03/20/2009

News / BUSINESS OWNER CONVICTED IN $126 MILLION SCHEME TO DEFRAUD CLIENTS OF FUNDS ALLEGEDLY HELD IN TRUST

WASHINGTON—A federal jury in Richmond, Va., today convicted the former owner of The 1031 Tax Group LLP, (1031TG) of charges stemming from his scheme to defraud and obtain approximately $126 million in client funds held by 1031TG, Acting Assistant Attorney General Rita M. Glavin of the Criminal Division and Acting U.S. Attorney Dana J. Boente of the Eastern District of Virginia announced.

After a three-week trial in federal court in Richmond, a jury found Edward H. Okun, of Miami, guilty of conspiracy to commit mail and wire fraud, wire fraud, conspiracy to commit money laundering, money laundering, bulk cash smuggling and perjury.

According to the evidence presented at trial, from August 2005 through April 2007, Okun and others used 1031TG and its subsidiaries, all owned by Okun, in a scheme to defraud clients of millions of dollars through false pretenses. Section 1031 of the Internal Revenue Code allows investment property owners to defer the capital gains tax that would otherwise be due on properties sold, if the proceeds are used to purchase new property in a specified time frame. To facilitate this exchange, investment property owners deposit the proceeds of property sales with qualified intermediaries and sign exchange agreements that include various promises by the qualified intermediaries to clients regarding the safekeeping and use of exchange funds.

Specifically, the evidence presented at trial established that 1031TG obtained funds by promising clients that their money would be used solely to effect 1031 exchanges as outlined in the exchange agreements. After making such promises, evidence showed that Okun and others misappropriated approximately $126 million in client funds, to support his lavish lifestyle, pay operating expenses for his various companies, invest in commercial real estate, and purchase additional qualified intermediary companies to obtain access to additional client funds. In the negotiations to purchase additional qualified intermediary companies, evidence showed that Okun and others misled owners of those companies to induce them to sell their companies to Okun, who then took control of and misappropriated the client funds.

The evidence also showed that Okun instructed his employees in Richmond to withdraw $15,000 in cash from Investment Properties of America’s (IPofA) bank account, a company owned by Okun, and smuggle the cash to his personal yacht on Paradise Island in the Bahamas to avoid federal currency reporting requirements.

The jury also found that Okun made material false statements under oath before the U.S. District Court for the Eastern District of Virginia in a fraudulent attempt to assert a personal attorney-client relationship with a former chief legal officer of IPofA.

Okun will remain in custody awaiting sentencing. In addition to restitution and fines, Okun faces a maximum prison term of 20 years on each count of wire fraud, conspiracy to commit money laundering, conspiracy to commit mail and wire fraud, and certain counts of money laundering; 10 years on certain money laundering counts; five years on the charge of bulk cash smuggling; and five years on the charge of perjury.

In related cases, Lara Coleman, the former chief operating officer of IPofA, pleaded guilty on Jan. 6, 2009, to conspiring to commit mail and wire fraud and to making a material false statement to federal investigators and agreed, under the terms of the plea, to a sentence of 10 years in prison. Robert D. Field II and Richard E. Simring have also pleaded guilty to participating in the conspiracy to defraud 1031TG customers. Field was the chief financial officer and Simring was the chief legal officer of a holding company that was set up, in part, to oversee both IPofA and 1031TG, though neither company was ever officially made a subsidiary of the holding company. Field pleaded guilty on July 3, 2008, and Simring pleaded guilty on July 24, 2008. Field and Simring each face a maximum of five years in prison at sentencing. Coleman, Field and Simring are scheduled to be sentenced on May 1, 2009. All three defendants who pleaded guilty in this case agreed to forfeiture.

The case is being prosecuted by Assistant U.S. Attorneys Michael S. Dry and Jessica A. Brumberg for the Eastern District of Virginia and Trial Attorney Brigham Q. Cannon of the Criminal Division’s Fraud Section. This continuing investigation is being conducted by the U.S. Postal Inspection Service, Internal Revenue Service and the FBI.

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