It Pays to be Rich – Billionaire Tax Evader Gets Probation

A three-judge panel of the 7th U.S. Circuit Court of Appeals rejected the call for prison sentence for Ty Warner, the Beanie Baby creator. Warner evaded $5.6 million in taxes but gets to walk away because of his record of charity and benevolence, noticed by U.S. District Judge Charles P. Kocoras.

The Chicago Daily Law Bulletin states that “in a concurring opinion, Judge Joel M. Flaum wrote he believes prison time is appropriate for Warner.” Judge Flaum wrote, “He purposely sought to deprive the federal government of millions of dollars of tax revenue simply to amass more of his enormous wealth.” Others have praised the judge panel of the 7th Circuit for recognizing Warner’s charitable acts that occurred before his wrongful doings.

Warner based his company, Ty Inc. in Oak Brook, IL and gained popularity in the 1990’s with Beanie Babies. He then collected $24.4 million in interest on an offshore bank account in Switzerland from 1996 to 2007. Since Warner failed to report that income in his tax returns, a criminal case against him was made.

In 2013, Warner was then charged with one count of tax evasion for the amount of $885,300 in 2002. Warner pleaded guilty and under a plea agreement, he admitted to evading $5.6 million in taxes from 1996 to 2007. He agreed to pay full restitution and a civil penalty equating to more than 53.5 million.

Warner’s sentence range was calculated to be 46 to 57 months but he asked for probation. Kocoras sentenced Warner to two years’ probation with the condition that he perform at least 500 hours of community service as well as pay a $100,000 fine.


Two Daughters Inherit $20 Million Trust – with Strings and Ex-Wife Attached

The New York Post states, “A wealthy Manhattan landlord left $20 million to his two daughters — but they can collect only on his strict terms.”


Maurice Laboz, the late real estate millionaire left his two daughters – Marlena, 21, and Victoria, 17 – trusts of $10 million each in which they are entitled to when they turn 35. However, they are able to get receive some of the money beforehand if they follow the guidelines of their late father. The New York Post bullets the rules below:

  • Marlena will get $500,000 for tying the knot, but only if her husband signs a sworn statement promising to keep his hands off the cash.
  • She nets another $750,000 if she graduates “from an accredited university” and writes “100 words or less describing what she intends to do with the funds” — with the trustees appointed by her dad to oversee her money responsible for approving her essay.
  • Both daughters get a big incentive to earn decent salaries by 2020. Each young woman is guaranteed to receive an annual payout of three times the income listed on their personal federal tax return. In a not-so-subtle nod to the taxman, their checks will be cut every April 15.
  • If the daughters have kids and don’t work outside the house, the trustees will give them each 3 percent of the value of their trust every Jan. 1. There’s one catch: The money flows only for a “child born in wedlock.”
  • The sisters could earn the same amount being “a caregiver” to their mother, Ewa Laboz, 58, whom their father was in the middle of divorcing. She got nothing in the will and has indicated that she will contest it.


Maurice Laboz signed the will nine months before his passing at the age of 77. He left behind a $37 million fortune, in which we justifies leaving his wife out because of a prenuptial agreement.

Ewa Laboz filed court papers to contest the will that Maurice Laboz left behind, stating that she deserves a portion of the estate because she was still married to him when he passed.

The Michael J. Fox Foundation for Parkinson’s Research and Meals on Wheels are two of the charities that will be receiving the rest of the fortune.


BMO Harris Agrees to Settle in Ponzi Scheme Lawsuit

Unfortunately there are many Bernie Madoff’s in this world who concoct a seemingly endless stream of Ponzi schemes to trap unwitting investors. Most of these schemes prove to be wildly successful, at least initially, so it is unlikely we will see the end of them soon particularly in the current investment environment. With interest rates at record lows, people looking for a better “return” are lured into these schemes that offer above market rates with seemingly little risk.  The fact is that these schemes which appear to be too good to be true are in fact too good to be true.

Ponzi schemes usually work for a while, sometimes for years, with funds contributed by new investors being used to pay dividends or returns to earlier investors. Initially investors in Ponzi schemes usually withdraw their profits to confirm the investment performs as advertised, but then decide to reinvest their “profits” in the scheme, which are shown on fraudulent monthly statements sent to them.  Reinvesting “profits” allows the Ponzi scheme to work as it removes the burden on the scheme operator to actually pay returns to investors.  In today’s digital age it very simple to generate what appears to be legitimate monthly statements that show an investor’s account growing by leaps and bounds, but there is nothing to back up the statement.    Ponzi schemes usually collapse when there is a “run on the bank” with people demanding the return of their investments and profits. In Madoff’s case, the “run” was caused by the 2008 financial collapse which caused people to question how Madoff could still be investing successfully when worldwide financial markets were in ruins.

Victims of Ponzi schemes are not always unsophisticated investors. In one recent case, a Minnesota businessman, Tom Petters, offered hedge funds and other institutional investors the opportunity to earn double-digit returns by making loans to his companies, which he claimed were using the funds to purchase goods that were resold to national retail chains at substantial profits. The problem was there were no purchases or sales, and the entire scheme was based on phony purchase orders and invoices. Billions were invested by these sophisticated parties before the scheme was uncovered and collapsed.  Petters went to jail, but the hedge funds, and the folks who invested in them, lost everything. Not surprisingly, lawsuits were filed against everyone connected to Petters’ scheme, including his banks, accountants, lawyers, and the hedge funds who did business with him (most of whom were themselves bankrupted by the scheme).

Chicago-based BMO Harris Bank recently agreed to pay $16 million to settle litigation tied to the Ponzi scheme which was filed by one of the bankrupt hedge funds that had been feeding Petters’ scheme.  Harris had been sued for nearly $24 billion in connection with accusations that M&I Bank, which Harris acquired in 2011, was complicit in the massive fraud orchestrated by Petters. Harris of course denied the allegations and the relatively small settlement suggests the claims against it were not that strong. The settlement is awaiting approval by the U.S. Bankruptcy Court.

Our firm is currently exploring potential claims against an auditing firm for a now bankrupt Illinois hedge fund that invested almost exclusively in a Petters company. If you have been caught up in a Ponzi fraud (and you are not alone), do not give up hope.  There are ways to try and recover some of your investment, but it is best to act quickly. Call us if you need help.