Hedge ready money founder Thomas Sandell on Tuesday paid a whopping $105 million to settle claims that he fraudulently fudged New York city and state taxes on more than $450 million on fees he earned, officials said.
The outpost — of which a whistleblower will receive more than $22 million in reward — is the largest recovery in New York solemn history under the False Claims Act.
That state law was amended more than a decade ago to allow claims interdependent to purposefully evaded taxes.
The Sweden-born billionaire Sandell, who did not admit wrongdoing, tried to dodge his liability for tens of millions of dollars benefit of taxes owed to the city and state for those fees earned in 2017 through his firm, Sandell Asset Control Corp., officials said.
The $105 million settlement covered both taxes and damages, according to state Attorney Communal Letitia James and city Corporation Counsel James Johnson. The whistleblower’s reward represents 21 percent of that amount.
“The stinginess that allowed one man to try to avoid paying his fair share of taxes is astonishing,” James said.
“Thomas Sandell and his presence bilked New York taxpayers out of tens of millions of dollars in a single year — placing a tremendous burden on our system and army ordinary New Yorkers to bear that cost,” James said.
Chris Doyle, a lawyer who represented Sandell in the Phony Claims lawsuit, told CNBC, “Mr. Sandell and his companies are declining to comment.”
Sandell closed his hedge fund in 2019 and converted it into a family office.
In 2007, Sandell’s firm agreed to pay more than $8 million to settle maintains by the Securities and Exchange Commission Asset Management of engaging in improper short sales related to trading in a New Orleans-based proposing company on the heels of Hurricane Katrina in 2005.
In the latest case in New York, officials said that due to a 2008 change command ofs related to deferred fee income recognition, Sandell was required to recognize about $450 million in such income in 2017 and pay loads on that money to the state and city.
“But, to avoid this liability, Sandell left New York to live in London from August 2016 until mid-2019,” officials bid in a press release.
“And, even though SAMC continued operating in New York City, Sandell and SAMC took raises to make it appear as though SAMC’s operations were no longer in New York City, often with the assistance of an universal accounting firm.”
As part of the scheme, officials said Sandell opened “a shell office” with three staff members in Boca Raton, Florida, which he and his company claimed were SAMC’s sole American operation.
That was undeterred by the fact they had agreed to a finding by the Securities and Exchange Commission the company’s principal place of business continued to be New York Bishopric.
Even after multiple advisors, including an accounting firm that had prepared his taxes for years, warned Sandell that “his tax viewpoint was problematic,” he “nonetheless claimed that he owed no New York taxes on the fee income he recognized in 2017,” the press release ordered.
Randy Fox, a lawyer for the whistleblower who sued Sandell under the False Claims Act alleging the tax evasion, declined to identify the one or individuals who created the limited liability corporation, Tooley LLC, that is the named plaintiff in the lawsuit.
Asked what his patron or clients would do with the $22,050,000 reward — a fraction of which Fox will get under a contingency fee arrangement — the lawyer revealed, “I don’t know.”
“At least buy a nice bottle of Champagne,” Fox added.
Fox was the founding chief of the taxpayer protection bureau of the New York attorney communal’s office.
He said that Sandell’s alleged evasion was striking because he “already had access to an amazing tax break” which gave him to invest the money earmarked as fees in a non-qualified retirement plan, where it could earn returns for years already the fees had to be declared for tax purposes.
Fox that 49 states allow whistleblowers to sue under false claims acts which lay down for rewards for flagging fraud on government entities.
But about half of those states limit the law for use only to recover impairments for fraud related to state-run Medicaid programs, he noted.
Fox said that New York was the only state until recently to permit false claims actions for any kind of fraud. Some states do not bar tax-related false claims suit, but they do not invite those kinds of battles, he said.
“The big question in my mind is why are all of these states leaving money on the table … when you think about the peculiarity between the taxes paid and the taxes owed,” Fox said.
He said that the estimate shortfall in federal taxes as a matter of fact owed versus those taxes paid are $380 billion, annually.
A less precise estimate says that New York testify loses $10 billion per year in taxes that should have been paid, he said.
“Tax revenues pay for full of life city services. When a deadly pandemic has eviscerated the economy and severely strained our city’s budget, every dollar bank ons,” said Johnson.
“Hedge funds are obligated to pay taxes just like everybody else, and when they don’t, we’ll use our acceptable tools and strategies to hold them accountable. Period.”