Former Employee Pleads Guilty to Embezzling More than $1M, Income Tax Evasion
CINCINNATI – Steven J. Porges, 52, of Park City, Utah pleaded guilty in U.S. District Court to one count each of wire fraud and income tax evasion.
Benjamin C. Glassman, Acting United States Attorney for the Southern District of Ohio, Kathy A. Enstrom, Special Agent in Charge, Internal Revenue Service (IRS) Criminal Investigation, and Angela L. Byers, Special Agent in Charge, FBI, Cincinnati Field Division, announced the plea entered into today before U.S. District Judge Michael R. Barrett.
According to court documents, between 2007 and October 2014 Porges devised a scheme to defraud KAO Brands Company, now known as Kao USA Inc. (KAO), of money and property by means of false and fraudulent pretenses. As a result of his conduct, the defendant caused a loss to KAO of more than $1 million.
KAO, with its principal office located in Cincinnati, Ohio, is a manufacturer and supplier of beauty care products. KAO promotes its products through promotional offers, which often include using grocery store end caps to showcase its products. The company uses third-party vendors to advertise and place its promotional products.
Porges was employed by KAO as a National Account Manager beginning in 2002, until his termination on October 9, 2014. In that capacity, he negotiated with third-party vendors to secure shelf space for KAO's products in retail stores, and managed KAO's contracts with those vendors. Porges worked remotely from his home in Park City, Utah.
Porges purchased American Express gift cards, generally in the amount of $2,000 per card, from third-party vendors. The vendors sent the gifts cards and invoices directly to Porges’ home. Porges purchased the gift cards on the premise that he was acting on behalf of KAO to provide the gift cards to retailers as incentives to run KAO promotions. In reality, KAO did not authorize the purchase of the gift cards, and used the majority of the gift cards for personal expenses.
Porges altered the invoices by falsely representing on the invoices that he had purchased shelf space, end cap space and promotional offers instead of gift cards. At times, Porges instructed the vendors on what wording to use on the invoices. Porges then faxed or emailed the false invoices to KAO for payment. Based on the false invoices provided by Porges, KAO made payments directly to the vendors for what it believed were legitimate business expenses without knowledge that Porges had purchased gift cards for his own personal benefit.
Porges paid various personal expenses with the fraudulent proceeds, including electric bills, dry-cleaning, Starbucks purchases, vacations, airline and sporting event tickets and jewelry.
For each of the calendar years 2009 through 2014, Porges willfully attempted to evade the income taxes due on the money he took from KAO by filing false income tax returns which did not include the wire fraud proceeds he had received.
For those years, he claimed taxable income in the amount of $779,052 and that the amount of tax due and owing was $137,697. The investigation revealed that Porges knew his true taxable income tax was in the amount of $1,608,568, resulting in an additional tax due and owing of $256,577.
Wire fraud is punishable by up to 20 years in prison, and income tax evasion is punishable by up to five years imprisonment.
"The IRS enforces the nation's tax laws, but also takes particular interest in cases where someone, for their own personal benefit, has taken what belonged to others,” said Kathy A. Enstrom, Special Agent in Charge, IRS Criminal Investigation, Cincinnati Field Office.
Acting U.S. Attorney Glassman commended the cooperative investigation by the IRS and FBI, as well as Assistant United States Attorney Deborah D. Grimes, who is representing the United States in this case.