Orono Man Sentenced to 87 Months Of Prison For Tax Fraud Scheme

United States Attorney Erica H. MacDonald today announced the sentencing of SCOTT PHILLIP FLYNN, 57, to 87 months of federal prison. He was also ordered to pay over $5 million in restitution. FLYNN was sentenced by Senior U.S. District Judge Ann D. Montgomery on January 24, 2019, in Minneapolis, Minnesota. On June 4, 2018, FLYNN pleaded guilty to one count of conspiracy to defraud the IRS and one count of tax evasion.  

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.  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  controlled by FLYNN. 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.

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. 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 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.

United States Attorney MacDonald thanked the Criminal Investigation Division of the IRS who investigated the case and Assistant United States Attorneys David J. Maclaughlin and Benjamin F. Langner who prosecuted the case.

Defendant Information:

Scott Phillip Flynn, 57

Orono, Minnesota  

Convicted:

• Conspiracy to defraud the IRS, 1 count
• Tax Evasion- 2007, 1 count

Sentenced:

• 87 months (60 months on Count 1 and 27 months on Count 3 to run consecutively)
• 2 years of supervised release
• $5,392,442.87

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United States Attorney’s Office, District of Minnesota: (612) 664-5600