Federal Jury Convicts Man For Tax Evasion
MINNEAPOLIS—Last week, a federal jury found a former executive of a Minnesota-based multi-level marketing company guilty of conspiracy to defraud the United States, tax evasion and failing to file federal tax returns. On March 14, 2014, following a seven-day trial, the jury convicted Michael Andrew Schlegel on one count of conspiracy to defraud the U.S., three counts of tax evasion and three counts of failure to file tax returns. Schlegel was indicted on April 9, 2013.
According to the indictment and evidence presented at trial, from 2002 through 2010, Schlegel, and his co-defendant Bradley Mark Collin, conspired with each other and others to defraud the U.S. by obstructing the Internal Revenue Service (“IRS”) in its lawful collection and assessment of individual income taxes. To that end, Schlegel failed to make any payments toward the back taxes, interest and penalties levied against him in 2000, which totaled more than $600,000. Both defendants also failed to file federal individual tax returns for tax years 2002-2009, pursuing “tax protestor” ideologies. On December 23, 2013, Collin pleaded guilty to one count of conspiracy to defraud the U.S.
From 2002 to 2009, Schlegel controlled NatureRich, Inc., a multi-level marketing company that sold natural and health-related products. Like similar companies, NatureRich paid commissions to salespeople based on direct sales and on the sales of downstream salespeople. At various times between 2002 and 2009, Schlegel and Collin received wages and commission payments from NatureRich that totaled more than $400,000. Schlegel also caused NatureRich to pay his commissions to a nominee trust called the “Andrew James Living Trust,” from which he then paid his family’s expenses. During that time, Schlegel also operated a painting business, receiving more than $400,000 in income from painting contracts.
In 2004, the defendants, through the use of nominee entities, began engaging the “warehouse” banking services of Olympic Business Systems and Century Business Concepts. “Warehouse” banking refers to the use of one or more bank accounts in which the funds of multiple clients are deposited, thereby concealing the true source of the funds.
The defendants also filed misleading federal corporate tax returns in the name of NatureRich in an effort to conceal the true extent of their personal interest in and the income derived from NatureRich. In all, the defendants attempted to conceal at least $3 million in gross income from the IRS, thereby avoiding income taxes on that income and also avoiding having those funds seized for payment of their previous tax debts.
For his crimes, Schlegel faces a potential maximum penalty of five years in prison on the conspiracy count, five years on each tax evasion count, and one year on each count of failure to file a tax return. Collin faces a potential maximum penalty of five years. U.S. District Judge Patrick J. Schiltz will determine their sentences at a future hearing, yet to be scheduled.
This case is the result of an investigation by the IRS-Criminal Investigations. It is being prosecuted by Assistant U.S. Attorneys Tracy L. Perzel and John E. Kokkinen.
Per U.S. Department of Justice policy, the U.S. Attorney’s Office is not allowed to provide the age and city of residence for defendants charged in criminal tax cases.