ALAN VINEGRAD, United States Attorney for the Eastern District of New York, PAUL L. MACHALEK, Special Agent-in-Charge, Internal Revenue Service-Criminal Investigation, New York, WILLIAM J. WILLETT, Commissioner, Nassau County Police Department, and RAYMOND W. KELLY, Commissioner, New York City Police Department, today announced the unsealing of a 9-count indictment against five individuals and two corporations for their participation in a massive scheme to evade the payment of more than $13 million dollars in federal employee payroll taxes over the course of less than two years -- one of the largest payroll tax evasion cases ever prosecuted. The individual defendants -- NICOLAOS KYPRIANOU, GEORGE KALAITZIS, ATHANASIOS TSIDAVIS, PAUL CAPOZIO and SALOMI KYPRIANOU -- owned and operated several companies engaged in the employee leasing business, an industry that in recent years has expanded rapidly across the country. The investigation resulting in the indictment and arrests announced today was jointly conducted by the United States Department of the Treasury, Internal Revenue Service-Criminal Investigation, the Nassau County Police Department, and the New York City Police Department.

According to the indictment, the employees of a client company doing business with an employee leasing business (commonly referred to as a Professional Employment Organization, or "PEO") are typically treated for administrative and tax purposes as the employees of the PEO, which "leases" the employees back to the client company. The client company pays the gross payroll to the PEO, plus whatever fees the PEO company charges. In return, the PEO company issues the individual employees paychecks, pays the federal payroll tax withholding to the Internal Revenue Service, and files the Employer's Quarterly Federal Tax Returns ("Form 941"). In theory, the client company saves administrative time and expenses, and the PEO is compensated for performing those administrative tasks.

According to the indictment, between 1998 and 2001, the defendants' PEOs were responsible for administering the payroll taxes of more than 1000 employees for approximately 100 client companies, including construction and manufacturing businesses operating in the New York City metropolitan area. During that same period of time, it is alleged that the individual defendants caused the PEOs to collect the gross payroll from their client companies and issued employee paychecks, but did not pay the federal payroll taxes, keeping that money for themselves. As a result, the defendants had the use of over $13 million that should have been paid to the IRS, leaving their client companies in substantial arrears on their payroll taxes.

In order to conceal their evasion from the IRS, the defendants opened and closed several PEO companies in succession. The five PEOs owned and operated by the individual defendants were the defendant PREMIER STAFFING INC., Premier PEO Group Corp. ("Premier PEO"), Syngen Group Corp. ("Syngen Group"), Madison Staffing Solutions Corp. ("Madison Staffing") and PEO Services Inc. ("PEO Services"). Each PEO obtained an individual Employer's Identification Number from the IRS, as if it was a separate company, but each conducted business from the same address at 34-51 Vernon Boulevard, Long Island City, and each was staffed by essentially the same personnel.

As part of the tax evasion scheme, client companies were transferred from one PEO to another. The first company to go into business, PREMIER STAFFING, accrued a large payroll tax liability during 10 months of operation from April 1998 to February 1999. Its client companies were then transferred to other PEO companies, and the clients were told to make payments to the new PEOs. PREMIER STAFFING was then abandoned by the defendants, without revenue or assets -- rendering it essentially judgment proof -- but with substantial outstanding federal tax obligations.

Premier Staffing was followed by Premier PEO, which operated from October 1998 to December 1999 and incurred its own payroll tax liability before transferring its clients and assets and going out of business. Syngen Group operated from January 1999 to December 1999, accruing a payroll tax liability, followed by Madison Staffing, which operated from March 1999 to January 2000. Altogether, the PEO companies incurred a payroll tax liability of well in excess of $13 million in less than two years of operation.

In addition to tax evasion and conspiracy charges, the individual defendants KYPRIANOU, KALAITZIS, and TSIDAVIS, and corporate defendants PREMIER STAFFING INC. and NGN HOLDING CORP., are charged with laundering in excess of $3 million in funds that were obtained through fraud from Finova, an Arizona financing company with offices in Manhattan. In July 1998, Finova entered into an agreement with PREMIER STAFFING, agreeing to lend PREMIER STAFFING up to 85 percent of PREMIER's accounts receivables. The indictment charges that between September 1998 and January 1999, KYPRIANOU, KALAITZAS, and TSIDAVIS caused PREMIER STAFFING to submit numerous fraudulently inflated invoices to Finova, and, as a result, obtained larger loans than it would have legitimately received. The funds were used to finance various business activities of the individual defendants. After running up an outstanding balance of over $6 million, the defendants transferred PREMIER STAFFING's assets to other PEO's, leaving PREMIER with only a large inventory of worthless receivables.

The indictment alleges that the individual defendants transferred the proceeds from the tax evasion scheme and the Finova fraud scheme through the corporate bank accounts of their PEO companies and other intermediary bank accounts in order to divert them from the IRS and their creditors, including Finova. The indictment further alleges that the funds were routinely used by the individual defendants to pay for personal expenses for themselves, their family members, and their associates, and to finance other companies and business interests. The individual defendants also evaded IRS collections efforts by placing assets in the names of nominees.

The Money Laundering Conspiracy charge carries a maximum sentence of 20 years imprisonment and a fine of more than $6 million. ⁽¹⁾ The Wire Fraud, Tax Evasion and Tax Fraud Conspiracy charges each carry a maximum sentence of 5 years imprisonment and a $250,000 fine. In addition, the indictment also seeks criminal forfeiture of at least $3 million from KYPRIANOU, KALAITZIS, and TSIDAVIS, including real properties, commercial buildings, business interests and the remaining accounts receivable held by the two corporate defendants, PREMIER STAFFING INC. and NGN HOLDING CORP. Each corporate defendant also faces a maximum fine of $6 million.

In announcing the filing of these charges and arrests, United States Attorney ALAN VINEGRAD stated: "According to today's charges, the defendants in this case took over $13 million in federal payroll taxes that they were required to remit to the government and, through a corporate shell game, misappropriated these funds for their own personal and business use. This massive violation of tax collection obligations will be met with the full force of the law."

IRS-Criminal Investigation Special Agent-in-Charge PAUL L. MACHALEK stated: "Criminal evasion of payroll taxes is a significant concern for IRS Criminal Investigation because it threatens the integrity of the entire tax system. The investigation which culminated in today's indictments and arrests is one of the largest in the United States. Employers who fail to turn over their share of employment taxes deprive the United States government of the resources it requires to deliver needed services. This investigation should remind individuals who work 'off the books' that they, too, are harming the United States Treasury. It should also serve as notice to their employers that they can be prosecuted for their willful failure to collect and pay employment taxes. Persons who have information about payroll tax evasion can contact the IRS fraud hotline at 1-800-829-0433."

New York City Police Commissioner RAYMOND W. KELLY stated: "The defendants in this case infiltrated a legitimate industry and committed a fraud against all innocent taxpayers. They have also victimized finance and lending institutions and client businesses. This crime has a direct impact on the economic health of businesses in New York City. Investigators are analyzing large amounts of financial, business and computer records to seize the proceeds of this criminal enterprise."

Nassau County Police Department Commissioner WILLIAM J. WILLETT stated: "White collar crime has a profound effect on our country and the Nassau County Police Department is proud to have played a part in this cooperative investigation."

The case has been assigned to United States District Judge Frederic Block. The defendants will be arraigned this afternoon by United States Magistrate Judge Robert M. Levy, at the U. S. Courthouse, 225 Cadman Plaza East, Brooklyn, New York.

The government's case is being prosecuted by Assistant United States Attorneys Lisa M. Fleischman and Richard Weber.

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1. The charges contained in the indictment are merely allegations, and the defendants are presumed innocent unless and until proven guilty