Hedge Fund founder Thomas Sandell on Tuesday paid a whopping $ 105 million to settle claims that he was fraudulently evading New York City and state taxes for more than $ 450 million in taxes he earned. said officials.
The agreement – whose whistleblower will receive more than $ 22 million in reward – is the largest recovery in New York State’s history under the False Claims Act.
The state law was amended more than a decade ago to allow claims related to intentionally evaded taxes.
Swedish-born billionaire Sandell, who did not admit to committing a crime, tried to avoid liability for tens of millions of dollars in taxes owed to the city and state for those taxes earned in 2017 through his company, Sandell Asset Management Corp., officials said.
The $ 105 million deal covered both taxes and damages, according to Attorney General Letitia James and corporate lawyer James Johnson. Alert reward represents 21% of this amount.
“The greed that allowed a man to try to avoid paying a fair share of taxes is amazing,” James said.
“Thomas Sandell and his company gave New York taxpayers tens of millions of dollars in a single year – putting a huge burden on our system and forcing ordinary New Yorkers to bear that cost,” James said.
Chris Doyle, a lawyer who represented Sandell in the false claims lawsuit, told CNBC: “Mr. Sandell and his companies refuse to comment.”
Sandell closed its hedge fund in 2019 and turned it into a family office.
In 2007, Sandell agreed to pay more than $ 8 million to address Securities and Exchange Commission Asset Management’s claims to engage in inappropriate short sales related to trading in a New Orleans holding company after Hurricane Katrina in 2005.
In the most recent case in New York, officials said that because of the 2008 change in the recognition of deferred tax revenue rules, Sandell was forced to recognize about $ 450 million in such revenue in 2017 and pay taxes on it. this money to the state and the city.
“But to avoid this liability, Sandell left New York to live in London from August 2016 until mid-2019,” officials said in a press release.
“And even though SAMC continued to operate in New York, Sandell and SAMC took steps to make it appear that SAMC’s operations were no longer in New York, often with the help of an international accounting firm.”
As part of the scheme, officials said Sandell had opened a “sales office” with three employees in Boca Raton, Florida, which he and his company said were the only US SAMC operation.
This was despite the fact that they agreed with a finding by the Securities and Exchange Commission, the company’s headquarters continued to be New York City.
Even after several advisers, including an accounting firm that had been preparing its taxes for years, warned Sandell that “his tax position was problematic,” he said he did not owe taxes to New York. York on the tax revenue it recognized in 2017, “the press release said.
Randy Fox, a lawyer for the whistleblower who sued Sandell under the False Claims Act, which claims tax evasion, refused to identify the person or individuals who created the limited liability company, Tooley LLC, which is the plaintiff. called in the process.
Asked what his client or clients would do with the $ 22,050,000 reward – a fraction of which Fox will receive an emergency tax agreement – the lawyer said, “I don’t know.”
“Buy at least a nice bottle of champagne,” Fox added.
Fox was the founding head of the taxpayer protection office in the New York Attorney General’s Office.
He said Sandell’s alleged evasion was striking because he “already had access to an astonishing tax cut,” which allowed him to invest the tax money in an unqualified retirement plan, where he could earn income years before. that the taxes be declared for tax purposes.
Fox that 49 states allow whistleblowers to sue on false claims, which provide rewards for marking fraud against government entities.
But about half of those states limit the law to be used only to recover damages from state-run Medicaid fraud, he said.
Fox said New York was the only state until recently that allowed false claims for any fraud. Some states do not prohibit tax-related false claims, but do not invite such actions, he said.
“The big question in my mind is why all these states are leaving money on the table … when you think about the difference between taxes paid and taxes owed,” Fox said.
He said the estimated federal tax deficit actually owed to those taxes paid is $ 380 billion annually.
A less accurate estimate says New York State loses $ 10 billion a year in taxes that should have been paid, he said.
“Tax revenue pays for the city’s vital services. When a deadly pandemic has gutted the economy and severely strained our city’s budget, every dollar counts,” Johnson said.
“Hedge funds are required to pay taxes just like anyone else, and when they do not, we will use our legal tools and strategies to answer them. Period”.