April 15, 2002
TAX FRAUD PROMOTERS ASSOCIATED WITH 'WE THE PEOPLE'
ARRESTED BY IRS AGENTS FOR SELLING BOGUS 'TRUSTS'
THAT FALSELY PROMISED TO PROTECT INCOME FROM TAXES
Seven individuals associated with a tax fraud group known as "We
the People" and “Sovereignty Pure Trusts” were arrested this morning on
various federal charges related to the promotion of bogus tax shelters
that falsely promised to limit exposure to federal income taxes.
A federal grand jury in Los Angeles on Thursday returned a 35-count
indictment that includes charges of conspiring to defraud the Internal
Revenue Service and fraudulently using Social Security Numbers and passports.
The California residents arrested this morning are:
? Lynne Meredith, 52, of Sunset Beach, the owner and operator
of We the People and Sovereignty Pure Trusts;
? Gayle Bybee, 54, of Sunset Beach;
? Gregory Paul Karl, 52, of Solana Beach;
? Teresa Manharth Giordano, 39, of Murrieta;
? Willie Watts, 43, of Murrieta;
? Betty Erickson, 57, of Windsor; and
? Nora Moore, 53, of Huntington Beach.
These defendants are expected to make their initial court appearances
this afternoon in various federal courthouses in California.
According to the indictment, from October 1994 to November 2001,
Meredith sold books and bogus trusts to people with the purpose of leading
them to believe they could legally protect income and assets from taxation.
The defendants allegedly encouraged and assisted taxpayers by forming phony
trusts, opening bank accounts with phony Taxpayer Identification Numbers,
filing fraudulent income tax returns and encouraging taxpayers not to file
income tax returns.
We the People sold the “trusts" for approximately $500 at seminars
that were held throughout the United States and internationally. To entice
potential trust purchasers at seminars, Meredith represented that the trusts
were "professional and affordable” and that each trust was customized with
the “combined efforts of attorneys, paralegals, CPAs and other professional
staff for its execution."
When purchasers complained about the trusts, We the People –
which was also known as Free the People, Sovereignty Pure Trusts and Liberty
International – refused to issue refunds.
Meredith also encouraged taxpayers to file frivolous tax returns
that, for example, accurately reported income but fraudulently requested
a refund of all income taxes paid. The defendants also encouraged taxpayers
to send protest correspondence to the IRS with the purpose of impeding
and obstructing the IRS.
Meredith wrote books, including How To Cook A Vulture and Vultures
In Eagle’s Clothing, in which she falsely claimed that individuals could
lawfully stop paying income taxes, stop their employer from withholding
income taxes, and refuse to produce books and records to the IRS. The books
contained examples of frivolous tax returns and protest letters.
From 1994 to 1997, according to the indictment, Meredith caused
taxpayers to file fraudulent income tax returns with the IRS. Those fraudulent
tax returns sought refunds for as much as $21,855, but the IRS did not
issue any refund checks.
The indictment also alleges that Meredith earned more than $6.2
million from 1994 through 1999 as a result of the scheme. Meredith did
not file a Federal income tax return during these years, and she did not
pay any federal income taxes.
The indictment further alleges that six of the other defendants
did not file nor pay any income taxes on income they earned in the scheme.
An indictment contains allegations that a defendant has committed
a crime. Every defendant is presumed innocent until and unless proven guilty
beyond a reasonable doubt.
Eileen J. O'Connor, Assistant Attorney General in charge of the
Justice Department's Tax Division, said: "The Department of Justice and
the IRS are committed to stopping promoters of illegal tax schemes from
selling false promises, obstructing lawful IRS functions and cheating honest
taxpayers."
Michael S. Kochmanski, Special Agent in Charge of the Los Angeles
Field Office of IRS-Criminal Investigation, stated: “Meredith misled numerous
people into believing that the tax shelters she was selling would legally
keep them from having to pay income taxes. Instead many of these people
now find themselves owing back taxes, penalties and interest. The public
should be wary of anyone who says that they have a way to keep you from
having to pay income taxes.”
All seven defendants are charged with conspiracy and 11 counts
of mail fraud (both charges carry potential five-year prison sentences).
Meredith is additionally charged with two counts of false representation
of a social security number (five-year maximum sentence), one count of
passport fraud (potential 10-year sentence), and five counts of failing
to file a tax return (each count carries a maximum penalty of one year
in prison). Bybee is accused in three counts of failing to file; Giordano
is named in two counts of failing to file; Watts faces three counts of
failing to file; Erickson allegedly failed to file for three years; and
Moore is named in three counts of failing to file.
The indictment names an eighth defendant in the case, Toni Smith
Silva, 49, of Cypress, who is charged with one misdemeanor count of failing
to file a tax return. Smith will be summoned to appear in court for an
arraignment.
Today’s arrests come two days after the Department of Justice
and IRS filed a civil lawsuit against individuals in San Diego, Boston
and Cincinnati for selling bogus trusts to hundreds of taxpayers. The IRS
has been cracking down on promoters of abusive trusts by filing civil lawsuits
and launching criminal investigations. On Thursday, IRS Commissioner Charles
O. Rossotti testified before the Senate Finance Committee that “identifying
and combating actively promoted tax schemes was the IRS’ highest compliance
priority.”
The case against the promoters of We the People and Sovereignty
Pure Trusts is the result of a continuing investigation by IRS-Criminal
Investigation. Victims who purchased trusts or books issued by this group
are encouraged to contact IRS-Criminal Investigation at (949) 389-4466.
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Release No. 02-067
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