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New York Restaurant Owner Sentenced to 12 ½ Years in Prison for Investment Fraud Scheme and Tax Evasion

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    Christopher Swartz of Watertown, New York has been handed a 150-month prison sentence for committing tax evasion and investment fraud.  According to Acting Assistant Deputy Attorney General Goldberg, the restaurant owner stole millions from lenders, investors and the United States, using multiple schemes, shell companies and layers of transactions in an effort to escape detection.


    According to court documents, Swartz engaged in a promissory note scheme to defraud lenders and investors out of more than $19 million.  Described as a Ponzi scheme, the entrepreneur promised investors company growth and high interest rates, but instead stole money from business and investor funds to spend for his own personal benefit.  Swartz defrauded at least 83 people with promissory notes from 2005 to 2015.  Before his conviction and sentencing, Swartz contended he had defrauded investors out of only $3 million.


    Swartz also committed tax evasion for a decade (2005-2010), filing false personal tax returns that underreported his income and did not file corporate returns or pay corporate taxes.  He diverted money from his business accounts and concealed the diversions in company records by making false account entries.  Like many other well-known tax evaders, Swartz made extensive use of cash so the missing funds could not be easily traced back to him. Swartz sold worthless shell company stock to approximately 70 United Kingdom residents, stealing the funds and defrauding them of approximately $1.1 million.


    As part of his guilty plea, Swartz agreed to forfeit any assets he obtained as a result of his crimes.  He was arrested again at his Watertown home in May, when federal prosecutors accused him of trying to conceal his assets before sentencing.  Special Agent in Charge James D. Robert of the IRS-Criminal Investigation unit expressed his disdain for the way Swartz preyed on innocent law-abiding citizens for his own financial gain.  “Today’s sentencing demonstrates the serious consequences of financial crimes such as this, and the collective focus of IRS Criminal Investigation and our partners on holding the perpetrators of such corrupt investment schemes accountable for their actions,” he commented.


    Ponzi Schemes & Their Tax Implications

    As discussed above, Swartz’s actions were consistent with a Ponzi scheme.  Named after notorious scheming businessman Charles Ponzi, the term refers to a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business or investment income.  Investors are typically promised well-above average returns in exchange for their initial investment.  A company engaging in a Ponzi scheme will generally focus on maintaining a constant flow of new investors in order to provide returns to the old investors.  Once the money runs out, the Ponzi scheme will unravel.


    Taxpayers need to be especially vigilant about losing their investments to these types of schemes.  The IRS does provide some relief to victims, but it is hardly enough to make them whole again.  Since Bernie Madoff’s infamous Ponzi scheme was unraveled in 2008, the IRS has introduced guidance to relieve taxpayers suffering from losses because of financial fraud and Ponzi schemes.  Taxypayers can claim “casualty and theft loss” deductions on their tax returns.  The provision to claim casualty and theft loss deductions existed even before 2009, but the introduction of IRS Rev. Ruling 2009-9 made the process and eligibility criterion easy to understand for everyone.  The IRS effectively provided safe harbors for victims of “specified fraudulent arrangements”—what taxypayers would call Ponzi schemes.  Being able to claim a tax deduction is better than nothing, but unfortunately it will not bring a lost investment back.


    Determining if Your California Investment is a Ponzi Scheme

    Fortunately, spotting a Ponzi scheme has gotten a little easier since Madoff put the term back on America’s radar.  These schemes will generally have very little information available on the nature of the investment.  They also typically include very vague descriptions and promises of extremely high returns.  If an investor or broker is encouraging you to invest in what may be a Ponzi scheme, this is a form of misconduct, and it is in your best interest to pursue legal action against them.  If you believe your potential investment may be part of a Ponzi scheme, it is essential to contact an attorney with experience in tax and investment fraud to help protect your property.


    Contact a California Tax Representation Attorney Today

    An experienced tax attorney is critical to protect your hard-earned assets.  If you have been a victim of a tax-evasion scheme or are guilty of evading taxes yourself, the Tax Attorneys CPAs and EAs at the Tax Law Offices of David W. Klasing can provide the aggressive representation you need.  Whether you simply need help preparing your tax return, or are facing an audit or criminal investigation, our tax professionals can help.  We have experience working with concerned taxpayers on a wide variety of international and domestic tax topics. Our tax professionals are passionate about helping taxpayers understand all of their options to protect their themselves and their finances. Call the Tax Law Offices of David W. Klasing at (800) 681-1295 today, or contact us online for a reduced-rate consultation.


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