Saturday, February 11, 2017

Horsky is Sentenced for Major Offshore Accounts (2/11/17; 2/12/17)

DOJ Tax announced here the sentence for Dan Horsky.  I previously blogged about him here:  Former Business Professor Pleads Guilty to Tax Related Crimes; In Addition, Will Pay $100 Million FBAR Penalty (Federal Tax Crimes Blog 11/4/16; 11/9/16), here; see also Credit Suisse Being Investigated for Omitting at Least One Large Account (Federal Tax Crimes Blog 11/22/16), here.

The sentence was 7 months.  Given the sentencing factors indicated in the press release (excerpted immediately below) and set forth in the parties' sentencing memoranda (linked below), that is a phenomenal result.  I discuss the guidelines sentence below in this blog.  The 7 month sentence is way below guidelines.  For reasons that may be apparent from the discussion below, that appears to be a very good result for Horsky, given what the objective factors indicate.  However, I understand that there were sealed documents that bore upon sentencing so we may not be able to fully understand the sentence.

Key excerpts from the press release:
According to documents filed with the court and statements made during the sentencing hearing, Dan Horsky, 71, formerly of Rochester, New York, is a citizen of the United States, the United Kingdom and Israel who served for more than 30 years as a professor of business administration at a university located in New York. Beginning in approximately 1995, Horsky invested in numerous start-up companies, virtually all of which failed. One investment in a business referred to as Company A, however, succeeded spectacularly. In 2000, Horsky transferred his investments into a nominee account in the name of “Horsky Holdings” at an offshore bank in Zurich, Switzerland (the “Swiss Bank”) to conceal his financial transactions and accounts from the IRS and the U.S. Treasury Department. 
In 2008, Horsky received approximately $80 million in proceeds from selling Company A’s stock. Horsky filed a fraudulent 2008 tax return that underreported his income by more than $40 million and disclosed only approximately $7 million of his gain from the sale. The Swiss Bank opened multiple accounts for Horsky to assist him in concealing his assets: including one small account for which Horsky admitted that he was a U.S. citizen and resident and another much larger account for which he claimed he was an Israeli citizen and resident. Horsky took some of his gains from selling Company A’s stock and invested in Company B’s stock. By 2015, Horsky’s offshore holdings hidden from the IRS exceeded $220 million. 
Horsky directed the activities in his Horsky Holdings’ account and the other accounts he maintained at the Swiss Bank, despite the fact that he made no effort to conceal that he was a U.S. resident. In 2012, Horsky arranged for an individual referred to as Person A to take nominal control over his accounts at the Swiss Bank because the bank was closing accounts controlled by U.S. persons. The Swiss Bank later helped Person A relinquish that individual’s U.S. citizenship, in part to ensure that Horsky’s control over the offshore accounts would not be reported to the IRS. In 2014, Person A filed a false Form 8854 (Initial Annual Expatriation Statement) with the IRS that failed to disclose his net worth on the date of expatriation, failed to disclose his ownership of foreign assets, and falsely certified under penalties of perjury that he was in compliance with his tax obligations for the five preceding tax years. 
Horsky’s tax evasion scheme ended in 2015 when IRS special agents confronted him at home regarding his concealment of his foreign financial accounts. 
Horsky willfully filed fraudulent federal income tax returns that failed to report his income from, and beneficial interest in and control over, his foreign financial accounts. In addition, Horsky failed to file Reports of Foreign Bank and Financial Accounts (FBARs) up and through 2011, and also filed fraudulent 2012 and 2013 FBARs. In total, in a 15-year tax evasion scheme, Horsky evaded more than $18 million in income and gift tax liabilities. 
I have not yet obtained any documents that may have been filed and posted to Pacer from yesterday.  I did gather some of the documents earlier in the week.  They are:
  • The plea agreement, here.
  • Horsky's Motion to Seal a Document he submitted, here.
  • Horsky's Sentencing Memo, here.
  • Horsky resume submitted with Sentencing Memo, here.
  • U.S. Sentencing Memo, here.
Although I will try to get more information on what motivated the sentencing and other filings, if any, I offer the following which are comments, slightly revised, that I sent to someone earlier this week:
  1. The motion to seal is a a defense motion based on concern about affecting an ongoing investigation.  Normally, the Government files such a motion because only the Government has the interest in preserving secrecy about ongoing investigation(s).  In the same vein, Horsky asserts a law enforcement privilege normally available only to the Government as the investigator whose investigation may be compromised.  This is odd.  I don’t recall ever seeing someone other than the Government assert that privilege.  (I caution that I have not researched the issue, but I sense the point is valid.)
  2. For the same reason, I think it is odd that the defendant does not represent that his lawyers have discussed the motion to seal with the Government (although such discussion is perhaps implicit in what is said) and that the Government either has no objection or would join in the motion.  One inference that could be drawn – not a necessary inference -- is that the Government may oppose the defendant’s motion.
  3. In this regard, the motion says:  “In addition, the government has informed Defendant that a U.S.S.G. § 5K1.1 motion (“5K motion”) will be filed under seal pursuant to LCrR 49(J) and the information contained in the 5K motion will address the same subject matter as the Cooperation Memo.”  The 5.K.1. motion is a Guidelines motion to depart downward for cooperation.  Assuming the truth that the Government will file the 5K1.1 motion under seal, then, there may be some credibility as to the need to keep Horsky’s discussion of the 5K1.1 factors under seal.  (I think those 5K1.1 factors may also be relevant to the Court’s Booker discretion in § 3553(a).)  If that is true, then I presume that the Government will not oppose Horsky’s motion or actually may do something to indicate consent to it.  Still it is odd to me that such indication of no opposition or consent did not come with Horsky’s motion itself.  I would have thought that the best way to present the 5.K.1 motion would be for defense counsel to negotiate to the extent possible the contents of that motion.  Defendant’s motion may be trying to get out front of that issue after failing to get what Horsky wanted from the Government.  And even beyond 5.K.1., the motion may be addressing the Booker 3553(a) factors, although one might argue that it should not be part of the 3553(a) consideration because cooperation as a sentencing factor is adequately taken into account in the 5.K.1. motion.
  4. I do note that Horsky’s sentencing memorandum (p. 1) indicates that both his and the Government’s sealed filings will show “his extraordinary cooperation over almost two years with the government.”
  5. Going back to Horsky’s motion, there is no explanation of how the materials disclosed and information discussed in the Cooperation Memo might disclose some information that should be kept sealed.  Of course, preserving the secrecy mitigates against saying too much in the publicly filed document (the Motion to Seal) and the detailed reasoning for sealing will perhaps be disclosed in the Cooperation Memo.  In Horsky’s sentencing memorandum, he does say that his cooperation assisted investigative activity on three continents, provided extraordinary results and “was directed to an area of longstanding DOJ and IRS investigative and prosecutive interests—foreign bank accounts and foreign bank officials facilitating U.S. tax evasion,” citing the sealed memorandum (singular, presumably his).
  6. You ask the best question whether he will be sentenced to incarceration.  The defendant’s lawyers do a very good job of marshaling the sentences that support their request of no incarceration.  And, the Government requests a sentence of 20 months, far below the Guidelines range of 57-71 months.  In this regard, the Government does not mention the 5.K.1 downward departure for extraordinary cooperation, so that the sealed motion it files may include justification for the recommendation of 20 months or, alternatively, may recommend either no consideration of cooperation (perhaps even the defendant held back on the scope of cooperation), or some other recommendation short of 0 incarceration.  What the Government will do in the 5.K.1 motion is speculative, of course.  But, in all events signaling to the judge a sentence substantially below the Guidelines range may be what got the Government in trouble in the Warner case.  (BTW, Warner was represented by Mark Matthews of Caplin & Drysdale; Horsky is represented by Matt Hicks and Mark Matthews, both of Caplin & Drysdale)  I would not even speculate what sentence will be imposed, but suspect that the Government’s request for 20 months will be the highest that the judge will consider unless there is something in the sealed submissions that really turn the judge against Horsky.  [JAT Note:  this was written before sentencing; as noted above, the sentence was 7 months.]
Addendum 2/12/17 2:15pm:

The U.S. sentencing memo linked above has a litany of Horsky's acts of skullduggery.  Here are some excerpts I found interesting:
iv. Efforts to Conceal 
Horsky took additional efforts to conceal from U.S. authorities his use of funds in the Horsky Holdings and Black accounts. For example, a relationship manager at International Bank noted that Horsky had given an instruction that transfers from the accounts he controlled to at International Bank to accounts that he controlled in another country be routed through a different Swiss bank and sent in a currency other than U.S. dollars “because of secrecy issues.” Further, when a relationship manager at International Bank provided Horsky with a credit card linked to the Black Account, Horsky assured the relationship manager that he would use it outside the United States. Horsky understood that he should use it only in Europe so as to ensure that U.S. authorities would not have access to transactional data that would link him to the undeclared accounts in Switzerland. 
Although Person C formally replaced Horsky as the beneficial owner of the Horsky Holdings and S.Y. accounts, Horsky solely exercised dominion and control over those accounts, and other accounts linked to it, for his own benefit. For example, Horsky sent dozens of instructions to International Bank ordering the transfer of funds from his accounts to art galleries and auction houses throughout the world in order to purchase fine art and have it shipped to his home in the United States.
* * * * 
3. Horsky Uses Person A to Control the Horsky Holdings Account 
Starting in 2012, certain International Bank employees initiated efforts to remove Horsky from formal control of the Horsky Holdings and S.Y. Management accounts and to close his Black Account. At that time, International Bank was closing accounts owned or controlled by U.S. persons because the bank was under criminal investigation for aiding and assisting U.S. taxpayers in concealing assets and income from the IRS. At that point, Horsky could have closed the accounts at International Bank, brought the assets to the United States, admitted his conduct by entering the IRS’s voluntary disclosure program, and paid the taxes, penalties and interest. Instead, with the assistance of employees at International Bank, Horsky went deeper into the shadows to conceal his ownership of his foreign financial accounts from U.S. authorities.  
Horsky and International Bank employees agreed that the assets would remain at International Bank but that Person A, who was living in Zurich and had his/her own personal accounts with International Bank, would serve as the director of each entity and that he/she would be the sole person to exercise signatory over the entity accounts. In August 2012, Person A formally took control of the Horsky Holdings account. Person A submitted to International Bank a copy of a United Kingdom passport that stated a place of birth as “ROCHESTER USA.” Horsky continued to communicate with International Bank employees regarding the account and retained effective control over the Horsky Holdings and S.Y. Management account by acting directly and indirectly through Person A. 
5. Person A Expatriates and Renounces U.S. Citizenship 
In 2013, International Bank employees aided and assisted Person A in locating a U.S. attorney practicing in Switzerland to assist Person A in renouncing his/her U.S. citizenship. The employees assisted Person A in order to ensure that the assets in the Horsky Holdings account remained at International Bank. As part of the renunciation, Person A submitted a false annual and expatriation statement to the IRS, Form 8854, which failed to disclose Person A’s net worth and ownership of foreign assets, including land and a home that Person A purchased with funds gifted by the defendant.
The sentencing memo indicates that the tax loss for sentencing purposes is $18,479,530, consisting of federal income tax of $12,303,661, federal gift tax of $868,221 and state income tax of $5,370,867.  The aggregate amount had been paid in advance to the IRS restitution office per fn. 8.  

Note also that the indicated Guidelines range, even with acceptance of responsibility, is 57-71 months.  Since the plea was for one count of conspiracy (although the conspiracy was both offense and defraud), the maximum sentence was 60 months.  And, of course, he got a sentence far, far less than the maximum or the bottom of the Guidelines range.  I discuss that above.

For other articles, see:

  • David Voreacos, Credit Suisse client latest test to leniency in tax fraud cases (TaxProToday with Bloomberg News article 2/10/17), here.

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