Billionaire Justice: Olenicoff Avoided Jail,
Beanie Babies Founder Warner Should Too, Lawyers Say
Lawyers for Beanie Babies creator H. Ty Warner are arguing he should avoid jail for hiding $106 million offshore, not only because of his good works, rough childhood and advanced age (69), but also because others convicted of having big secret stashes have avoided the clink.
High on the lawyers’ list of offshore offenders who got off with community service, probation, or at worst, home detention, is California real estate developer Igor Olenicoff, the Forbes 400 member who pleaded guilty in 2007 to the felony of filing a false tax return and admitted hiding more than $200 million at UBS AG and other offshore banks. U.S. prosecutors, in a deal the Department of Justice later came to regret, didn’t require Olenicoff to plead guilty to evading tax—which could have led to several years of jail time under the U.S. Sentencing Guidelines—and didn’t object to his avoiding any jail or confinement. Instead, Olenicoff paid $52 million in back federal taxes, interest and civil fraud penalties and was sentenced to two years of probation.
Warner, who pleaded guilty in September to one count of tax evasion, is scheduled to be sentenced in Chicago federal court on January 14th. He has already paid a $53 million fine for failing to file the required Foreign Bank Account Reports (FBARs) —a penalty that equals 50% of the maximum he had offshore. According to his attorneys’ sentencing memo filed with the court, he is expected to pay at least another $16 million in back taxes and interest on the earnings on the secret account he opened with UBS in 1996, after Beanies hit big, and kept hidden from the government and his own lawyers and accountants until the fall of 2009. At that point, Warner tried to fess up and enter the government’s offshore account criminal amnesty program, but was turned down because prosecutors already had his name, making him ineligible for the program. More than 39,000 taxpayers have been granted amnesty from criminal prosecution since the Internal Revenue Service started its Offshore Voluntary Disclosure Program in 2009. Warner’s name was one of 285 that UBS turned over to the U.S. government in February 2009 as part of a deal that allowed the big bank to avoid prosecution and the IRS may have been tipped off to Warner even earlier.
Even with the credit Warner is expected to get for cooperating with the government, the U.S. Sentencing Guidelines, which ramp up the recommended jail term as the dollar size of the evasion grows, suggest he should go to jail for 46 to 57 months. However, following Supreme Court rulings, judges are free to depart from the guidelines, and have shown a willingness to so, even without prosecutors’ agreement, in tax cases and particularly tax cases involving rich old folks with secret offshore accounts. In the fiscal year ended Sept. 30, 2013, the U.S. Sentencing Commission’s most recent report shows, only 35% of the 600 tax defendants sentenced got within guideline sentences, with just one getting a higher than guideline sentence and the rest getting off more lightly. Moreover, according to a tally by Warner’s attorneys of 47 most recent offshore tax case sentencings, beginning with Olenicoff’s in early 2008, 63% of those defendants have gotten off without jail time. (Still, rich folks have on occasion gone to jail in the U.S. for offshore tax crimes. One current member of the Forbes 400, Leandro Rizutto, the founder of Conair, was sentenced to 37 months in 2002 for depositing millions in kickbacks from suppliers into foreign accounts.)
Warner’s lawyers ask that he get probation, “conditioned upon substantial community service.”
Olenicoff is of particular relevance, not only because he avoided jail, but because Warner’s lawyers say that the pre-sentencing report prepared by a U.S. Probation Officer (a sealed document) mistakenly asserted that Warner had the biggest offshore bank account found to date. But Olenicoff admitted to keeping twice as much offshore and Warner’s lawyers write that they also know of an individual accepted into the amnesty program who had $240 million secretly stashed offshore and others given amnesty who had in excess of $100 million.
In their 43 page filing, which is complemented by two volumes of sealed character references, Warner’s attorneys portray him as a college drop-out who had little sophistication in tax matters and soon regretted his secret account, but did not know how to come clean. His lawyers say Warner, who Forbes estimates is worth $2.6 billion (he owns New York’s Four Season hotel, as well as toy company Ty, Inc.) has paid $1 billion in taxes over his lifetime and has given away more to charity than he could claim tax deductions for. They wrote: “In fact, Ty has routinely let nearly $16 million of tax deductions earned through his charity work expire unused. These acts are consistent with other facts of Ty’s financial life that belie any fixation on personal wealth. For years, he has carried tens of millions of dollars in net operating loss carry forwards for tax purposes, and even after paying all the taxes in this matter, will still have in excess of $130 million in net operating losses on his current return. He has not structured his businesses to avoid paying taxes at all costs, unlike some companies that have chosen to designate foreign countries as their `home’ solely for tax purposes. Counsel for Ty was stunned to learn that he does not even have a current will nor any structure designed to minimize estate taxes. Simply put, his financial life has not been driven by tax consequences.”
Warner’s attorneys include his Chicago legal counsel, Gregory J. Scandaglia, and white collar crime heavy hitters Mark M. Matthews, a former Deputy IRS Commissoner and IRS Criminal Investigation chief who is now a partner with Caplin & Drysdale and Michael J. Garcia, a former U.S. Attorney for the Southern District of New York who is now a partner with Kirkland & Ellis.
High on the lawyers’ list of offshore offenders who got off with community service, probation, or at worst, home detention, is California real estate developer Igor Olenicoff, the Forbes 400 member who pleaded guilty in 2007 to the felony of filing a false tax return and admitted hiding more than $200 million at UBS AG and other offshore banks. U.S. prosecutors, in a deal the Department of Justice later came to regret, didn’t require Olenicoff to plead guilty to evading tax—which could have led to several years of jail time under the U.S. Sentencing Guidelines—and didn’t object to his avoiding any jail or confinement. Instead, Olenicoff paid $52 million in back federal taxes, interest and civil fraud penalties and was sentenced to two years of probation.
Warner, who pleaded guilty in September to one count of tax evasion, is scheduled to be sentenced in Chicago federal court on January 14th. He has already paid a $53 million fine for failing to file the required Foreign Bank Account Reports (FBARs) —a penalty that equals 50% of the maximum he had offshore. According to his attorneys’ sentencing memo filed with the court, he is expected to pay at least another $16 million in back taxes and interest on the earnings on the secret account he opened with UBS in 1996, after Beanies hit big, and kept hidden from the government and his own lawyers and accountants until the fall of 2009. At that point, Warner tried to fess up and enter the government’s offshore account criminal amnesty program, but was turned down because prosecutors already had his name, making him ineligible for the program. More than 39,000 taxpayers have been granted amnesty from criminal prosecution since the Internal Revenue Service started its Offshore Voluntary Disclosure Program in 2009. Warner’s name was one of 285 that UBS turned over to the U.S. government in February 2009 as part of a deal that allowed the big bank to avoid prosecution and the IRS may have been tipped off to Warner even earlier.
Even with the credit Warner is expected to get for cooperating with the government, the U.S. Sentencing Guidelines, which ramp up the recommended jail term as the dollar size of the evasion grows, suggest he should go to jail for 46 to 57 months. However, following Supreme Court rulings, judges are free to depart from the guidelines, and have shown a willingness to so, even without prosecutors’ agreement, in tax cases and particularly tax cases involving rich old folks with secret offshore accounts. In the fiscal year ended Sept. 30, 2013, the U.S. Sentencing Commission’s most recent report shows, only 35% of the 600 tax defendants sentenced got within guideline sentences, with just one getting a higher than guideline sentence and the rest getting off more lightly. Moreover, according to a tally by Warner’s attorneys of 47 most recent offshore tax case sentencings, beginning with Olenicoff’s in early 2008, 63% of those defendants have gotten off without jail time. (Still, rich folks have on occasion gone to jail in the U.S. for offshore tax crimes. One current member of the Forbes 400, Leandro Rizutto, the founder of Conair, was sentenced to 37 months in 2002 for depositing millions in kickbacks from suppliers into foreign accounts.)
Warner’s lawyers ask that he get probation, “conditioned upon substantial community service.”
Olenicoff is of particular relevance, not only because he avoided jail, but because Warner’s lawyers say that the pre-sentencing report prepared by a U.S. Probation Officer (a sealed document) mistakenly asserted that Warner had the biggest offshore bank account found to date. But Olenicoff admitted to keeping twice as much offshore and Warner’s lawyers write that they also know of an individual accepted into the amnesty program who had $240 million secretly stashed offshore and others given amnesty who had in excess of $100 million.
In their 43 page filing, which is complemented by two volumes of sealed character references, Warner’s attorneys portray him as a college drop-out who had little sophistication in tax matters and soon regretted his secret account, but did not know how to come clean. His lawyers say Warner, who Forbes estimates is worth $2.6 billion (he owns New York’s Four Season hotel, as well as toy company Ty, Inc.) has paid $1 billion in taxes over his lifetime and has given away more to charity than he could claim tax deductions for. They wrote: “In fact, Ty has routinely let nearly $16 million of tax deductions earned through his charity work expire unused. These acts are consistent with other facts of Ty’s financial life that belie any fixation on personal wealth. For years, he has carried tens of millions of dollars in net operating loss carry forwards for tax purposes, and even after paying all the taxes in this matter, will still have in excess of $130 million in net operating losses on his current return. He has not structured his businesses to avoid paying taxes at all costs, unlike some companies that have chosen to designate foreign countries as their `home’ solely for tax purposes. Counsel for Ty was stunned to learn that he does not even have a current will nor any structure designed to minimize estate taxes. Simply put, his financial life has not been driven by tax consequences.”
Warner’s attorneys include his Chicago legal counsel, Gregory J. Scandaglia, and white collar crime heavy hitters Mark M. Matthews, a former Deputy IRS Commissoner and IRS Criminal Investigation chief who is now a partner with Caplin & Drysdale and Michael J. Garcia, a former U.S. Attorney for the Southern District of New York who is now a partner with Kirkland & Ellis.