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.

Martin Calzada, 30, Norwalk, California, was sentenced to nine years in prison; Juan Curiel, 38, Visalia, California was sentenced to three years and five months in prison; and Santiago Palacios-Hernandez, 48, Salinas, California, was sentenced to two years and seven months in prison, in connection with their roles in a mortgage elimination scam in Bakersfield, Visalia and Salinas, California.

On March 10, 2017, Calzada was convicted by a jury of one count of conspiracy and eight counts of mail fraud affecting a financial institution. In December 2014, Curiel and Palacios-Hernandez pleaded guilty to conspiracy to commit mail fraud

According to evidence presented during Calzada’s four-day trial, the defendants conspired to defraud homeowners facing foreclosure. The three men operated Star Reliable Mortgage, which had offices in Bakersfield, Visalia, and Salinas, and targeted distressed homeowners with a fraudulent “loan elimination” scheme. Between approximately August 2010 and October 2011, Star Reliable charged clients an upfront fee for its services — ranging from $2,500 up to $4,500 — as well as monthly fees, for ostensibly helping the clients own their homes “free and clear.” Clients paid hundreds of thousands of dollars to Star Reliable and at least $300,000 was transferred from Star Reliable into Calzada’s bank accounts.

To advance the scheme, Calzada, Curiel, and Palacios-Hernandez filed fraudulent documents at county recorders’ offices on behalf of the homeowner-clients. The fraudulent documents purported to replace the legitimate property trustees with fictitious trusts, all in an effort to “cloud title” and halt or stall the foreclosure process. The defendants and other employees working at their direction told Star Reliable clients to stop paying their mortgages. They also falsely represented that Star Reliable clients had $1 million in a U.S. government account that could be used to pay off a homeowner’s mortgage.

As part of their sentences, the defendants were ordered to pay more than $1.1 million dollars in restitution to former Star Reliable clients and mortgage loan owners Fannie Mae and Freddie Mac, which suffered financial losses upon the foreclosure of several clients’ homes.

Chief U.S. District Judge Lawrence J. O’Neill handed down the sentences.  U.S. Attorney Phillip A. Talbert made the announcement.These cases were the product of an investigation by the Federal Bureau of Investigation and the Tulare County District Attorney’s Office. Assistant U.S. Attorneys Christopher D. Baker and Patrick J. Suter prosecuted the cases.

Martin Calzada, 29, Norwalk, California was found guilty by a federal jury after a four-day trial, of one count of conspiracy to commit mail fraud and eight counts of mail fraud affecting a financial institution.

According to evidence presented at trial, Calzada conspired to defraud homeowners facing foreclosure. Calzada and other employees of Star Reliable Mortgage, which had offices in Bakersfield, Visalia, and Salinas, California, targeted distressed homeowners with a fraudulent “loan elimination” scheme. Between approximately August 2010 and October 2011, Star Reliable charged clients an upfront fee for its services – ranging from $2,500 up to $4,500 – as well as monthly fees, based on false promises that the clients could own their homes “free and clear” as a result of Star Reliable’s services. Clients paid hundreds of thousands of dollars to Star Reliable and at least $300,000 was transferred from Star Reliable into Calzada’s bank accounts. In furtherance of the scheme, Calzada and other employees at Star Reliable filed at county recorders’ offices fraudulent documents on behalf of the homeowner-clients, which purported to replace the legitimate property trustees with fictitious trusts affiliated with the defendant and Star Reliable, all in an effort to “cloud title” and halt or stall the foreclosure process. Additionally, Calzada, and other employees working at his direction told Star Reliable clients to stop paying their mortgages. They also falsely represented that Star Reliable clients had one million dollars in a U.S. government account that could be used to pay-off a homeowner’s mortgage.

Calzada was remanded into custody following the announcement of the verdict. In a related case in December 2014, co-conspirators Juan Ramon Curiel, 38, Visalia, California and Santiago Palacios-Hernandez, 47, Salinas, California, pleaded guilty to conspiracy to commit mail fraud. Curiel additionally pleaded guilty to one count of bankruptcy fraud. They are scheduled to be sentenced by Judge O’Neill on April 10, 2017.

Calzada is scheduled to be sentenced by Judge O’Neill on June 5, 2017. Calzada faces a maximum statutory penalty of 30 years in prison and a $1,000,000 fine. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.

United States Attorney Phillip A. Talbert announced the verdict. The trial was held before United States Chief District Judge Lawrence J. O’Neill.

This case was the product of an investigation by the Federal Bureau of Investigation and the Tulare County District Attorney’s Office. Assistant United States Attorneys Christopher D. Baker and Patrick J. Suter are prosecuting the case.