Orono Business Man Pleads Guilty To Multi-Million Dollar Tax Fraud Scheme
United States Attorney Gregory G. Brooker announced the guilty plea of SCOTT PHILLIP FLYNN, 55, to one count of conspiracy to defraud the United States and one count of filing a false tax return. FLYNN, who was initially charged on December 21, 2016, pleaded guilty yesterday before Senior U.S. District Judge Ann D. Montgomery in Minneapolis, Minnesota.
“Scott Flynn devised a complex fraud scheme by creating a labyrinth of business entities and layers of obfuscation to hide tens of millions of dollars from the IRS,” said Assistant U.S. Attorney David Maclaughlin. “Flynn generated his income using an alias name while hiding behind randomly-named Nevada-based companies titled in the name of his father. Flynn then sent the income he earned in this way to Australia to be held by nominees, and then repatriated the money indirectly, sometimes through Costa Rica. Flynn acknowledged at his plea hearing that he took these steps to defraud the Internal Revenue Service. Flynn’s scheme was animated by his desire to live a luxurious lifestyle unencumbered by income tax liabilities, a desire fulfilled by his purchase of a $2.7 million mansion in Orono with untaxed income repatriated through Costa Rica.”
“Conspiring with others to defraud the government with an elaborate stock scheme to underreport taxable income is unlawful and is also unfair to every taxpayer who obeys the law and pays their fair share,” stated Acting Special Agent in Charge Gabriel Grchan, St. Paul Field Office IRS Criminal Investigation. “Mr. Flynn's plea today serves as an important reminder that IRS-CI is committed to bringing to justice those who evade their income tax responsibilities.”
According to the defendant’s guilty plea and documents filed in court, between 2005 and 2015, FLYNN evaded the assessment of millions of dollars in income taxes by fraudulently hiding millions of shares of stock that he obtained for himself, his father, and entities they controlled (collectively, the “Flynn Group”). In 2006 and 2008, FLYNN assisted two privately-held Wisconsin-based companies, Tower Tech Systems, Inc. and Advanced Fiberglass Technologies, in becoming publicly traded through stock-for-stock “reverse merger” transactions. As compensation for FLYNN’S work, millions of shares of publicly-traded stock in the resulting public companies were transferred to “Integritas, Inc.” and “Diversified Equities Partners,” both of which were part of the Flynn Group. FLYNN, who exercised control over the stock, which had considerable value, was required to, but did not, report the receipt of the shares of stock as income on his individual income tax returns, or on the tax returns of members of the Flynn Group.
According to the defendant’s guilty plea and documents filed in court, in order to conceal his control and ownership of the stock, and to evade paying income taxes, FLYNN caused a portion of the stock to be put in the names of Australian nominees recruited by FLYNN’S co-conspirator, Steven Miotti. The Australian nominees, who never actually owned or controlled the stock, were directed to open brokerage accounts in the United States to receive the shares, but FLYNN possessed their login and password data so he could maintain control of the accounts and the shares of stock.
According to the defendant’s guilty plea and documents filed in court, during the course of the conspiracy, when FLYNN needed money, he caused the Australian nominees to sell shares of stock and transfer the proceeds to entities in the United States controlled by FLYNN, which in turn made payments to FLYNN or on his behalf. These sales generated millions of dollars in capital gains income, which FLYNN purposely failed to report to the IRS. For example, in 2007, FLYNN received approximately $2.7 million of the proceeds from the Australian nominees to buy a house in Orono, Minnesota, which was considered income to FLYNN. That year, in a tax return FLYNN acknowledged was materially false at his guilty plea hearing, FLYNN reported only $26,136 of total income. Throughout the course of the scheme, FLYNN concealed tens of millions of dollars in income and capital gains from the IRS and intentionally evaded the assessment of at least $3.5 million in income taxes.
This case is the result of an investigation conducted by the Criminal Investigation Division of the IRS.
Assistant United States Attorneys David J. Maclaughlin and Benjamin F. Langner are prosecuting this case.
SCOTT PHILLIP FLYNN, 55
- Conspiracy to defraud the United States, 1 count
- False tax return, 1 count