September 23, 10

NEWS / Justice Department Asks Federal Court to Bar Allegedly Fraudulent Stock Loan Scheme

HedgeLoan Scheme Allegedly Mirrors Fraudulent Derivium Scheme, Falsely Claiming to Allow Customers to Receive Tax-Free Cash for Stock

WASHINGTON – The United States has filed a complaint asking a Virginia federal court to permanently bar three firms and three men from promoting a nationwide "HedgeLoan" scheme that the complaint alleges involves the disguised sale of more than $268 million in securities, the Justice Department announced today. HedgeLoan allegedly mimics the fraudulent Derivium 90 percent loan scheme that a California federal court enjoined last year.

The civil injunction suit names three men: Daniel Stafford of Gaithersburg, Md.; Fred R. Wahler, Jr. of Philadelphia; and William Chapman of Great Falls, Va. Stafford and Wahler allegedly own Philadelphia-based defendant HedgeLender LLC. Chapman allegedly owns the remaining two companies named in the complaint, Alexander Capital Markets LLC and Alexander Financial LLC, both based in Great Falls.

According to the government complaint, the defendants promote and operate the HedgeLoan scheme, in which customers are falsely told that they can receive tax free cash for their securities in the form of a "loan," when in reality the monies received are sales proceeds subject to federal income tax on capital gains at the time of receipt. One couple from Michigan cited in the complaint allegedly used the defendants’ HedgeLoan scheme to dispose of more than $4 million in stock through 25 separate transactions. According to the complaint, the Internal Revenue Service audited the couple’s 2005 federal income tax return and found that they had under-reported their income by $3,662,528 as a result of their participation in the scheme. The complaint further alleges that the couple allegedly agreed to pay an additional $616,984 in income tax for 2005.

The suit claims that in virtually every case, the defendants simply sold the customer’s securities on receipt, remitted up to 90 percent of the sales proceeds to the customer as the "loan," and retained the remaining sales proceeds for themselves and the other parties who facilitated the scheme. This allegedly left defendants without the assets necessary to return every customer’s so-called "collateral" if requested at the end of the purported "loan" term. As early as 2007, defendants allegedly lacked the funds to return all customers’ securities who requested them – yet they continued to promote and operate the HedgeLoan scheme and related schemes.

In the past decade the Justice Department has obtained injunctions against hundreds of tax scheme promoters and tax preparers.

http://www.justice.gov/opa/pr/2010/September/10-tax-1063.html