Hansel Bailey Sentenced To Five Years In Prison For Tax Fraud Conspiracy
St. Thomas, USVI - District Court Judge Curtis V. Gomez today sentenced Hansel Bailey, 36, of Orange County, California, to five years in prison for conspiracy to defraud the United States in the collection of taxes, and conspiracy to evade and defeat tax due and owing the Virgin Islands, announced United States Attorney Ronald W. Sharpe and Internal Revenue Service Special Agent in Charge Jose A. Gonzalez. The Court also sentenced Bailey to three years of supervised release, and ordered him to pay restitution to the Virgin Islands Bureau of Internal Revenue in the amount of $821,094, and to the Internal Revenue Service in the amount of $1,104,741. Bailey was remanded to the custody of the United States Marshals Service to begin serving his sentence at the conclusion of today’s hearing.
According to the evidence presented during the jury trial of Bailey and co-conspirator, David Haddow, in 2004, Bailey incorporated a business in St. Thomas called Compass Diversified, and in 2005, that company was granted Economic Development Commission tax benefits. Bailey and another co-conspirator marketed a tax-savings scheme that would allow clients of Compass Diversified to claim bogus business deductions on their income tax returns by making payments to Compass, allegedly for management or consulting services. The clients would then recoup a substantial portion of the payment made to Compass in the form of a tax-free gift from a Virgin Islands-born resident. The scheme consisted of nothing more than a three-step circuitous money flow.
According to the evidence, in the first step, Compass clients made payments to Compass or wired money directly into Compass’ bank account. In step two, co-conspirator Haddow, at the direction of Bailey, transferred by check a substantial portion of that money into the personal bank account of a Compass employee. The last step consisted of a substantial portion of the original payment being returned by check or wire transfer to the Compass clients who made the payments to Compass on the front end of the transaction. As part of their scheme, Bailey and Haddow convinced a Virgin Islands-born resident to open a personal bank account for the sole purpose of sending tax-free gifts back to Compass clients. Compass Diversified never offered consulting or management services to any of their clients even though the clients were encouraged to claim deductions on their tax returns.
The jury also convicted co-conspirator Haddow of conspiracy to defraud the United States in the collection of taxes, and conspiracy to evade and defeat tax due and owing the Virgin Islands. Haddow’s sentencing has been continued without a date. A second co-conspirator, Dwight Padilla, pleaded guilty in June 2013 to conspiracy to defraud the United States and was sentenced to 15 months in prison, three years of supervised release, and ordered to pay restitution in the amount of $1,296,941 to the Internal Revenue Service.
U.S. Attorney Sharpe commended the efforts of the Internal Revenue Service, which investigated the case. The case was prosecuted by Assistant U.S. Attorneys Bryan E. Foreman and Kim L. Chisholm.