Steven R. Hinz pleaded guilty to tax fraud and mortgage fraud charges in a Cleveland, Ohio, federal court. Hinz‘s guilty pleas followed recent guilty pleas of three other defendants””Heather L. English, Patricia A. Polk, and William E. Phillips, III“”who were charged in indictment in December 2011 on a tax conspiracy and various false return charges. The case is assigned to U.S. District Judge Patricia A. Gaughan, who scheduled the sentencing for January 2013.
Hinz pleaded guilty to one count of conspiracy to defraud the United States, one count of making a false 2008 income tax return, 15 counts of aiding and assisting the preparation of false income tax returns, and one count of conspiracy to commit bank fraud involving a mortgage fraud scheme. On October 11, 2012, co-defendant Polk also pleaded guilty to the tax fraud conspiracy and the bank fraud conspiracy. On October 4, 2012, co-defendant English pleaded guilty to tax fraud conspiracy and one count of aiding and assisting the preparation and presentation of Hinz‘s false 2008 tax return.
Also on October 4, 2012, co-defendant Phillips pleaded guilty to the tax fraud conspiracy. Hinz was arrested in Miami in January 2012 and Polk was arrested in Sarasota, Florida, in February 2012. Phillips was arrested in Los Angeles in June 2012 after being deported from the Philippines upon request of the U.S. government. Hinz and Polk were also charged with the bank fraud conspiracy in supplemental information that was filed with the district court.
According to the indictment and documents submitted to the court, Hinz promoted a scheme to defraud the United States by filing false federal income tax returns claiming large tax refunds using the so-called Original Issue Discount (OID) process. The OID process involved the preparation of fictitious IRS Forms 1099-OID, falsely reporting that financial institutions, creditors, and other entities had withheld large amounts of federal income tax on behalf of the defendants and other taxpayers, with respect to fictitious income.
Hinz and English recruited potential clients by promoting the OID scheme to investors and employees of Hinz‘s real estate business in Youngstown, Ohio. English prepared or directed the preparation of the 1099-OID forms and prepared and electronically filed the tax returns. Based on these fictitious withholdings, at least 17 false income tax returns for the year 2008 were filed with the IRS, claiming false refunds totaling over $3 million dollars. Under the scheme, taxpayers recruited by Hinz were to pay 20 percent of their refunds to Hinz and English, split equally between the two.
According to the supplemental information and other documents filed with the court, from approximately December 2006 through May 2009, Hinz conducted his real estate business in part through a scheme to defraud two federally-insured banks, Wells Fargo Bank and Huntington National Bank, which provided mortgage loans to the investors. The scheme was carried out through the filing of false mechanic’s liens for work not actually done and the providing of undisclosed down payment assistance to the investors. The scheme was designed to induce the banks to make mortgage loans based on false representations concerning the true price and value of the properties, the sources of down payments, and the disposition of loan proceeds. According to court documents, Polk began conspiring with Hinz to conduct the scheme beginning approximately April 2008.
Each defendant’s sentence will be determined by Judge Gaughan. The maximum potential sentence for Hinz is 83 years in prison. The maximum potential sentence for Polk is 35 years. The maximum potential sentence for Phillips is five years. The maximum potential sentence for English is eight years in prison.
The Justice Department and Internal Revenue Service (IRS) announced the guilty plea.
The case is being handled by Assistant U.S. Attorneys John M. Siegel and Henry F. DeBaggis and Tax Division Trial Attorney Robert C. Kennedy, following investigation by the IRS, Criminal Investigation, the Office of Investigations of the Department of Housing and Urban Development Office of Inspector General and the FBI.