Tax Fraud Blotter: Any port in a storm
Using his personhood; SNAP redemptions; Ponzi-like payments; and other highlights of recent tax cases.
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Fort Myers Florida: Luis Emilio Hernandez, 45 of Naples, has been sentenced to four years in federal prison for wire fraud and illegal monetary transactions. The court also entered an order of forfeiture in the amount of $1,261,019, the proceeds of the fraud. Hernandez entered a guilty plea on March 30.
Following Hurricane Ian, between November 2022 and February 2024, the victim, an 85-year-old woman, and her husband (now deceased) were defrauded by Hernandez, who posed as a contractor to fix the victim’s residence in Naples which had been damaged by the storm.
The victim wrote personal checks to Hernandez for supplies and equipment supposedly needed by the defendant to fix the victim’s residence. The checks were never deposited, and instead were cashed against the victim’s account in amounts varying from $200 to $120,000, and in cashier’s checks payable to automobile dealerships. A total of 35 checks were issued to the defendant in the amount of $1,261,019.
According to the Department of Business and Professional Regulation, the defendant had never applied for or received licensing of any sort in the State of Florida.
Hernandez cashed checks from the victim, purchased vehicles with those funds then flipped those vehicles in trade-ins at multiple automobile dealerships, and purchased other vehicles with additional funds from the victim’s checks and trade-ins.
Austin, Texas: Three people were sentenced for their roles in a tax fraud scheme that federal prosecutors said led to millions of dollars in losses to the IRS.
The scheme centered around an Austin-area tax preparation business where employees created fake businesses and claimed false expenses on client tax returns to reduce taxable income and increase refunds from 2019 through 2022.
The loss to the federal government was estimated to be $5.45 million.
Mathews Chacko, the owner of the business, was sentenced to 50 months in federal prison and three years of supervised release. Chacko was also ordered to pay $137,353 in restitution. Anish Pillai, an employee of the business, was sentenced to 26 months in federal prison and one year of supervised release. Pillai was also ordered to pay $137,353 in restitution. Subhala Suresh, an employee of the business, was sentenced to 18 months in federal prison and one year of supervised release. Suresh was also ordered to pay $137,353 in restitution.
Chacko accumulated three residences, several luxury vehicles and a net worth of at least $1.9 million while operating the tax preparation business.
The IRS identified more than 5,100 tax returns filed on behalf of about 2,500 clients during its investigation.
Dayton, Ohio: An Atlanta-area man who was found guilty of wire fraud and theft of public funds was sentenced to 36 months in prison.
Christopher Dowtin of Jonesboro, Georgia, fraudulently converted two businesses’ IRS accounts to his name and address. The defendant received tax refund checks — including one for more than $32 million — that were to be paid out to these two businesses. He was sentenced on June 26.
Bondary McCall of Lithia Springs, Georgia, was sentenced to 36 months in prison for filing a false, retaliatory lien against the federal judge originally assigned to Dowtin’s case, claiming that the judge owed Dowtin $32 million.
Dowtin fraudulently submitted IRS forms claiming to be the responsible party for two separate companies.
In December 2024, the IRS processed eight change of address or responsible party-business forms associated with Dowtin. He ultimately received two tax refund checks for those companies: one in the amount of $32,495,888.58 and one in the amount of $26,156.50.
Dowtin took the checks to a Morgan Stanley office in Beavercreek, Ohio, and attempted to negotiate the funds into a brokerage account in a trust in his name. Dowtin told the Morgan Stanley financial advisor that the two companies were paying him for illegally using his “personhood.” The financial advisor verified that the checks were valid U.S. Treasury checks.
An executive director at Morgan Stanley contacted the Secret Service and IRS Criminal Investigation regarding the suspicious nature of the checks and Dowtin’s supporting paperwork. The checks were seized by law enforcement.
Palmetto, Florida: A Palmetto man who evaded more than a million dollars in federal taxes is headed to prison.
A judge sentenced 67-year-old Terry Brunning to two years in prison after prosecutors said he evaded paying more than $2.4 million in federal taxes, penalties and interest by concealing assets through a business.
Brunning was also sentenced to three years of supervised release and ordered to pay $2,467,523.44 in restitution to the U.S. Department of the Treasury.
The sentencing comes after Brunning previously pleaded guilty to tax evasion on April 2.
Brunning bought real estate, vehicles and cashier’s checks in the name of the business to conceal the true ownership of the assets and the source of the money.
Brunning used the business to conceal assets in an effort to avoid paying taxes he owed for the 1999, 2000 and 2001 tax years.
Las Vegas: A California man was sentenced to 78 months in prison and three years of supervised release for perpetrating an elaborate bank fraud scheme that took in approximately $39 million from multiple financial institutions over the course of nearly 10 years. He was also ordered to pay over $19.4 million in restitution and $21.8 million in forfeiture.
Gary Topolewski, 64, of Northridge, engaged in the nearly decade-long scheme to defraud multiple financial institutions through the submission of false and fraudulent commercial loan applications on behalf of his purported companies, Topolewski America Inc., Morrison Knudsen Services Inc. and Metal Jeans Inc. As a result, these entities received more than $39 million in fraudulently obtained loan proceeds, with Topolewski unsuccessfully seeking millions more.
Topolewski falsely represented in the loan applications that the loans were for the purchase of large, industrial earth-moving construction equipment, and for business working capital purposes. In reality, Topolewski and his companies diverted, laundered and misappropriated the proceeds for other purposes, including for the purchase of properties and to make Ponzi-like payments to financial lenders to perpetuate the scheme by using loan proceeds from newer loans to pay down the balance of other loans. Topolewski pleaded guilty to one count of bank fraud.
Austin, Texas: A hedge fund manager who once lived in Austin has pleaded guilty to evading more than $1.5 million in federal taxes after concealing millions of dollars in income and foreign bank accounts.
Justin Ryan Schmidt, a Cayman national who previously resided in Austin, admitted to one count of tax evasion. Schmidt managed a cryptocurrency-focused hedge fund and earned more than $6 million between 2020 and March 2022 but failed to report any of that income on his federal tax returns.
Instead, Schmidt falsely reported earning $5,000 or less in each of those years while holding millions of dollars in undisclosed foreign bank accounts.
In November 2021, Schmidt became a British citizen, and later renounced his U.S. citizenship in March 2022. Schmidt willfully filed a false expatriation statement claiming his net worth was $25,000, when it actually exceeded $2 million, and falsely stated he had complied with U.S. tax obligations for the previous five years.
Schmidt failed to report gains from the 2023 sale of real estate in Snowmass Village, Colorado. He purchased the property for about $5.8 million and sold it months later for roughly $9 million, allegedly submitting false documents to avoid tax withholding on the sale.
Schmidt faces up to five years in prison, along with restitution and financial penalties.
Trenton, New Jersey: An Essex County, New Jersey, business owner was sentenced to 27 months in prison for defrauding the Supplemental Nutrition Assistance Program of over $2 million.
Victor Madera, 67, of New Brunswick, New Jersey, was sentenced on July 1. He previously pleaded guilty to an information charging him with one count of conspiracy to defraud SNAP and one count of engaging in SNAP benefits fraud.
Madera owned a grocery store in East Orange, New Jersey, and was an authorized participant in SNAP — otherwise known as food stamps. Between May 2017 and November 2024, employees at Madera’s business illegally exchanged SNAP benefits for cash. The employees entered inflated dollar amounts for allegedly eligible SNAP transactions and provided SNAP recipients a percentage of the transaction’s value in cash, keeping the remainder. As a result of this conduct, Madera received SNAP redemptions far in excess of the true value of food and other SNAP-eligible items actually received by SNAP recipients. Madera, through his business, unlawfully exchanged over $2.2 million of SNAP benefits for cash.
In addition to the prison term, Madera was sentenced to one year of supervised release and was ordered to pay over $2.2 million in restitution and forfeiture.
