The founder of the hedge fund, Thomas Sandell, on Tuesday paid a whopping $ 105 million to settle claims that he fraudulently evaded the city of New York and state taxes in excess of $ 450 million on money he earned, officials said. said.
The settlement – of which a whistleblower will receive more than $ 22 million in rewards – is the largest recovery in New York State’s history under the False Claims Act.
That state law was amended more than a decade ago to allow claims related to purposeful evasive taxes.
Swedish-born billionaire Sandell, who did not admit to misconduct, sought to pay his ten-million-dollar tax liability to the city and state for the money he earned in 2017 through his firm, Sandell Asset Management Corp. said.
The $ 105 million settlement covered taxes as well as damages, according to Attorney General Letitia James and City Councilor James Johnson. The reward of the whistleblower represents 21 percent of the amount.
“The greed that has enabled one man to try to avoid paying his fair share of taxes is staggering,” James said.
“Thomas Sandell and his company taxed New York taxpayers out of tens of millions of millions of dollars in a single year. It placed a huge burden on our system and forced ordinary New Yorkers to bear the cost,” James said.
Chris Doyle, a lawyer representing Sandell in the false claim, told CNBC: “Mr. Sandell and his companies are refusing to comment.”
Sandell closed its hedge fund in 2019 and turned it into a family office.
In 2007, Sandell’s firm agreed to pay more than $ 8 million to settle claims by the Securities and Exchange Commission Asset Management to conduct improper short selling related to trading in a New Orleans – based holding company on the heels of Hurricane Katrina in 2005.
In the latest case in New York, officials said that as a result of a 2008 change rule related to deferral of income recognition, Sandell is required to recognize approximately $ 450 million in such income and tax on the money to the state and pay city.
“But, to avoid this liability, Sandell left New York to live in London from August 2016 to mid-2019,” officials said in a press release.
“And while SAMC continued in New York City, Sandell and SAMC took steps to make it look like SAMC was no longer in New York City, often with the help of an international accounting firm.”
As part of the plan, officials said Sandell opened a “shell office” with three employees in Boca Raton, Florida, which he and his company said was the only US company of SAMC.
It was despite the fact that they agreed with the Securities and Exchange Commission’s finding that the company’s headquarters were still New York City.
Even after several advisers, including an accounting firm that had been drafting his taxes for years, warned Sandell that ‘his tax position was problematic’, he nonetheless claimed that he owed no tax in New York on the fee income he received in 2017. did not acknowledge, ‘press release said.
Randy Fox, a lawyer for the whistleblower who sued Sandell under the False Claims Act for tax evasion, declined to identify the individual or individuals identifying the limited liability corporation, Tooley LLC, which is the said plaintiff.
Asked what his client or clients would do with the $ 22,050,000 reward – a fraction of which Fox would receive under a provision for non-provision fees – the lawyer said, “I do not know.”
“Buy at least one nice bottle of champagne,” Fox added.
Fox was the founding member of the Taxpayers’ Protection Bureau of the Attorney General’s Office in New York.
He said Sandell’s alleged evasion was conspicuous because he “already had access to an incredible tax break” that enabled him to invest the money earmarked as fees in an unqualified retirement plan, where it could earn returns for years before the fees had to be declared for tax purposes.
Fox believes 49 states make it possible to file complaints based on false claims, which provide rewards for fraudulent fraud against government agencies.
About half of the countries restrict the law only to recover damages for fraud related to state-run Medicaid programs.
Fox said that until recently, New York was the only state that allowed false claims for any kind of fraud. Some states do not join tax-related lawsuits, but they do not demand such actions, he said.
“The big question in my mind is why all these states leave money on the table … when you think about the difference between paying the tax and the tax due,” Fox said.
He said the calculation deficit of federal taxes actually owed against the taxes paid is $ 380 billion annually.
A less accurate estimate says the state of New York loses $ 10 billion a year in taxes that had to be paid, he said.
“Tax revenue pays for vital city services. When a deadly pandemic wiped out the economy and severely strained our city’s budget, every dollar counts,” Johnson said.
“Hedge funds are obligated to pay taxes just like everyone else, and if they do not, we will use our legal equipment and strategies to hold them accountable. Period.”