It is, unfortunately, an all too common refrain on this blog that that power, success, and a position of trust will not protect an individual who commits tax evasion and other forms of fraud. Likewise, a title and privileged social standing will also fail to provide any insulation from suspicion. Unfortunately, some professionals and others occupying these roles continue to fail to understand that the audit and fraud detection techniques utilized byx federal prosecutors are not swayed by these human elements. When doctors, lawyers, accountants, and others commit tax and other types of fraud, they are routinely identified and prosecuted.
However, what is even worse is when the swindler attempts to use his or her position or social standing not only as a shield in a misguided attempt to avoid suspicion but also as a sword to further his or her fraudulent activities. Unfortunately, it appears that this is the exact scenario that occurred regarding a Newport Beach lawyer who stole a minimum of $8 million from clients. Newport lawyer Stephen Young Kang pleaded guilty to in November to one count of tax evasion and two counts of wire fraud. He was recently sentenced for his crimes.
Kang’s fraud was, unfortunately, long-running and a multi-pronged scheme affecting a broad array of victims. Federal prosecutors charged that Kang’s fraudulent activities stretched back to 2002. In many instances, Kang appeared to escape suspicion by engaging in something resembling a modified pyramid scheme. However, rather than accepting the money of willing investors, Kang paid-off earlier victims of his fraud with funds from new fraud victims. Prosecutors stated that the remainder of the funds obtained by Kang were used to purchase luxury goods, pay off personal expenses, and for business ventures.
One instance of Kang’s fraud included Ottogi American, Inc. the company is a food distributor. The company entered into a business relationship with Kang to purchase property in Gardena. However, instead of using the funds for their intended purposes, Kang fraudulently transferred the money to an array of accounts under his control. He then used these funds to partially repay a victim of his fraud from Texas.
In other instances, Kang apparently utilized the EB-5 immigrant investor program to further his scheme. EB-5 is a U.S. federal government program that permits a foreign investor who invests $1 million – or $500,000 in the case of a Targeted Employment Area (TEA) – to obtain a green card and a pathway to citizenship provided that job creation and other requirements are met. These foreign clients likely appeared the perfect victims since they were likely to trust a person in Kang’s position and furthermore because they may face difficulties in alerting authorities due to not being present within the United States.
Kang also included the IRS and all federal taxpayers as victims of his scheme. Kang admitted that used an array of corporate accounts to conceal at least $1.5 million in unreported income. Furthermore, Kang admitted to failing to file a tax return for the 2013 tax year.
Kang was originally indicted by a grand jury on 30 felony counts. The original indictments included money laundering, identity theft, and two additional tax evasion charges. These and other charges were dropped as part of a plea deal Kang accepted in November 2015.
Kang had request leniency from the federal judge, however, the judge was apparently unmoved by his request. Kang had asked for a maximum sentence of three years. The judge was apparently swayed by the testimony of victims and others. For instance a statement issued after sentencing by Acting Special Agent in Charge Anthony Orlando of IRS Criminal Investigation expressed the agency’s position that, “Professionals, including attorneys, who use their position of trust to create elaborate schemes that have no purpose other than to mislead others … will be prosecuted to the full extent of the law.”
The judge sentenced Kang to five years and three months in federal prison. However, additional elements of Kang’s sentencing still remain to be determined. A still pending March 28th hearing will determine how much restitution he will owe to the victims of his crimes. Furthermore, the tax evasion penalty should result in additional monetary fines including penalties and interest on the unreported taxes. Professionals who commit tax and other types of fraud are unlikely to receive leniency and face a high likelihood of harsh penalties following conviction.