Defendant Admits Role In $65 Million Stolen Identity Income Tax Refund Fraud Scheme
NEWARK, N.J. – A North Carolina man today admitted his role in one of the nation’s largest and longest running stolen identity refund fraud schemes ever prosecuted, U.S. Attorney Paul J. Fishman announced.
Luis Martinez, 48, of Matthews, N.C., pleaded guilty today before U.S. District Judge Claire C. Cecchi, to an Information charging him with conspiracy to defraud the United States and theft of government property. The conspiracy caused more than 8,000 fraudulent U.S. income tax returns to be filed, which sought more than $65 million in tax refunds and resulted in losses to the United States of more than $12 million.
According to documents filed in this case and statements made in court:
Stolen Identity Refund Fraud (“SIRF”) is a common type of fraud that results in over $2 billion in losses annually to the U.S. Treasury. SIRF schemes generally share a number of hallmarks:
- SIRF perpetrators obtain personal identifying information, including Social Security numbers and dates of birth, from unwitting individuals, who often reside in the Commonwealth of Puerto Rico;
- SIRF participants complete Individual Income Tax Return 1040 Forms using the fraudulently-obtained information, and falsifying wages earned, taxes withheld and other data. Perpetrators use data to make it appear that the “taxpayers” listed on the fraudulent 1040 form are entitled to tax refunds – when in fact, the various tax withholdings indicated have not been paid and no refunds are due;
- SIRF perpetrators direct the U.S. Treasury Department to issue the refunds through checks to locations they control or can access, in various ways;
- SIRF perpetrators generate cash proceeds. Some sell the checks at a discount to face value. The buyers then cash the checks at banks or check cashing businesses or deposit them into bank accounts.
Federal law enforcement agencies, recognizing that SIRF was a serious problem, created a multi-agency task force in New Jersey comprised of investigators from the IRS and the U.S. Postal Inspection Service, along with the U.S. Secret Service, and with assistance from the Drug Enforcement Administration (the “New Jersey Task Force”).
An investigation led by the New Jersey Task Force with assistance from U.S. Immigration and Customs Enforcement, Homeland Security Investigations has revealed that starting as early as 2007, dozens of individuals in the New Jersey and New York area have been engaged in a large-scale, long running SIRF scheme. The scheme has caused more than 8,000 fraudulent 1040 forms to be filed, seeking more than $65 million in tax refunds, with losses to the U.S. Treasury of more than approximately $12 million.
Members of the conspiracy obtained personal identifiers, such as dates of birth and Social Security numbers, belonging to Puerto Rican citizens. They used those identifiers to create fake 1040s, which falsely reported wages purportedly earned by the “taxpayers” and taxes purportedly withheld, to create the appearance that the “taxpayers” were entitled to tax refunds. The returns were filed electronically. By tracing the specific IP addresses that submitted them, law enforcement officers learned just a handful of IP addresses created many of the fraudulent forms that led to the issuance of tax refund checks.
Martinez and the other members of the conspiracy then gained control of checks, sometimes bribing mail carriers to intercept checks and deliver them to other members of the conspiracy.
During the course of the investigation, members of the task force identified certain “hot spots” of activity and intercepted more than $22 million in fraudulently-applied for refund checks before they were delivered to members of the conspiracy.
U.S. Attorney Fishman praised special agents of IRS-Criminal Investigation, under the direction of Acting Special Agent in Charge Shantelle P. Kitchen; the U.S. Postal Inspection Service, under the direction of Acting Inspector in Charge Marie Kelokates; the U.S. Secret Service, under the direction of Special Agent In Charge James Mottola; and the Drug Enforcement Administration, under the direction of Acting Special Agent in Charge Robert G. Koval, for the investigation leading to today’s guilty plea.
The conspiracy count carries a maximum potential penalty of five years in prison and up to a $250,000 fine. The substantive count of theft of government property carries a maximum potential penalty of 10 years in prison and up to a $250,000 fine. Sentencing is scheduled for July 16, 2013.
The government is represented by Assistant U.S. Attorneys Danielle Alfonzo Walsman, Mala Ahuja Harker, Lakshmi Srinavasan Herman, and Zach Intrater of the U.S. Attorney’s Office Criminal Division in Newark.
Defense counsel: Barry Goldberg Esq., New York