Robert Jon Schlyer, 47, Portage, Indiana, a lawyer licensed to practice in Illinois, was convicted on federal fraud charges for scheming to provide falsified documents to prevent foreclosure on a nearly $2 million parcel of land in Aurora.  The fraud left an elderly couple out of $300,000.  The jury in federal court in Chicago convicted Schlyer of two counts of wire fraud affecting a financial institution, and one count of bank fraud.

Schlyer’s fraud scheme occurred while representing two clients, co-schemers Kevin Lebeau and Brian Bodie, in connection with a foreclosure lawsuit.  Evidence at trial revealed that Schlyer provided false and fraudulent documents to an elderly couple and Amcore Bank in order to postpone foreclosure on the Aurora property.

The jury returned the guilty verdicts on October 6, 2017, after a four-day trial.  U.S. District Judge Amy J. St. Eve set sentencing for January 31, 2018, at 9:15 a.m.  Each count carries a maximum sentence of 30 years in prison.

According to evidence at trial, in 2004 Amcore Bank received a mortgage on the 10.4-acre property in Aurora after issuing a $1.9 million loan for the refinancing and redevelopment of the property.  Lebeau and Bodie executed a full personal guarantee for the loan.  By the fall of 2005, Lebeau and Bodie had failed to make the required payments, the loan was in default, and the bank filed a foreclosure lawsuit to seize the property.

During the scheme, Schlyer, who acted as Lebeau’s and Bodie’s attorney in the foreclosure suit, obtained $300,000 from an elderly retired couple by providing them with fake documents that made it seem like they were making a safe investment in the redevelopment and that it would be secured by a trust.  Schlyer also claimed to be the trustee of the purported trust.  In reality, there was no trust and Schlyer was not a trustee.  Schlyer and his co-schemers also concealed from the elderly couple the foreclosure suit and LeBeau’s and Bodie’s inability to pay the bank debt.  A portion of funds obtained from the elderly couple through the fraud was used to pay down the bank loan.

Together with his co-schemers, Schlyer furnished fraudulent and fabricated documents to the bank, including forged documents that made it appear that investors had committed approximately $1.5 million to the redevelopment of the property.  Eventually the foreclosure occurred, and the property was sold in 2010 at a significant loss to the bank.

LeBeau, of Aurora, and Bodie, of Chicago, were previously convicted in the case and are awaiting sentencing before U.S. District Judge Robert W. Gettleman.

The conviction was announced by Joel R. Levin, Acting United States Attorney for the Northern District of Illinois; and John P. Selleck, Acting Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.The government is represented by Assistant U.S. Attorneys Kartik K. Raman and Amarjeet S. Bhachu.

Ignacio Beato, 46, Hazleton, Pennsylvania, was sentenced by United States District Court Judge James M. Munley to 51 months’ imprisonment, followed by three months supervised release for conspiracy to engage in monetary transactions through a financial institution, with funds that were the proceeds of wire fraud.

According to United States Attorney Bruce D. Brandler, Beato, who was a licensed realtor, falsely represented to potential purchasers that he was authorized to sell vacant conventional and Federal Housing Administration insured mortgaged properties in Hazleton, when in fact, he did not have such authority. Between December 2013 and March 2015, Beato accepted $751,082 from individuals who believed they were purchasing properties.  Beato then fraudulently converted that money to his own personal use.

Judge Munley ordered Beato to pay restitution in the amount of $65,000. The reduced restitution amount was due to a number of factors including the fact that some victims were not able to be located and others have filed civil lawsuits attempting to regain their funds. The Internal Revenue Service also previously forfeited $35,000 from Beato’s bank accounts.

The case was investigated by the Internal Revenue Service, Criminal Investigations, the Housing and Urban Development Office of the Inspector General, the Department of Homeland Security, the Pennsylvania State Police, and the Luzerne County District Attorney’s Office.  Assistant U.S. Attorney Jenny P. Roberts prosecuted the case.

Robert Pena, 68, Falmouth, Massachusetts, pled guilty in federal court in Boston in connection with defrauding the Government National Mortgage Association (Ginnie Mae) out of approximately $2.5 million. Pena pleaded guilty to one count of conspiracy and six counts of wire fraud.  U.S. Senior District Court Judge Mark L. Wolf scheduled sentencing for January 5, 2018.

Pena was president and founder of the now-defunct mortgage company, Mortgage Security Inc. (MSI), which contracted with Ginnie Mae to pool eligible residential mortgage loans and then sell Ginnie Mae-backed mortgage bonds to investors.  MSI was responsible for servicing the loans in the pools it created, including collecting principal and interest payments from borrowers, as well as loan payoffs, and placing those funds into accounts held in trust by Ginnie Mae, which would ultimately pass them along to investors.  Among other things, Ginnie Mae required issuers like MSI to provide regular reports concerning the status of the loans in the pools.

Beginning in 2011, Pena began diverting money that borrowers were sending to MSI.  Specifically, Pena deposited high-dollar, loan-payoff checks into bank accounts unknown to Ginnie Mae and then used those funds for personal and business expenses.  Pena also diverted borrowers’ escrow funds and mortgage-insurance premiums for his own use.  In total, Pena took approximately $2.5 million, which Ginnie Mae then had to pay to the investors whose investments it had guaranteed.  Pena also attempted to cover up his scheme by providing false reports to Ginnie Mae about the status of the loans MSI was servicing.

The charging statues provide for a sentence of no greater than 20 years in prison, three years of supervised release and a fine of $250,000 or twice the gross gain or loss.

Acting United States Attorney William D. Weinreb; Christina Scaringi, Special Agent in Charge of the U.S. Department of Housing and Urban Development, Office of Inspector General, Northeast Regional Office; and Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division, made the announcement.  Valuable assistance was provided by the U.S. Department of Veterans Affairs, Office of Inspector General; the U.S. Department of Agriculture, Office of Inspector General; and the Falmouth Police Department.  Assistant U.S. Attorney Brian LaMacchia of Weinreb’s Civil Division is prosecuting the case.

Kevin Frank Rasher, 45, Orange County, California, was sentenced to 97 months in federal prison Friday for fraudulently taking $2.2 million from distressed homeowners based on false promises that he could help them avoid foreclosure by obtaining modifications to their mortgages.   Rasher, who has been in custody since his arrest at his Coto de Caza residence over a year ago, pled guilty to 12 counts of mail fraud in May. Rasher was sentenced by United States District Judge Josephine L. Staton who also ordered him to pay $2.24 million in restitution to his victims.

According to court documents, Rasher admitted that, between 2011 and March 2016, he falsely told distressed homeowners that he was an employee of the U.S. Department of Housing and Urban Development and/or an attorney, and that the homeowners had been approved for a reduced mortgage payment or interest rate. Rasher then instructed the homeowners to mail their mortgage payments to one of his businesses, claiming that he would forward the money to the homeowners’ mortgage lenders. Instead of forwarding the money to the mortgage lenders, Rasher deposited the money into his bank accounts and used it to pay his own personal expenses.

Rasher admitted that he fraudulently obtained approximately $2.24 million from more than 500 victims.

This case was investigated by the U.S. Department of Housing and Urban Development, Office of the Inspector General; the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); the United States Postal Inspection Service; the Federal Housing Finance Agency’s Office of the Inspector General; and the Federal Bureau of Investigation.

The case against Rasher was prosecuted by Assistant United States Attorneys Rosalind Wang and Robert J. Keenan of the Santa Ana Branch Office.

David Harris Lavine, 58, Rockville, Maryland, was indicted by a grand jury on charges of theft of bank funds by a bank officer and bank fraud and Lavine and Charles L. Tobias, 56, Potomac, Maryland were indicted for conspiracy to defraud the Internal Revenue Service and tax evasion.

From March 2010 until January 2011, Lavine was the Acting President of CFG Community Bank.  From January 2011 until August 2011, Lavine was president of the bank affiliate, Capital Financial Ventures, LLC. According to the indictment, Lavine, while acting President, diverted $100,000 of bank funds to his own benefit.  The indictment also charges that while president of the bank affiliate, Lavine devised a scheme to defraud CFG Community Bank, a state member bank supervised by the Federal Reserve Board, through the re-finance of bank-owned mortgage loans and the diversion of loan proceeds to his personal benefit and the benefit of a friend.

According to court documents, Lavine used his position at Capital Financial Ventures to pose as the CEO/President of CFG Community Bank. For example, Lavine invited the borrowers of two loans with balances totaling over $7.5 million, to refinance those loans with other financial institutions for a lower mortgage and pay off CFG Community Bank.  At Lavine’s direction, the settlement company sent the mortgage loan payoff not to CFG Community Bank but to another company so that Lavine could divert in excess of $775,000.   Lavine created false correspondence with the loan borrowers to provide to CFG Community Bank to conceal the diversion from CFG Community Bank.

According to the indictment, Lavine and Tobias owned Capital T Partners Brookfield, LLC, a Maryland limited liability corporation. In the fall 2011, Lavine and Tobias decided to realize a profit from a group of non-performing mortgages by fraudulently “donating” some of the mortgages to a charity as an in-kind donation and thereby receiving a valuable tax deduction for Capital T Partners Brookfield which would pass through to their personal income tax returns.  Lavine is also charged with tax evasion for two years for failing to report the monies he received through the bank offenses and using the fraudulent charitable contribution as a deduction.  Tobias is charged with tax evasion for failing to report income and also using the fraudulent charitable deduction.

The maximum possible penalties for the bank offenses are thirty years in prison and/or a $1 million fine per count and 5 years in prison and /or $250,000 per count for the tax charges.

The indictment was announced by Acting United States Attorney for the District of Maryland Stephen M. Schenning; Special Agent in Charge Gordon B. Johnson of the Federal Bureau of Investigation, Baltimore Field Office; Special Agent in Charge Kimberly Lappin of the Internal Revenue Service-Criminal Investigation; Assistant Inspector General Gerald Maye of the Federal Reserve Board Office of Inspector General and Special Agent in Charge Michael McGill of the Social Security Administration, Office of Inspector General.

Acting United States Attorney Stephen M. Schenning commended the IRS, FBI, the Office of Inspector General for the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau and SSA-IG for their work in the investigation.  Mr. Schenning thanked Assistant United States Attorney Joyce K. McDonald who is prosecuting the case.

Kwame Insaidoo, 61, Bay Shore, Long Island, New York, the former executive director of United Block Association (“UBA”), a New York-based non-profit organization, was sentenced to 48 months in prison and his wife and Roxanne Isaidoo, 63, Bay Shore, Long Island, New York, was sentenced to 30 months in prison, in connection with their embezzlement of over $580,000 from UBA, defrauding their mortgage lender of approximately $200,000, and related crimes.  They were convicted on May 2, 2017, following a one-week jury trial before United States District Judge Valerie E. Caproni, who also imposed today’s sentence.

According to the Indictment, other filings in Manhattan federal court, and the evidence admitted at trial:

In 2011, Kwame Insaidoo and Roxanne Isaidoo engaged in a scheme to defraud their mortgage lender in connection with a modification of their mortgage under the federally-sponsored Home Affordable Modification Program, by underreporting their income and assets, including the hundreds of thousands of dollars they had embezzled from UBA.  This scheme led to a write-off of almost $200,000 from Kwame Insaidoo and Roxanne Isaidoo’s home mortgage.

UBA was a non-profit organization headquartered in New York, New York, that was controlled by Kwame Insaidoo, its former Executive Director.  UBA had contracts with New York City through which it received taxpayer funds, including federal funds, to operate and provide healthy meals and programming to the elderly at four senior centers in Upper Manhattan.

As the jury found, Kwame Insaidoo abused his authority as UBA’s Executive Director to embezzle, with the assistance of his wife, Roxanne Isaidoo, over $580,000 of UBA’s funds for his own benefit and that of his wife and son.  Kwame Insaidoo and Roxanne Isaidoo concealed their embezzlement by laundering the money, in part, through a shell company that they had created.  Kwame Insaidoo and Roxanne Isaidoo used the embezzled funds to pay for personal expenses, including the mortgage for their Long Island residence and the purchase of a Mercedes Benz and a Cadillac.  They also wired more than $300,000 to family members living abroad.    

In an effort to evade scrutiny regarding the embezzled funds, Kwame Insaidoo repeatedly lied to the City, including to its auditors, in order to maintain UBA’s funding and to conceal the funds he and his wife had diverted to their shell company. 

 

Acting U.S. Attorney Joon H. Kim said:  “As a Manhattan jury found, Kwame Insaidoo and Roxanna Insaidoo stole hundreds of thousands of dollars from a government-funded non-profit organization dedicated to serving senior citizensThe Insaidoos enriched themselves and their family with taxpayer money that was supposed to support four senior centers in Upper Manhattan.  Now this husband-and-wife crime duo will serve time in prison for those crimes.”  

In imposing sentence, Judge Caproni stated that the “message has to be sent” that “it is not acceptable to steal money from the City that is designed for charitable goals to line your own pockets.

In addition to the prison terms imposed today by Judge Caproni, Kwame Insaidoo and Roxanne Isaidoo were ordered to forfeit a sum of $779,039.62.

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced the sentence and praised the outstanding investigative work of the New York City Department of Investigation and the Criminal Investigators of the United States Attorney’s Office for the Southern District of New York.

The case is being handled by the Office’s Public Corruption Unit.  Assistant U.S. Attorneys Eli J. Mark and David Zhou are in charge of the prosecution.

Ben Leske, 40, Puyallup, Washington, who worked as a loan officer for PC Bank Home Loans, a division of Pierce Commercial Bank, between 2005 and 2008 was sentenced to 30 days of home detention, 100 hours of community service, two years of supervised release and more than $131,000 in restitution. Leske pleaded guilty in May 2017, to making false statements on loan applications.

According to records in the case, between 2004 and 2008, the architect of the fraud, Shawn Portmann, and other members of the conspiracy submitted false documents within various loan documents and applications.  They falsified information about the borrowers’ qualifications as well as their intention to reside in the homes being financed.  A review of a sample of conventional and HUD loans showed that members of the conspiracy closed over 300 loans with false and fraudulent documents and information.  More than half of this sample of loans have defaulted or otherwise caused loss, causing an estimated loss of more than $10 million to Pierce Commercial Bank, secondary investors and HUD/FHA.  Court records detail multiple false statements included in loan documents regarding an applicant’s employment, income, and intention to reside in the property. 

Pierce Commercial Bank was closed by regulators in November 2010.  Pierce Commercial Bank received $6.8 million from Troubled Asset Relief Program (TARP) in January 2009.  This money was never repaid.

Shawn Portmann and nine other defendants were prosecuted and sentenced between 2011 and 2013, with sentences ranging from probation to the ten-year prison sentence for Portmann.  Five additional conspirators were charged in 2017.  In addition to Leske, four others sentenced in the 2017 case include: Sam Tuttle, 54, Tacoma, Washington, a Vice-President of PC Bank Home Loans was sentenced to three years of supervised release; Angela Crozier, 44, Olympia, Washington, a loan processor was sentenced to one year of supervised release; Ed Rounds, 53, Puyallup, Washington, a loan officer was sentenced to two years of supervised release and Craig Meyer, 55, Dickenson, Texas, a Vice President and loan officer was sentenced to one year of supervised release.

Those whose crimes deepened the damage from the 2008 financial crisis deserve to be punished just like any other criminal”, said U.S. Attorney Annette L. Hayes in announcing the sentence.  “This defendant and 14 other well-paid bank employees from loan officers to bank vice presidents forged documents and made false statements to close loans they knew were not sound.  The result was the collapse of Pierce Commercial Bank and the expenditure of nearly $7 million of taxpayer funds to address the financial mess these defendants left behind.”

With the sentencing of mortgage banker Ben Leske, 15 bank employees have now faced justice for a conspiracy that directly contributed to Pierce Commercial Bank’s failure and the loss of $6.8 million in TARP bailout funds,” said Special Inspector General for the Troubled Asset Relief Program Christy Goldsmith Romero. “Ringleader Shawn Portmann, who was sentenced to 10 years in federal prison for his crimes, created a culture at PC Bank Home Loans, Pierce Commercial Bank’s mortgage lending office, where all loans applications were expected to approved, regardless of the applier’s ability to repay.  Under this ‘close every loan’ culture, he and his co-conspirators submitted false and fraudulent documents showing borrowers who appeared qualified for mortgages when in fact they were not. As a result, PC Bank Home Loans greatly expanded the residential mortgage lending operations of Pierce Commercial Bank prior to the financial crisis from no more than $3.9 million a month to nearly $500 million a year. I thank the U.S. Attorney’s Office for their commitment to fighting fraud related to TARP.”

Leske was sentenced by U.S. District Judge Benjamin H. Settle. The case was investigated by the FBI, the HUD Office of Inspector General (HUD-OIG), Internal Revenue Service Office of Criminal Investigation (IRS-CI), the Washington State Department of Financial Institutions, Office of Inspector General for the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau, the Federal Housing Finance Agency Office of Inspector General (FHFA-OIG) and the United States Postal Inspection Service.  

The case was prosecuted by Assistant United States Attorney Brian Werner and Special Assistant United States Attorney Hugo Torres.  Mr. Torres is a King County Senior Deputy Prosecuting Attorney specially designated to prosecute mortgage fraud in federal court.

Bruce Kevin Hawkins, 52, Desoto, Texas, was sentenced to serve 41 months in prison and pay $219,109 in restitution for his role in a foreclosure rescue scheme that exploited vulnerable homeowners facing foreclosure.

Hawkins pleaded guilty in June 2017 to one count of mail fraud.  He has been in custody since the time of his arrest in January 2017.

A federal grand jury in Dallas returned an indictment in December 2016 charging Hawkins and three others with felony offenses stemming from a “foreclosure rescue scheme” they ran from approximately February 2012 through January 2013.  Richard Bruce Stevens, 51, San Antonio, Texas, and Christina Renee Caveny, 37, Dallas, Texas, also pleaded guilty and will be sentenced later this year.  Mark Demetri Stein, 36, Carrollton, Texas, is awaiting trial.

According to documents filed in the case, Stein operated Real Estate Solutions, Stevens used Texas Real Estate Services, and Hawkins formed ERealty Mortgage Group, LLC, as foreclosure rescue companies.  The conspirators used third parties to contact homeowners and offer them an opportunity to get out of their present home loans and receive a new home loan with a reduced interest payment and reduced monthly payment.  Hawkins and other conspirators falsely represented to homeowners that they had “investors” standing by who were ready to quickly purchase the homeowner’s present loan from the lender holding the current mortgage.  They also falsely represented that they would use investors to purchase the homeowner’s loan from the original lender at a greatly reduced price through a “short sale” process.

Furthermore, Hawkins and other conspirators falsely represented to the homeowners that the homeowners had the legal authority to transfer their homeowner’s deed to the defendants.

As part of the scheme, the conspirators fraudulently required homeowners to start making all future loan payments to them based on fraudulent so-called “loans,” and they also told homeowners to ignore late payment notices sent by lenders.  As part of the scheme, the conspirators conducted a fraudulent “closing” for each homeowner where they caused the homeowner to pay them a large down payment on the new “loan,” and they also had the homeowner sign fraudulent documents, such as a promissory note, deed of trust, special warranty deed, and/or a so-called “land trust.”

Further, according to plea documents, the conspirators falsely represented to homeowners that the conspirators could “sell” their property back to the homeowner with a new loan, when the conspirators well knew they did not legally own the property.  The conspirators also told homeowners to ignore notices of nonpayment from their present lender as they continued to unlawfully collect monthly so called “mortgage payments” from homeowners.  In fact, conspirators instructed several homeowners to file for bankruptcy but to not follow up with the bankruptcy process as an additional means to delay foreclosure and conceal the conspirators’ criminal conduct.  Conspirators concealed that all down payment and monthly mortgage payments fraudulently collected from homeowners was spent for their own personal benefit.

The defendants recruited at least 70 distressed and vulnerable homeowners who were facing the imminent threat of foreclosure on their homes and fraudulently collected a total of at least $242,000 from them.

Hawkins was sentenced before U.S. District Judge David C. Godbey and the sentence was announced by U.S. Attorney John Parker of the Northern District of Texas

The Dallas FBI investigated the case.  Assistant U.S. Attorney David Jarvis prosecuted.

Celia Nipper, aka Celia Arrand, 61, Dublin, California pleaded guilty to committing wire fraud, bank fraud, and filing false tax returns in connection with a scheme to embezzle funds from a real estate technology company.

Nipper admitted in the plea agreement that in June of 2008, on two separate occasions she overstated her income in connection with fraudulent mortgage loan applications.

According to the plea agreement, Nipper admitted that while employed as an office manager, she used her position of financial control at a technology company to redirect funds intended for her employer to accounts that she controlled.  According to the plea agreement, from 2005 to 2011, while Nipper managed her company’s accounts payable and accounts receivable, invoicing, and bill paying she opened bank accounts in the name of her employer without disclosing the existence of the accounts.  She then directed customer payments to those accounts.  Nipper also admitted as part of the plea agreement that she misappropriated funds from her employer’s legitimate corporate bank accounts.  Nipper also admitted she used money belonging to her employer to pay for her own personal expenses and deposited employer funds into her personal bank accounts.  Nipper further acknowledged that her scheme defrauded the company of more than $2 million.

Further, nipper admitted that she filed false U.S. Income Tax Returns for the tax years 2009, 2010, and 2011.  In each case, she understated her income, resulting in a failure to report more than $1 million and a tax loss to the United States of at least $290,000.

On April 7, 2016, a federal grand jury indicted Nipper by superseding indictment, charging her with three counts of wire fraud, in violation of 18 U.S.C. § 1343; two counts of bank fraud, in violation of 18 U.S.C. § 1344(2); and three counts of filing a false tax return, in violation of 26 U.S.C. § 7206(1).  Pursuant to the plea agreement, Nipper pleaded guilty to all seven counts.

Judge Gilliam has scheduled Nipper’s sentencing for February 5, 2018.    The maximum statutory penalties for wire fraud and bank fraud is 20 years in prison, a $250,000 fine, and 3 years of supervised release.  The maximum statutory penalty for filing a false tax return is 3 years in prison, a $250,000 fine and 1 year of supervised release.  Additional fines, forfeitures, and special assessments also may be imposed.

The plea was announced United States Attorney Brian J. Stretch, Federal Bureau of Investigation (FBI) Special Agent in Charge John F. Bennett, and Internal Revenue Service (IRS), Criminal Investigation, Special Agent in Charge Michael T. Batdorf.  The plea was accepted by the Honorable Haywood S. Gilliam, Jr., U.S. District Judge.  The prosecution was the result of an investigation by the FBI and IRS, Criminal Investigation.

Sean David Morton, 59, Hermosa, Beach, California was sentenced to six years in federal prison and his wife, Melissa Ann Morton, 51, Hermosa Beach, California, was sentenced to two years in federal prison for using bogus financial instruments in an attempt to pay off debt and for filing fraudulent tax returns with the Internal Revenue Service that sought millions of dollars in refunds.  The Mortons were each ordered to pay $480,322 in restitution to the IRS.

Sean Morton’s sentencing follows a four-day trial in April in which he was found guilty by a federal jury of one count of conspiracy to defraud the United States, two counts of filing false claims against the United States, and 26 counts of passing false or fictitious financial instruments. Sean Morton was originally scheduled to be sentenced in June, but he failed to appear for that hearing and was a fugitive for over two months. Melissa Morton was convicted of conspiracy, two counts filing false claims and 25 counts of passing false or fictitious financial instruments

The Mortons operated a “redemption” scheme, which is the most common scheme used across the nation by tax defiers and “sovereign citizens.” Proponents of this scheme falsely claim that the United States government controls bank accounts – often referred to as “U.S. Treasury Direct Accounts” – for U.S. citizens that can be accessed by submitting paperwork with state and federal authorities. Individuals promoting this scam frequently cite bogus legal theories and may refer to the scheme as “Redemption” or “Strawman.” This scheme, which repeatedly has been rejected by courts, predominately uses fraudulent financial documents that appear to be legitimate.

The Mortons sold the bond scheme to others who were in debt to governmental organizations, such as the IRS and the State of California, and private bank institutions for mortgage or credit card debt. The Mortons charged their clients thousands of dollars to prepare and file useless UCC-1 documents declaring their clients’ “strawman” status, and to prepare and send false bonds to the government or banks which purported to pay off the clients’ debt. “The total amounts of the check/bonds [the Mortons] made and passed are astronomical – the principal amounts of said instruments range from $50,000 to $10 million,” according to court documents.

In sentencing briefs filed with the court, prosecutors said Sean Morton “touted he was a ‘paper terrorist’ when giving seminars regarding his schemes,” and he harassed and burdened the “courts with mountains of frivolous paperwork…in an effort to degrade the court system over time and make it more difficult to efficiently resolve cases, especially tax cases.”

The evidence presented at trial also showed that the Mortons filed income tax returns with the IRS that falsely claimed they had income from various banking institutions reported on Forms 1099-OID. As part of the scheme, the Mortons falsely reported large withholdings and claimed they were owed refunds from the IRS.

As a result of the scheme, the IRS erroneously issued a refund of $480,322.55 to Sean Morton for a 2008 income tax return. On the same day the refund was deposited into the Mortons’ joint bank account, the couple took immediate steps to conceal the money, which included opening two new accounts, transferring over $360,000 to the two new accounts, and withdrawing $70,000 in cash.

When the IRS took steps to collect the erroneous refund, the Mortons began a campaign to thwart the government’s collection efforts. Specifically, when the IRS placed a levy on the couple’s joint bank account, the couple repeatedly sent letters to the IRS that falsely claimed it was Melissa Morton’s sole and separate account.

When the IRS attempted to collect the erroneous refund from the Mortons, the Mortons presented to the IRS various “coupons” and “bonds” that purported to pay off their debt with the IRS. The Mortons created and submitted these bogus documents to the IRS, instructing the agency to draw upon funds with the United States Treasury to satisfy their debt.

While sentencing Sean Morton, Judge Wilson said his conduct “caused a serious disruption” to the tax system and “caused others to engage in fraudulent conduct.”

“The scheme, while outrageous, was also calculated,” Judge Wilson said.

Sean Morton was originally scheduled to be sentenced on June 19, but he failed to appear in court and was a fugitive for 61 days. During that time, Sean Morton “flagrantly flouted the law, appeared on social media, his radio program, and YouTube to brag about his status as a fugitive,” according to court papers filed by prosecutors. Soon after her husband fled, Melissa Morton was ordered not to have any contact with her husband.

The Mortons were arrested on August 21, 2017 while observing the solar eclipse poolside at a hotel in Desert Hot Springs. The following day, a United States Magistrate Judge found that they had violated the terms of their release on bond and ordered them detained.

This is a case where the defendants clearly engaged in a systematic effort to impede the tax system, undermine the efforts of prosecutors, and, in the case of Sean Morton, avoid sentencing after being convicted by a jury of his peers,” said Acting United States Attorney Sandra R. Brown. “This case sends a clear message that we will spare no effort to preserve the integrity of this nation’s institutions. The lengthy sentences also demonstrate that illegal efforts to use bogus legal theories in an effort to defraud fellow taxpayers will not be tolerated.”

The Mortons’ blatant disrespect for the law will now cost them years of valuable freedom,” stated IRS Criminal Investigation Special Agent in Charge R. Damon Rowe. “Today’s sentencing shows how seriously the courts take those individuals who attempt to lead others down a perilous financial and legal path, in addition to devising illegal tax schemes to obtain refunds to which they are not entitled.”

Morton was sentenced by and by United States District Judge Stephen V. Wilson.

The investigation of the Mortons was conducted by IRS Criminal Investigation.

The case is being prosecuted by Assistant United States Attorneys Valerie Makarewicz and James C. Hughes of the Tax Division.