Specialty Areas: Preventing Prosecution: Alleged Tax and Unemployment Compensation Fraud

Alleged Tax and Unemployment Compensation Fraud

Our clients were principals of a real estate development firm. The firm hired a certified public accountant as its Chief Financial Officer, but the accountant turned out to be a criminal, who embezzled money from the firm and committed other criminal acts. When the accountant’s life of crime began to unravel and he sensed that the heat was on, he peddled a story to the authorities that incriminated others at the firm, in an effort to escape, or at least minimize, his own criminal liability. In exchange for a favorable plea bargain involving a probationary sentence, the accountant told federal prosecutors that he and our clients, the firm’s principals, had conspired to defraud the payroll tax and unemployment system, essentially by paying laid-off employees “under the table” while arranging for them to collect unemployment benefits to supplement their unreported compensation.

When we learned that the United States Attorney’s office was investigating our clients, we advised them to sue the accountant (who had suddenly quit) for, among other things, damaging the firm’s computerized financial records. We obtained subpoena power through the lawsuit, which allowed us to gather evidence showing that the accountant had been using a credit card scheme to embezzle funds from the firm. The accountant did not bother to tell the prosecutors that he had, in fact, been stealing from the principals who were supposed to be his partners in crime, not victims of his crimes. We were able to persuade the prosecutor that the unemployment insurance and payroll scheme had been inflicted by the dishonest accountant on the firm’s principals – not with them. We were also able to persuade the prosecutor that no jury would believe the accountant’s testimony. In the end, the prosecutor declined to prosecute our clients. The lenient sentence that the accountant would have received was changed so that he went to prison. We were able to recover the stolen money from the accountant.

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