UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TENNESSEE AT KNOXVILLE UNITED STATES SENTENCING MEMORANDUM

Transcription

1 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TENNESSEE AT KNOXVILLE UNITED STATES OF AMERICA ) ) v. ) No. 3:14-CR-36 ) (REEVES/GUYTON) ) ZEBBIE JOE USHER, III ) UNITED STATES SENTENCING MEMORANDUM The United States of America, by the United States Attorney for the Eastern District of Tennessee submits the following sentencing recommendations with respect to the defendant, Zebbie Joe Usher, III. For the reasons set forth herein, the United States respectfully submits that a sentence within the applicable Guideline range would be appropriate. 1 STATEMENT OF FACT The defendant was the chief executive officer of Service Provider Group, LLC ( SPG ). He was also involved in the management of several affiliated companies, including Business Personnel Solutions, Inc. ( BPS ), First Financial Employee Leasing IV, Inc. ( FFEL ), and Employee Staff LLC. These companies were involved in the employee benefits and payroll processing business, and were the types of businesses known as Professional Employer Organizations, or PEOs. PEOs provide a service through which an employer may outsource employee management and human resources tasks, such as employee benefits, payroll, payroll tax, income tax withholding, and workers compensation. BPS, FFEL and Employee Staff were required to make deposits of payroll taxes to the IRS on 1 The United States is in agreement with the computation contained in the Presentence Investigation Report ( PSR ) that the defendant s applicable Guideline offense level is 31 and that his criminal history category is I, resulting in a sentence range of 108 to 135 months. PSR 31, 36. Because the statutorily authorized maximum sentences for the defendant s offenses are less than the maximum sentence in the applicable Guideline range, the effective range is 108 to 120 months. PSR 51. Case 3:14-cr PLR-HBG Document 22 Filed 05/14/15 Page 1 of 8 PageID #: 170

2 a regular basis. In addition, they were required to file, following the end of each calendar quarter, IRS Forms 941, Employers Quarterly Federal Tax Returns. The client companies of the PEOs provided funds that were to be used to pay for, among other items, the payroll taxes for the PEO employees. Those funds were to be held in trust by the PEO entities before being paid over to the IRS. Rather than using the PEO funds to pay the 941 taxes, however, the defendant and his co-conspirators used the funds to pay for personal expenditures and expenses of SPG, BPS, FFEL and Employee Staff. In an attempt to prevent the IRS from discovering that the PEO entities were not paying the IRS the payroll taxes, the defendant and his co-conspirators knowingly prepared and filed false Forms 941 that showed the PEOs as owing far less in payroll taxes than was actually owed. They did this in order to keep their tax payments at a level that the companies could afford, instead of what they were legally required to pay. The Form 941 for the fourth quarter of the year would have a falsely inflated amount of payroll tax to make up for the deficiency in the first three quarters. This was done in the hope that by inflating the fourth quarter Forms 941, the IRS would not detect the scheme. The defendant and his co-conspirators would pay the inflated fourth quarter amount by pulling back money that had already been paid to the PEOs by their customers for the first quarter of the next year. They would then falsify the Form 941 for the first quarter of the following year and pay an amount less than what was actually due. And, in this manner, the scheme would keep rolling along. When it finally was brought to the attention of the authorities in 2012, the tax loss had grown to $29,174, The scheme described above began in 2009 and continued until The arrangement came to light in December 2012, when one of the defendant s co-conspirators, Toby Fanning, contacted IRS-CI through his attorneys. Fanning, who had served as the chief financial officer of 2 Case 3:14-cr PLR-HBG Document 22 Filed 05/14/15 Page 2 of 8 PageID #: 171

3 BPS before being fired from that position, expressed an interest in providing information regarding a large and ongoing scheme to defraud the IRS. Fanning told investigators that, beginning in 2009, defendant Usher and his co-conspirator Phil Lawrence had taken money from the PEOs to fund personal ventures, which caused the BPS, FFEL and Employee Staff to suffer losses and left them unable to pay the IRS the payroll taxes that were owed. Fanning provided specific examples of instances in which the co-conspirators, himself included, converted funds to personal use that should have been used to satisfy payroll tax obligations. On February 21, 2013, a search warrant was executed at the headquarters of SPG and several of its affiliated companies. Usher subsequently agreed to cooperate with the United States and has been interviewed on numerous occasions. In doing so, he has provided information regarding both his own involvement in the PEO scheme as well as the involvement of other co-conspirators. 2 ANALYSIS 1. The factors stated in 18 U.S.C. 3553(a)(2) favor the imposition of a sentence within the prescribed statutory range. As the Court and the defendant are aware, the sentence to be imposed should be sufficient, but not greater than necessary, to meet the following needs as set forth in 18 U.S.C. 3553(a)(2): (A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense; (B) to afford adequate deterrence to criminal conduct; (C) to protect the public from further crimes of the defendant; and (D) to provide the defendant with needed educational or vocational training, medical 2 As did Usher and Fanning, Phil Lawrence also cooperated with the Government s investigation. Both Fanning and Lawrence, however, committed suicide on January 27, 2015 and February 7, 2015, respectively. 3 Case 3:14-cr PLR-HBG Document 22 Filed 05/14/15 Page 3 of 8 PageID #: 172

4 care, or other correctional treatment in the most effective manner. Adherence to the Guidelines is particularly important in the case of criminal tax offenses, because of the important public policy goals that the tax laws seek to achieve. As stated in the Introductory Comments to the Part T of the Guidelines: The criminal tax laws are designed to protect the public interest in preserving the integrity of the nation s tax system. Criminal tax prosecutions serve to punish the violator and promote respect for the tax laws. Because of the limited number of criminal tax prosecutions relative to the estimated incidence of such violations, deterring others from violating the tax laws is a primary consideration underlying these guidelines. Recognition that the sentence for a criminal tax case will be commensurate with the gravity of the offense should act as a deterrent to would-be violators. The policy goals that are unique to tax offenses would be satisfied through the imposition of a sentence within the applicable Guideline range, and such a sentence would be sufficient, but not greater than necessary, to advance the goals set forth in 18 U.S.C a. A sentence within the applicable statutory range would reflect the seriousness of the offense, promote respect for the law, and provide just punishment for the defendant. The sentence to be imposed should be sufficient, but not greater than necessary, to reflect the seriousness of the offense, to promote respect for the law and to provide just punishment. Defendant Usher has pleaded guilty to the offense of conspiracy to defraud the United States, in violation of 18 U.S.C. 371, and tax evasion, in violation of 26 U.S.C Congress has recognized the seriousness of both crimes by making them punishable by terms of imprisonment of up to 5 years. See 18 U.S.C. 371, 26 U.S.C Moreover, the seriousness of this offense is evident from the $29,174, financial loss to the IRS. 3 3 Although the parties have stipulated that the Internal Revenue Service is only victim for purposes of restitution and sentencing guideline computations (see Plea Agreement at 10), this is the result of the IRS having given individuals employed by the customer companies credit for their payroll 4 Case 3:14-cr PLR-HBG Document 22 Filed 05/14/15 Page 4 of 8 PageID #: 173

5 Usher was a central player in the SPG scheme. As the CEO of SPG and through his management role with respect to the other PEO entities, he was aware of the nature of the fraudulent scheme as well as its magnitude. In addition, Usher reaped significant financial rewards from this offense. Fraudulent payroll tax schemes on the scale of SPG can run for years without being discovered. Had Fanning not come forward and exposed his and his co-conspirators crimes, the fraudulent activity could have continued for months, or even years, and losses would have continued to mount. The very nature of the crime involved the collaboration of numerous individuals who sought to make their scheme difficult to detect. In light of the seriousness of this offense, it appears that a sentence within the prescribed Guideline range would be consistent with the goals of 18 U.S.C b. A sentence within the statutory range would afford adequate deterrence to criminal conduct. A Guideline sentence is also warranted under Section 3553(a)(2)(B) and the need for a sentence that would deter future criminal conduct. As noted above in the discussion of the Introductory Comments to Part T of the Sentencing Guidelines, the range of potential punishments embodied in the Guidelines are specifically designed to punish the violator and promote respect for the tax laws. The overarching consideration of the Guidelines, as they relate to tax offenses, however, is deterrence. From the standpoint of sentencing, deterrence takes two forms: (1) specific deterrence, to deter similar crimes by the defendant who is being sentenced, and (2) general deterrence, to deter criminal actions by others who may contemplate committing similar offenses. A Guideline sentence withholdings, even where the amounts withheld were converted to personal use by the co-conspirators or used for PEO company expenses, rather than being remitted to the IRS. 5 Case 3:14-cr PLR-HBG Document 22 Filed 05/14/15 Page 5 of 8 PageID #: 174

6 in the present case would serve both purposes. The need for specific deterrence is lessened to a certain degree by Usher s actions after his offense was discovered. As noted above, he promptly admitted his guilt and has diligently cooperated with the United States in uncovering the nature of the offenses and the identities of those involved in committing them. In addition, he has provided assistance to the United States with respect to its investigation of another, unrelated offense. Through his guilty plea, this defendant has accepted his culpability and has agreed to pay the United States full restitution for the tax loss that resulted from his offense. For these reason, it is unlikely that any particular sentence is needed to deter him from future criminal conduct. In addition to providing specific deterrence, however, the sentence in this case should be sufficiently severe to provide general deterrence. The nation s tax system can only function in an environment in which taxpayers can trust that everyone is required to pay his fair share and that those who seek to cheat the system will be punished. Since only a limited number of criminal tax matters are prosecuted, the sentences that are handed down by courts must deter future tax crimes. This requirement is particularly necessary in the case of a crime that represents a sophisticated and collaborative effort to maximize illicit returns while avoiding detection. Permitting the defendant to face anything less than a Guideline sentence for offenses of this magnitude would send a particularly negative message to the public -- that individuals can engage in sophisticated schemes, resulting in enormous losses to the American taxpayers, without facing significant penal sanction. c. Protection of the public from further crimes of the defendant Title 18, United States Code, Section 3553 (a)(2)(c) states that the Court should consider the extent to which a sentence is needed to protect the public from further crimes by a defendant. Because Usher has admitted his responsibility and has cooperated with the Government, it appears 6 Case 3:14-cr PLR-HBG Document 22 Filed 05/14/15 Page 6 of 8 PageID #: 175

7 highly unlikely that any particular form of sentence is necessary to safeguard the public from future crimes that he might commit. d. The need for educational or vocational training, medical care or other correctional treatment in the most effective manner In determining the appropriate sentence under 18 U.S.C. 3553, the Court is also guided by the statute to consider the need to provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner. See 18 U.S.C. 3553(a)(2)(D). There is no indication that Usher is in need of any type of education or vocational training or that he requires any type of medical treatment other than as commonly provided by the Bureau of Prisons. Accordingly, the factors set forth in 18 U.S.C. 3553(a)(2)(D) do not appear to have particular significance in determining an appropriate sentence. CONCLUSION For the reasons set forth above, a sentence within the statutorily capped Guideline range of 108 to 120 months would be consistent with the goals of 18 U.S.C Respectfully submitted, WILLIAM C. KILLIAN United States Attorney By: s/ Frank M. Dale, Jr. _ FRANK M. DALE, JR. Assistant United States Attorney 800 Market St., Suite 211 Knoxville, TN (865) Case 3:14-cr PLR-HBG Document 22 Filed 05/14/15 Page 7 of 8 PageID #: 176

8 CERTIFICATE OF SERVICE I hereby certify that on May 14, 2015, a copy of the foregoing was filed electronically. Notice of the filing will be sent by operation of the Court=s electronic filing system to all parties indicated on the electronic filing receipt. All other parties will be served by regular U.S. Mail. Parties may access this filing through the Court=s electronic filing system. s/ Frank M. Dale, Jr. FRANK M. DALE, JR. Assistant United States Attorney 8 Case 3:14-cr PLR-HBG Document 22 Filed 05/14/15 Page 8 of 8 PageID #: 177