal pleaded guilty relates to the purchase of a $52,000 diamond ring with the proceeds of healthcare fraud.


“It is both despicable and illegal when scammers like Claude Verbal cheat the Medicaid program and its beneficiaries by billing for badly needed services for poor and mentally ill patients – services that were never actually provided or were provided by unqualified staff -- just so that Verbal could build a $700K+ bank account and go on a diamond-encrusted shopping spree with the ill-gotten money,” said Special Agent in Charge Derrick L. Jackson of the U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG), Atlanta Regional Office.  “Verbal’s audacious, greed-fueled fraud cheated both taxpayers and needy patients; now, thanks to our hard working investigators and our law enforcement partners, Verbal will pay dearly for his reprehensible crimes.”


“Today’s sentence is the strongest type of affirmation that criminals such as Mr. Verbal, who commit tax fraud and engage in other criminal activities, will be forced to bear the consequences of their actions,” said Special Agent in Charge Thomas J. Holloman for IRS-Criminal Investigation.  “We, along with our law enforcement partners are committed to working together in bringing individuals such as Mr. Verbal to justice.”  


In the course of the healthcare fraud investigation, law enforcement authorities seized $765,917 from bank accounts controlled by Verbal, a 2011 Toyota Camry and four pieces of diamond jewelry, including a 7-carat diamond ring.  The United States initiated a civil forfeiture action alleging the properties constituted proceeds traceable to the healthcare fraud and on Sept. 19, 2013, U.S. District Judge Catherine C. Eagles entered an order forfeiting the property to the government.


The tax case against Verbal was investigated by agents of IRS - Criminal Investigation and was prosecuted by Assistant U.S. Attorney Frank Chut for the Middle District of North Carolina and Trial Attorney Jonathan Marx of the Tax Division.  The healthcare fraud case against Verbal was investigated by agents of HHS-OIG, the North Carolina State Bureau of Investigations, the North Carolina Department of Justice’s Medicaid Investigations Division and IRS – Criminal Investigation, and was prosecuted by Assistant U.S. Attorney Robert Hamilton for the Middle District of North Carolina.

Updated September 15, 2014