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Thursday, April 8, 2010

Ponzi Scheme Operator Pleads Guilty to Tax Charges

WASHINGTON - John S. Lipton, formerly of Mission Viejo and Laguna Hills, Calif., pleaded guilty today before U.S. District Judge Dale S. Fischer in Los Angeles to conspiracy to defraud the United States and tax evasion, the Justice Department and Internal Revenue Service (IRS) announced.

Lipton and several co-defendants were indicted on charges stemming from the operation of the Genesis Fund, a bogus foreign currency exchange investment fund that operated as a Ponzi scheme from May 1998 to June 2002 and received investments of millions of dollars. The remaining defendants are scheduled to begin trial in September 2010.

According to a plea agreement, Lipton admitted that he used, and conspired with others to use, foreign trusts, corporations, and bank accounts to receive distributions from the Genesis Fund and did not report these distributions or income to the IRS. Lipton also admitted that he directed the transfer of approximately 19 boxes of Genesis Fund documents that were responsive to a grand jury subpoena to Costa Rica. Lipton also admitted that he did not file any federal individual income tax return from 1989 through 2005.

According to the indictment, the defendants falsely claimed that investors received monthly returns of 4 percent, when investments were actually used to make "profit" distributions to defendants and early investors. Lipton was one of the founding members of the Genesis Fund and its principal manager. The defendants promoted the Genesis Fund as having no reporting obligations to the IRS. Bank accounts in the names of trusts and offshore bank accounts were allegedly used to receive distributions from the Genesis Fund that were not reported to the IRS. Some of the defendants allegedly created "disclosed" and "undisclosed" Genesis Fund accounts for themselves and certain Genesis Fund investors in order to conceal from the IRS all but a small portion of Genesis Fund distributions. In addition, some Genesis Fund investors were allegedly advised to create nominee offshore corporations and bank accounts to receive distributions from the Genesis Fund.

The indictment further alleges that to obscure the operations of the Genesis Fund and to limit scrutiny of its operations by investors and the government, the defendants caused the Genesis Fund to maintain no financial statements or other statements of operation. Additionally, in or about April 2000, to conceal the true nature of its operations from investors and the government, Genesis Fund’s administrative operations were relocated from Anaheim, Calif., to Costa Rica. At about the same time, paper records were moved to Costa Rica and electronic data on computers was destroyed.

Judge Fischer scheduled a sentencing hearing for Aug. 2, 2010.

Three defendants, Richard B. Leonard, Victor H. Preston, and Teresa R. Vogt, have entered guilty pleas in this matter. The trial of the remaining four defendants on the tax fraud and conspiracy charges is set for September 2010. A separate trial on the severed charges related to the Ponzi scheme will be scheduled after the tax fraud trial.

"The government will continue to unravel schemes promoted and used by taxpayers to evade their federal tax obligations," said John A. DiCicco, Acting Assistant Attorney General of the Justice Department’s Tax Division. "As April 15th approaches, taxpayers should be confident that those who promoted fraudulent tax evasion schemes will be investigated and prosecuted."

"The Genesis fund, that operated as a Ponzi scheme, led IRS agents on a financial trail from the Caribbean to Hong Kong to Costa Rica and numerous other offshore locations around the world," said Victor S O. Song, Chief, IRS Criminal Investigation. "This signals the new era of solving global financial fraud -- the veil of offshore secrecy has been lifted and the IRS will do what is necessary to expand international cooperation to obtain financial evidence."

Acting Assistant Attorney General DiCicco commended the special agents from the IRS - Criminal Investigation Division who investigated the case, as well as Tax Division trial attorneys Lori A. Hendrickson, Ellen M. Quattrucci, Danny N. Roetzel, and Matthew J. Kluge who are prosecuting the case. Acting Assistant Attorney General DiCicco also thanked the U.S. Attorney’s Office in Los Angeles for its valuable support throughout the litigation of this matter.

Press Release Number: 
Updated September 15, 2014