Tax Fraud Blotter: Snow jobs

A fuel and his money; see ya labor; low miles but high taxes; and other highlights of recent tax cases.

Salt Lake City: A federal jury has convicted California businessman Lev Aslan Dermen, a.k.a. Levon Termendzhyan, of criminal charges relating to a $1 billion renewable fuel tax credit fraud scheme.

Dermen was the owner and operator of Noil Energy Group, a California-based fuel company; SBK Holdings USA, Inc. a Beverly Hills, California, real estate investment company; and Viscon International, a Nevada fuel additive corporation. From 2010 to 2016, Dermen conspired with the owners and operators of Washakie Renewable Energy, a Utah-based biodiesel company — including its CEO, Jacob Kingston, his brother, CFO Isaiah Kingston, and others, including their mother, Rachel Kingston and Jacob Kingston’s wife Sally — to fraudulently claim more than $1 billion in renewable federal fuel tax credits.

Dermen and Jacob Kingston shipped millions of gallons of biodiesel within the U.S. and from the U.S. to foreign countries and back again to create the appearance that qualifying renewable fuel was being produced and sold. They also doctored production and transportation records to substantiate Washakie’s fraudulent claims for more than $1 billion in IRS renewable fuel tax credits and credits related to the EPA renewable fuel standard. To further create the appearance that they were buying and selling qualifying fuel, the co-conspirators cycled more than $3 billion through multiple bank accounts.

The IRS paid more than $511 million to Washakie and the Kingstons that was distributed between them and Dermen. Jacob and Isaiah Kingston sent more than $21 million in fraudulent proceeds to SBK Holdings USA, Dermen’s California-based company, and sent $11 million to an associate of Dermen’s at his request. Jacob Kingston used $1.8 million of the fraud proceeds to buy Dermen a 2010 Bugatti Veyron, and they exchanged gifts including a chrome Lamborghini and a gold Ferrari. Dermen and Jacob Kingston also laundered $3 million through Dermen’s company, Noil Energy Group, to purchase a mansion in Sandy, Utah, for Jacob and Sally Kingston. Dermen laundered $3.5 million through SBK Holdings to purchase a mansion in Huntington Beach, California.

Dermen assured Jacob Kingston that he and the Kingstons would be immune from criminal prosecution because they would be protected by Dermen’s “umbrella” of corrupt law enforcement personnel. Jacob and Isaiah Kingston transferred over $134 million in fraudulent proceeds to companies in Turkey and Luxembourg at Dermen’s direction, in purported payment for protection.

The jury found Dermen guilty of conspiracy to commit mail fraud, conspiracy to commit money laundering, and money laundering concealment, among other charges.

The Kingstons, who are all members of a fundamentalist Mormon sect, each pleaded guilty last summer. Jacob Kingston faces a maximum of 30 years in prison. Isaiah Kingston faces a maximum of 20 years in prison, Rachel Kingston a maximum of 15 years and Sally Kingston a maximum of 15 years. They each also face a period of supervised release and will be ordered to pay $511 million in restitution to the U.S. and to forfeit the proceeds of their crimes.

Dermen faces a maximum of 20 years in prison for conspiracy to commit mail fraud, conspiracy to commit money laundering, and concealment of money laundering, and 10 years in prison for expenditure money laundering. He also faces a period of supervised release, restitution and monetary penalties.

Philadelphia: Charlie Kien, 45, of King of Prussia, Pennsylvania, has been sentenced to six months in prison and three years of supervised release and been ordered to pay a $10,000 fine for multiple charges of tax fraud.

Kien pleaded guilty in October to failing to pay employment taxes and filing false returns in connection with the operation of his former labor-leasing company, CK’s Business Services. CK’s had contracts to provide temporary employees to two local businesses: a flag manufacturer and military bandage manufacturer. In preparing and filing a 941 for both, Kien failed to account for the correct number of the company’s employees and wages paid, and failed to file W-2s for the unclaimed employees. He also paid many of his employees in cash, failing to collect and pay federal employment taxes.

For the tax years 2010 through 2012, the lost employment tax totaled some $565,872. Kien also filed false personal income tax returns, failing for tax years 2010 through 2012 to pay some $474,059 in taxes.

Meriden, Connecticut: Donald Cariati Jr., 44, has pleaded guilty to obstructing the IRS.

Cariati owns and operates Cariati Developers, a snowplow and hauling business. Between 2013 and 2017, he paid several employees with company checks asserting that they were independent contractors or subcontractors to evade the responsibility to withhold and pay over taxes to the IRS. Cariati and his company failed to issue 1099s to these workers for some years.

In late 2015, the IRS began an audit of the company. Cariati produced fraudulent invoices that were purported to have been created in 2013 and to substantiate that individuals were appropriately considered subcontractors. Investigation also revealed that in 2014 the company paid an invoice related to products for Cariati’s boat; during the audit, Cariati caused his accountant to provide to the IRS a false invoice to make it appear that the purchase was a business and not a personal expense.

Cariati agreed that the tax loss is between $550,000 and $1.5 million.

One count of obstructing or impeding the administration of the internal revenue laws carries a maximum of three years in prison. Sentencing is June 4.

Cincinnati: Businessman Gregory VanDemark, 64, has been convicted of four counts of aiding and assisting in the preparation and filing of false federal income tax returns, one count of structuring transactions to evade the reporting requirements and one count of making a false statement.

VanDemark’s IRS returns claimed he owed no taxes for 2013 and 2014, even though he earned $1 million per year from his used car business. At the same time, he owned homes in Cincinnati and Florida and a summer home on the Ohio River designed as a paddleboat replica (which he falsely deducted as a bed and breakfast). Also in 2013 and 2014, VanDemark structured more than $157,000 in cash payments made on a home mortgage to evade currency transaction reporting requirements.

VanDemark skimmed 25 percent of his business earnings to alter his taxes owed. He also claimed numerous improper deductions.

When he was interviewed by IRS agents in 2016, VanDemark said all the money he made from his business was deposited in the bank and that he never skimmed cash from his businesses.

Aiding and assisting in the preparation and filing of false income tax returns with the IRS carries a maximum of three years in prison and a fine of up to $250,000. Structuring financial transactions and making false statements carries a maximum of five years in prison and a fine of up to $250,000.

Leave a Reply

Your email address will not be published. Required fields are marked *