The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge
On May 2, 2007, Defendant, Brian K. Wasson, was charged in a third superseding indictment (#28) with one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and seven counts of aiding the filing of a false tax return, in violation of 26 U.S.C. § 7206(2). Defendant was charged along with two co-defendants, Joseph Starns and John Wolgamot. Starns died on August 16, 2007, and all pending charges against him were dismissed on September 5, 2007. On August 21, 2008, pursuant to a written plea agreement (#57), Wolgamot plead guilty to count 6 of the third superseding indictment, which charged him with aiding the filing of a false tax return. Defendant Wasson proceeded to a bench trial which commenced on March 2, 2009, and concluded on March 17, 2009.
Following the bench trial, Defendant, through counsel, filed his proposed Conclusions of Law and Fact (#96) and a Motion for Judgment of Acquittal (#97). The Government has filed its written Closing Argument (#99). This court heard all of the testimony presented at the bench trial and has reviewed its extensive notes taken during the trial, the exhibits introduced into evidence, and the arguments of the parties. Following this careful and thorough consideration, this court now finds that the Government proved, beyond a reasonable doubt, that Defendant is guilty of Count 1, Count 2, Count 3, Count 4, Count 5, Count 6 and Count 7 of the third superseding indictment and states its specific findings of fact in this written Opinion pursuant to Rule 23(c) of the Federal Rules of Criminal Procedure. Because this court has found Defendant guilty of the charges against him, Defendant's Motion for Judgment of Acquittal (#97) is DENIED. This case remains set for a status conference on December 8, 2009, at 1:30 p.m. so that a sentencing hearing can be scheduled.
This court notes that Defendant filed a Motion for Briefing Schedule and Leave to File Reply Brief (#100). For the reasons that follow, this Motion is DENIED. Defendant also filed a Motion for Funds for Expert (#94). This Motion is GRANTED and funds are authorized up to the statutory maximum of $1,600.00.
MOTION FOR LEAVE TO FILE REPLY
On November 18, 2009, Defendant, through counsel, filed a Motion for Briefing Schedule and Leave to File Reply Brief (#100). Defendant stated that the Government and Defendant had filed their briefs following the bench trial in this case and the court "has not otherwise provided the Defendant an opportunity to respond to the Government's brief." Defendant asked this court to set a briefing schedule allowing Defendant to respond to the Government's brief and the Government to respond to Defendant's reply.
On July 30, 2009, this court set a briefing schedule in this case. This court set a date for Defendant to file findings of fact and conclusions of law and set a date for the Government to respond. This court believed that this briefing schedule was adequate to allow the parties to set forth their arguments in this case. Defendant has not given any reason why a reply brief is necessary, other than he wants to file one.*fn1 He also has given no indication as to the amount of time he would need to file his reply. This court now concludes that the case has been adequately and thoroughly briefed. At some point, in every case, briefing must end so the case can be decided. Accordingly, Defendant's Motion for Briefing Schedule and Leave to File Reply Brief (#100) is DENIED.
The bench trial in this case took twelve days, during which the Government literally presented a "mountain" of evidence. It presented the testimony of IRS Special Agents Bernard Coleman, Chris Thomson, and Mike Thole, IRS Revenue Agent James Pogue, as well as the testimony of Brian Brooks, William Steinmetz, Everett Alan Bugg, Robert Donahue, Paul Tatman, Dennis Birky, Paul Cheatham, Doug and Dennis Frichtl, Beth Wasson, Paul Buenting, David Dillon, John Wolgamot, David Kindred, and Terry McDaniel. Approximately 900 documentary and summary exhibits were admitted into evidence. This court will not begin to discuss all of the evidence presented, but will just set out a summary of some of the evidence.
The evidence presented at the bench trial showed that the Aegis Company (Aegis) was founded sometime in the 1990's in Palos Hills, Illinois. Defendant was a resident of Tilton, Illinois, and was a representative of Aegis along with co-defendant Starns, Michael Vallone, Robert Hopper, Edward Bartoli and William Cover. Beginning in 1994, Aegis and its representatives devised, organized, promoted and sold various financial instruments, known as domestic and foreign "trusts," to federal taxpayers in exchange for substantial fees. There was no change in the taxpayers' control over their assets and income after setting up the "trusts." The purpose of marketing the trusts to federal taxpayers was to assist the taxpayers in concealing the taxpayers' assets and income from the IRS, resulting in the reduction of the income tax paid to the IRS. In approximately 1997, Defendant and Starns established a business known as Midwest Alternative Planning (Midwest), which was located in Danville, Illinois. Defendant and Starns, through Midwest, promoted the Aegis system of "trusts" to various taxpayers. Wolgamot was an attorney in Danville and was a business associate of Defendant and Starns. Wolgamot worked with them in promoting the Aegis trust scheme. David Dillon was a tax preparer in Charleston, Illinois and Paul Buenting was a tax preparer in Gifford, Illinois. Dillon and Buenting were business associates of Defendant and Starns and prepared tax returns for their Aegis clients. Defendant eventually became a member of an Aegis advisory body known as the Aegis Fortress Advisory Group.
The evidence showed that Aegis and its representatives caused taxpayers to assign and transfer some or all of their income and assets to the trusts, then omit or deduct the amount of the assignments and transfers from their individual tax returns. The taxpayers would then falsely claim that the trusts had actually earned the income for a particular tax year. This resulted in substantially reducing or eliminating any tax liability for the individual taxpayer. In addition, Aegis and its representatives further caused taxpayers to assign and transfer the income and assets from trusts to additional trusts and entities and then claim false deductions from income on the tax returns for those entities, which substantially reduced or eliminated tax liability for those entities, sometimes filing no federal income tax return for the entities whatsoever. Aegis and its representatives assisted taxpayers in carrying out this fraudulent paper scheme, while at the same time assisting taxpayers in maintaining complete access to and control of their assets and income.
The most egregious example of the use of the Aegis system presented during the trial was the testimony of David Kindred. Kindred testified that he is a medical doctor specializing in obstetrics and gynecology. He has been in solo practice in Morton, Illinois, since 1994. Kindred testified that Defendant visited him at his home in 1996. Kindred stated that, in December 1996, he paid Aegis $45,000 for the trust system. Midwest received $20,200 of this amount as a commission. Kindred also paid annual management fees in the amount of $6,000 to Midwest. Kindred testified that Defendant accepted the management fees. Based upon Kindred's testimony and the documents introduced into evidence, the Government showed that Kindred, who earned as much as $1,000,000 per year from his medical practice, paid almost nothing in taxes for the tax years 1996, 1997, 1998, 1999, and 2000. Astoundingly, in 1997, Kindred received an earned income credit of $754. Kindred testified that Buenting prepared his income tax returns for the 1996 and 1997 tax years and Dillon prepared his tax returns after that. Kindred testified that, in 1998, he received a letter from Merrill Lynch which indicated that it would not open an account for Kindred's Aegis trust because those types of trust could be used to illegally shelter assets from the IRS and were the subject of an ongoing IRS investigation. Kindred faxed the Merrill Lynch letter to Midwest. On June 16, 1998, Defendant faxed a copy of the letter to Vallone with a cover letter in which Defendant said, "I need to know how you wish to proceed with this matter." The evidence showed that Kindred did come to the attention of the IRS and Kindred received his first IRS audit letter in May 2001. Kindred testified that Defendant was involved in responding to the IRS. Kindred testified that Defendant never told him to cooperate with the IRS. Kindred testified that he has paid some back taxes and penalties to the IRS. Kindred testified that he invested $1,000,000 with an Aegis related entity, through Defendant and Vallone, and was told that the money he invested was stolen. Kindred testified that he is currently trying to claim the $1,000,000 as a business loss with the IRS.
The Government also presented evidence from numerous other witnesses regarding their involvement with the Aegis system. William Steinmetz testified that he worked as a pathologist in Danville, Illinois, from 1982 to 2008. He testified that Wolgamot introduced him to Defendant in 1997 to discuss the Aegis system. He paid $59,000 for the trust system and also paid Midwest annual fees for services. Steinmetz's testimony, and the exhibits introduced into evidence, showed that he reduced his taxes significantly by using the Aegis system. Steinmetz testified that he stopped using the Aegis system in 2004. He plead guilty to a misdemeanor state charge regarding tax returns and received probation. Steinmetz testified that he went to tax court and a March 30, 2005, decision found that he owed back taxes and penalties. Steinmetz testified that he currently owes $3 million in taxes, interest and penalties. He testified that the IRS wants him to pay $11,000 per month.
Everett Alan Bugg testified that he had conversations with Defendant in 1997 and 1998 and Defendant convinced him to use the Aegis system. Bugg gave Defendant a check for $18,000 made out to Aegis. Defendant told him this amount was tax deductible. Defendant also referred him to Dillon and Dillon prepared his tax return for the 1998 tax year. Bugg testified that he received an audit letter from the IRS regarding his trusts in April 2000. Bugg testified that he contacted Defendant and Defendant told him to ignore it and not to respond. Bugg testified that Defendant told him not to cooperate because it would cause problems for others. Bugg stated that Defendant said to use the Fifth Amendment. Bugg testified that he eventually paid the IRS $117,308 in additional tax and interest.
Dennis Frichtl testified that he sold a business in 1999 and netted $5.4 million. He avoided paying taxes on his income from the sale through use of the Aegis trust system. Frichtl testified that he worked with Defendant regarding his Aegis trusts. Frichtl testified that the Aegis system "looked legal and legitimate." Frichtl testified that he invested $4 million overseas with Defendant and Aegis. While involved with Defendant in the Aegis system, Frichtl sent a "Statement in Lieu of Return" and other correspondence to the IRS for the calendar year 2002. The documents included a disclaimer of citizenship. Frichtl testified that he is currently in the custody of the Federal Bureau of Prisons following a guilty plea in the Southern District of Illinois. Frichtl's plea agreement was admitted into evidence and showed that Frichtl entered a plea of guilty to the charge of conspiring to impede, impair, obstruct and defeat the IRS in the ascertainment, computation, assessment and collection of income taxes. He was sentenced to a term of 26 months.
Doug Frichtl testified that he is Dennis Frichtl's brother and that he is also in the custody of the Federal Bureau of Prisons. He stated that he started working with Defendant in 1999 or 2000. He testified that he was ordered by United States District Judge Patrick Murphy to produce books and records in late 2001. Doug Frichtl testified that Defendant was involved in refusing to give the books and records to the IRS. While taking advice from Defendant, Doug Frichtl sent a "Statement in Lieu of Return" and other correspondence to the IRS for the calendar year 2001. The documents included a disclaimer of citizenship.
Paul Tatman testified that he met with Defendant regarding setting up an Aegis trust system. Tatman testified that he paid $70,000 to $80,000 for the system. He testified that he decided not to use the system because he thought it was "too good to be true." Tatman testified that Defendant told him on several occasions that the IRS code was illegal.
Paul Cheatham testified that he worked with Starns and Defendant regarding trusts to reduce the cost of his taxes. Cheatham testified that he went to Chicago in 1994 to meet with other representatives of Aegis. Cheatham set up an Aegis trust system and Buenting prepared his tax returns after April 1997. Cheatham testified that, when he had conversations with Defendant and Starns, Defendant spoke the most. In July 2000, he attended an Aegis meeting and was advised to use the "audit arsenal." Cheatham testified that this made him think it was not legal. Cheatham entered into a closing agreement with the IRS in 2001, and paid the IRS $250,000 in taxes and interest.
Brian Brooks testified that he met Defendant in 1997. He testified that he paid Aegis $10,000 on December 20, 1997, as a first payment for an Aegis trust system. Brooks testified that Defendant told him the system was legal. Brooks testified that the trust documents were not prepared in 1997. When the trust documents were created in 1998, they were backdated 1997 so he could use the trust system when he filed his taxes for the 1997 tax year. He testified that Dillon prepared his taxes for the 1997 tax year as if the trusts were in place in 1997. Brooks testified that he paid a $4,000.00 annual fee for the system. Brooks testified that he got a notice from the IRS in May 2000 regarding an audit of one of his trusts for the 1997 and 1998 tax years. Brooks testified that he called Midwest about the notice and was given a letter to send to the IRS. Brooks continued to follow Midwest's advice about how to deal with the IRS. On February 8, 2001, Brooks sent a letter to the IRS, which was provided by Midwest, which questioned the IRS and tax court authority and included an affidavit in which Brooks and his wife said they were not citizens of "the geographical United States." Brooks testified that he continued to use the Aegis system and continued to question the IRS's authority. On June 18, 2002, Brooks received a notice of intent to levy from the IRS seeking $1,694,430.68. Brooks testified that he nevertheless continued to file his tax returns the same way, using the Aegis system. On October 18, 2002, Defendant signed a letter to the IRS requesting an extension on Brooks' behalf.
Brooks eventually decided to get out of the system and met with Dillon and Attorney Brent Winters. Brooks had Dillon prepare amended tax returns as if the trusts never existed. Brooks paid back taxes and penalties to the IRS. Brooks testified that Defendant called him after his meeting with Dillon and Winters. Brooks said that Defendant told him to be careful in getting out of the system. Brooks testified that Defendant offered to recommend an attorney, but he wanted to disassociate himself from the trusts.
Terry McDaniel testified that he met Defendant in 2000. McDaniel testified that he and his wife purchased a motel in the Florida Keys and sold it in February 2000, netting $1 million. McDaniel testified that he met Defendant in 2000 and Defendant said they could save tax dollars from the sale of the motel. McDaniel testified that he paid around $50,000 for the trust system. McDaniel testified that he was told there was a tax loophole which was legal. McDaniel testified that he filed a tax return for the 2000 tax year which showed that he owed nothing in taxes based upon the sale of the motel. McDaniel testified that he was contacted by the IRS regarding his ...