OT: B.C. Securities Commission - In the News
Van Sun says BCSC-known Schneider indicted in U.S.
B.C. Securities Commission *BCSC
Friday December 20 2002 In the News
The Vancouver Sun reports in its Friday edition that a U.S. federal grand jury has charged Vancouver businessman Jerome Schneider and Los Angeles lawyer Eric Witmeyer with multiple counts of fraud in connection with their alleged sale of offshore companies to U.S. citizens for tax evasion purposes. The Sun's David Baines says the pair were indicted on one count each of conspiracy to defraud the Internal Revenue Service, 14 counts of wire fraud and eight counts of mail fraud. The maximum penalty for each count is five years in prison and a fine of $250,000 (U.S.). The indictment alleges that for seven years, the pair offered to sell bogus banks and other companies registered in tax haven Nauru, in the South Pacific, to U.S. citizens for $15,000 (U.S.) to $60,000 (U.S.) each. The vehicles were marketed and sold through Mr. Schneider's businesses -- Premier Corporate Services, Premier Financial Advisors, Premier Management Services, Wilshire Publishing and others. During the relevant period, Mr. Schneider operated many of these businesses from a Hornby Street office. IRS agents posing as prospective clients were allegedly told how the offshore companies could be "decontrolled" to evade taxes.
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B.C. Securities Commission - Street Wire
BCSC-known Schneider finally indicted by IRS
B.C. Securities Commission *BCSC
Thursday December 19 2002 Street Wire
by Brent Mudry
Notorious offshore bank peddler Jerome Schneider, who used Vancouver as a major centre of his operations, has been indicted on 23 counts after an extensive criminal investigation by the United States Internal Revenue Service and the U.S. Department of Justice, assisted by Canadian authorities. Mr. Schneider, 51, and Los Angeles attorney Eric Witmeyer were each charged with one count of conspiracy to defraud the IRS, 14 counts of wire fraud and eight counts of mail fraud, in a grand jury indictment unsealed Thursday in U.S. District Court for the Northern District of California in San Francisco.
The Schneider indictment is a landmark case in the fight against dubious offshore tax havens, and represents one of the most significant international investigation co-operations between U.S. and Canadian authorities in years. "This indictment again emphasizes that the Internal Revenue Service and the Department of Justice will continue their aggressive pursuit of those who would attempt to defraud America's tax system through the use of offshore evasion schemes," states Richard Speier, director of field operations in the agency's Pacific area criminal investigation section. "The message should be crystal clear that promoters or clients of offshore evasion schemes should expect scrutiny from the IRS and Department of Justice." The indictment vindicates critics of Mr. Schneider, who claim the pioneering offshore entrepreneur is little more than a sham and a flim-flam man.
Mr. Schneider, a U.S. citizen, is believed to be currently living in Vancouver, and the indictment details numerous Vancouver links in the criminal investigation. Mr. Schneider and Mr. Witmeyer have not yet arraigned, and a date for an initial court appearance has not yet been set.
Both men face maximum statutory penalties of five years and a $250,000 fine on the conspiracy charge and each of the mail and wire fraud charges, although any eventual sentence will be based on federal sentencing guidelines, which comprise numerous factors. (All figures are in U.S. dollars.) Both remain presumed innocent until proven guilty.
"That's great news," stated Jack Blum when informed of the Schneider indictment by Stockwatch. The Schneider probe began in January, 1997, when the IRS's Criminal Investigation Division received a letter from a United States Attorney advising that Mr. Blum, an expert in global money movement, had contacted him with information regarding potential criminal conduct of Mr. Schneider.
Mr. Blum has appeared numerous times as an expert government witness on offshore finance and money laundering, and he worked for the U.S. Senate Foreign Relations Committee on the Bank of Credit and Commerce International investigation.
Although not noted in the indictment, Mr. Schneider's star client was Terry Neal, to whom he sold the shell offshore bank Exchange Bank and Trust. Mr. Neal, fined $2.5-million in 2000 by the U.S. Securities and Exchange Commission as the mastermind of the Itex Corp. fraud, launched EBT in August, 1997, after his Itex fiasco.
EBT's main operating account, at the main downtown Vancouver branch of Bank of Montreal, was frozen in April, 2000, by the British Columbia Securities Commission on behalf of the SEC. Within weeks, investigators discovered the account was a prime money laundering conduit for securities violators, especially Mafia-linked career felon Ed Durante. Mr. Durante, who soon flipped and stung Vancouver broker Trevor Koenig and accountant Michael K. Graye, amongst others, faces a recent $39-million default judgment in New York from the SEC, which seeks $17.53-million from the frozen Vancouver account.
This same Bank of Montreal branch has the misfortune of being the only North American bank mentioned in the Schneider indictment, although there is no suggestion of wrongdoing on the part of the respected Canadian bank.
Previously, this same Bank of Montreal branch was best known as the former long-time employer of private bankers Nick Massee, who mysteriously went missing several years ago in the Turbodyne case, and Howard Thomson, a key player in another penny stock deal closely linked to controversial expatriate Vancouver promoter Harry Moll.
The Schneider grand jury indictment comes 22 months after the IRS staged co-ordinated raids on Mr. Schneider's Vancouver and Los Angeles operations in February, 2001.
Although 140 boxes of documents were seized in the Vancouver raids, led by members of the Canada Customs and Revenue Agency, virtually all of this evidence was sealed and later returned to Mr. Schneider. In a devastating July court decision in Vancouver, a Canadian judge refused to allow the sending of a single page of the documents seized Feb. 28, 2001, at the Vancouver offices of Mr. Schneider's main operating companies, Premier Corporate Services Ltd. and Premier Management Ltd.
Mr. Justice Bruce Cohen of the Supreme Court of British Columbia ruled that the seized Vancouver documents should not be sent to U.S. officials and should be returned to Mr. Schneider. The ruling is based on defence allegations, not fully proven, that IRS Special Agent Harold (Hal) Durrette, the lead Schneider investigator, was quite naughty after the Vancouver searches, peeking and poking around in an improper sneak preview of his hoped-for big haul of evidence. Even if Mr. Durrette had not touched a single document, Mr. Schneider still could have tied up the fruits of the search with a court seal for months or even years, as Canadian search and seizure laws are skewed in the favour of targets, not the authorities.
Mr. Schneider and Mr. Witmeyer are alleged to have operated a two-stage scheme between January of 1994 and December of 2001, in which they marketed and sold Nauru trading corporations licensed as international banks and other offshore corporations in an attempt to defraud the IRS. The Republic of Nauru, an island nation, is a smelly offshore international finance centre built on bird droppings in the middle of the South Pacific, a bit north of Fiji and the Solomon Islands. In the first stage, Mr. Schneider flogged the purported shell, or brass plate, banks for $15,000 to $60,000 through Premier Corporate Services, Premier Financial Advisors LLC, Premier Management Services, Wilshire Publishing and his other companies.
The indictment alleges no business was conducted by any offshore entity sold by the defendants on Nauru nor was any bank account established on Nauru, and instead Mr. Schneider and Mr. Witmeyer set up accounts in the name of the Nauru shell bank in financial institutions located outside the U.S., including Canada.
In the second stage, Mr. Schneider's clients paid Mr. Witmeyer, the lawyer, $15,000 to "decontrol" the purported offshore bank, to conceal the U.S. taxpayer's ownership of the offshore entity.
The indictment describes Mr. Schneider as a U.S. citizen who resided in Vancouver and Mill Valley, Calif., and who did business in Vancouver, San Francisco and Manhattan Beach, Calif., in a period starting in January, 1994.
Beginning in October, 1994, the offices of Mr. Schneider's Premier Corporate and Premier Management were located in Vancouver. On Sept. 16, 2000, Mr. Schneider also leased office space in San Francisco for Premier Financial, and occupied that space until May 31, 2001, three months after the IRS raid in Manhattan Beach and the CCRA/IRS raid in Vancouver.
The IRS's criminal probe of Mr. Schneider and Mr. Witmeyer featured special agents serving as undercover operatives, who posed as clients keen on buying offshore banks from Mr. Schneider and having Mr. Witmeyer "decontrol" them. The undercover agents had face-to-face meetings and numerous phone calls with the targets, and paid them funds for the offshore shells.
Mr. Schneider initially hooked many of his suckers through his Wilshire books and publications, entitled "How To Own Your Own Private International Bank," "Jerome Schneider's Complete Guide to Offshore Money Havens," and "Hiding Your Money," which he advertised mainly through airline in-flight magazines such as Sky Mall on Southwest Airlines, US Air and Delta Air Lines, and American Way on American Airlines, in addition to ads in such dailies as the Wall Street Journal.
The indictment also notes Mr. Schneider shilled his shells at Offshore Wealth Summit dog-and-pony shows in Vancouver on March 18 to 20, 1996, Cancun on Nov. 20 to 22, 1996, at the Waterfront Centre Hotel in Vancouver on April 2 to 4, 1998, at the Ritz Carlton Hotel in Cancun on Dec. 9 to 11, 1998, at Vancouver's Waterfront on June 24 to 26, 1999, and at the Ritz-Carlton in Maui on Dec. 9 to 11, 1999.
Attendees who bought and used such Schneider shells might like to consult their lawyers now, as the IRS and CCRA are always happy to hear from nervous tax evaders and generally offer leniency for voluntary refilings made before formal criminal investigations are launched.
The only infiltrated Schneider Summit noted in the indictment is the April, 1998, shindig in Vancouver, which featured an undercover agent using the alias Mark Austin.
From April, 1998, through March, 1999, Mr. Austin had numerous phone chats with Mr. Schneider and his employees, and met with the offshore flim-flam man in person once in Vancouver. Between June, 1999, and December, 2000, other undercover agents using the names Michael Jordan and William Palmer also targeted Mr. Schneider's operation, posing as prospective clients.
"Speakers were presented at the Offshore Wealth Summits such as Congressmen, politicians, public figures and others who did not speak about the purchase of offshore entities but who were presented by defendant Schneider as speakers to impress the attendees . . . as to the legitimacy of use of offshore entities by U.S. taxpayers to evade the payment of income tax," states the indictment.
At these dog-and-ponies, Mr. Schneider also provided private consultants for a fee of $200 a half-hour to attendees curious about specific details better suited to a private forum.
Mr. Schneider sold the undercover IRS special agents a Nauru bank shell called Southern Fidelity Development Bank Inc. on Sept. 3, 1999, for $60,000. In addition, Mr. Schneider accepted $17,900 in fees for the transaction, which was wired to a Premier Management account at Bank of Montreal in Vancouver.
A month later, on Oct. 1, 1999, Mr. Schneider opened an account in the name of Southern Fidelity at Bank of Montreal in Vancouver, presumably the same branch.
"Between on or about November 1, 1999, and February 1, 2000, the defendants caused the CI (criminal investigation) undercover operatives to transmit $97,445 in funds to be deposited in the Southern Fidelity Development account at the Bank of Montreal," states the indictment. "The CI undercover operatives had represented to the defendants that these funds were income earned by the undercover operatives during the year 1999 and 2000."
The indictment cites specific transactions with a number of clients, dating back to April 5, 1994, when Vincent Linz paid Mr. Witmeyer $15,000 as a deposit for an offshore shell. No allegations are made against any of the named Schneider clients. Other such named clients include Andrew Gaeddert, Dr. Jan Winetz, Michael Burstein, Gayle Burstein, Boris Gruzman, Jason Patel and Clint Goodrich.
Four of the fraud counts relate to transactions with client Joe Lawton, a California businessman. Stockwatch revealed Mr. Lawton's civil suit against Mr. Schneider in November, 2001. Mr. Schneider, his shill Richard Bullock and Vancouver lawyer Stephen D. Holmes emerged as key players in the international fight over an offshore brokerage account at the main Vancouver branch of national house BMO Nesbitt Burns.
In a case demonstrating the risks of using secretive offshore accounts to shield assets from the tax man, Mr. Lawton is fighting Mr. Schneider for control of two affiliated offshore companies, Quaestor Commercial Services Inc. and Empire Investments Inc., set up for him by the offshore specialist to shield a $335,000 stock settlement the California businessman received in mid-1996 from Q-Zar Inc. While Mr. Lawton has not yet been unable to touch a penny of his Q-Zar windfall, he has spent a fortune so far on his offshore annuity tax dodge.
"Mr. Schneider arranged for a number of different professionals, lawyers and accountants to act, I understood, on my behalf to supposedly bring the annuity into existence. Despite my many efforts and requests, I was never provided with the annuity. I have spent approximately $200,000 in attorney's fees to bring the annuity into existence," states the California businessman in an affidavit sworn Oct. 30, 2001.
The Quaestor case offers an unusual in-depth insight into the murky world of offshore dealings on Howe Street, provided by documentary evidence filed in courts in three countries.
Mr. Lawton filed an $832,000 suit, including five years of accrued interest, against Mr. Schneider on July 11, 2001, in San Francisco in the Superior Court for the State of California. His offshore company, Quaestor Commercial, filed a suit against BMO Nesbitt Burns and offshore service providers ATC Trustees (Cayman) Ltd. and Company Directors Ltd. on Oct. 24, 2001, in Vancouver in the Supreme Court of British Columbia, asserting beneficial ownership of another offshore company, Empire Investments Ltd. ATC Trustees then filed an action against Mr. Lawton and Quaestor on Nov. 1, 2001, in George Town in the Grand Court of the Cayman Islands, seeking to resolve the key issue of who owns Empire in the offshore secrecy haven.
The penny stock promotion which led to this heated offshore wrangle, Q-Zar, was one of the most notable penny-stock flame-outs on the Toronto Stock Exchange in the past decade, at least based on the speed of its demise. Q-Zar Inc. went public in June, 1995, after the reverse takeover of Braminco Enterprises, a Canadian Dealing Network shell, by Q-Zar Canada, a private company. In this prepublic stage, Q-Zar Canada raised $17-million through a private placement of four million shares at $4.25, handled by former Howe Street brokerage Majendie Securities and former Bay Street brokerage Gordon Capital.
The laser-tag promotion began trading at $7.25 (Canadian) on the Canadian exchange on June 30, 1995; graduated to an interlisting on Nasdaq at $5.37 (U.S.) eight months later; in February, 1996, raised $18.1-million (Canadian) in an institutional private placement; a month later; sold another $20.6-million institutional financing that November, and collapsed into Chapter 11 bankruptcy barely a year later.
bmudry@stockwatch.com
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