CRIMINAL ACTIVITY INCREASING
Tax Evasion by Fiduciaries
Fiduciaries may deliberately omit paying their wards’ taxes, nursing facility bills and other obligations, in order to assure that the money will be available for payment of their fees, or because they have engaged in outright conversion.
More and more fiduciaries may engage in this type of misconduct, which often is not discovered promptly enough for any corrective action to be taken, because of lack of monitoring and oversight.
Judge John L. Phillips, in a much publicized Brooklyn case, had approximately $10 million in assets when he was declared mentally incompetent.\33/
"’The Brooklyn Supreme Court Guardianship Program has been hijacked by Mafia-style crime,’ charges Reverend Samuel Boykin, court-appointed guardian for Judge John Phillips, the ‘Kung Fu Judge.’
Phillips was a Brooklyn Civil Court Judge for 13 years serving two terms between 1976 and 1994.
"His story should serve as a cautionary tale for all."
"Judge John L. Phillips said to me regularly that if all of these illegal activities can be successfully committed against a judge, they can be committed against anyone,’ says Reverend Boykin.
“Of larger concern is what has happened to judicial oversight of the court-appointed guardians and of the whole Guardianship program. As Boykin says in his complaint to Comptroller William Thompson, ‘There were 12 judges involved in the Judge John L. Phillips Guardianship case, either involved in overseeing the case as presiding judges, issuing decision orders, judicial hearing judges, administrator judges, judges sealing records. We believe none of these judges are legally able to state they were not aware of the illegal activities going on in the Judge John L. Phillips Guardianship case, we believe the case is a good example of the need for oversight of the Guardianship program.’”\34/ (Emphasis added)
At least two of his court-appointed “protectors” were proven to have converted thousands of dollars from Judge Phillips’ estate. After his death, it was revealed that his estate owed the IRS over $1 million in back taxes, plus penalties and interest, but there was not enough money left to pay the bill. He was plunged into debt only AFTER the adjudication!
“Four court-appointed fiduciaries and Kings County Supreme Court Justice Michael Pesce have been referred to the Internal Revenue
Service for alleged violations of tax law pertaining to their role in the guardianship of John L. Phillips, a former judge himself.
“From 2000 to 2007, four separate court appointed guardians - Harvey Greenberg, Frank J. Livoti, Ray Jones, and Emani Taylor - sold
approximately $10 million of real estate for an alleged incapacitated person, retired judge John L. Philips. No tax returns were filed or paid; current estimates are $1.5 million in taxes are owed. All above said guardians are lawyers.”\35/
Emani Taylor’s law license was suspended in 2008, and although ordered to repay the estate $403,000 she took from the judge's accounts, she has appealed the decision. Relatives of Judge Phillips were forced to put a remaining theatre property up for sale to satisfy the tax debt.
The Phillips case illustrates a hefty tax loss\36/ and is undoubtedly not isolated.
The IRS does not currently penalize guardians who fail to pay their ward’s taxes, pursuing collection from the ward and family instead.
Does the IRS simply allow these violations and write off these enormous losses when there are no assets or property left in the wards’ estate, without pursuing the fiduciaries for payment?
There are provisions in the IRS Code making fiduciaries in decedents’ estate cases responsible for filing and payment of taxes, imposing liability for payment,\37/ and a penalty for failure to file.\38/
Are there any similar obligations and penalties for fiduciaries in guardianships who fail to file/pay taxes?
How much revenue does the IRS lose as a result, and what does it cost the American taxpayer? And what is or will be done about it?
Which leads us to the next question: Are these fiduciaries paying their own income taxes?
Criminal Prosecutions of Fiduciaries
Reports of law enforcement concerning criminal activity by fiduciaries are increasing.
• Rita Hunter, a Joplin Missouri Public Administrator, has been replaced for overbilling, and she is presently under criminal investigation.\39/
• Fox 9 Minnesota ran a four-part investigative series exposing conservator Sheila Gast and encouraging the court to take action against her. Gast eventually pled guilty to perjury, was sentenced to community service, fined $3,000, and removed from all her court-appointed cases.\40/
• In Brooklyn, New York, attorney Steven Rondos and his law firm were accused of stealing over $4 million from 23 incapacitated victims between 2001 and 2008 by openly depositing the bulk of the victims’ lawsuit awards into his firm’s account. The press labeled Rondos a “predator.” Rondos agreed to disbarment. He and his firm were indicted on charges of grand larceny, money laundering and scheme to defraud. He faces 25 years in prison if convicted of grand larceny. Mr. Rondos was formerly vice-chair of the Guardianship
Committee of the New York State Bar Association's Elder Law Section.\41/
As of January 5, 2009, Rondos was disbarred in New Jersey, and on September 8, 2009, he was disbarred in New York. His criminal trial was scheduled to begin in August of 2009 and was adjourned, but he has since pled guilty and faces six to 18 years when he will be sentenced on January 22, 2010.\42/
• In Illinois, St. Clair County’s Public Guardian and Administrator, John F. Pawloski has been accused by state regulators of unauthorized use of his wards’ funds. Pawloski has refused to account for more than $50,000 of wards’ and deceased persons’ money, citing his Fifth Amendment right to avoid self- incrimination.
He has appealed a judge’s demand that he provide the accountings, and that appeal is pending. Pawloski has agreed to repay the estates of several of his victims; and has yet to be charged with a criminal offense. The media, however, continues to press for criminal charges against Pawloski; one such article is titled, “Will Justice Be Served?”\43/
John F. Pawloski's request for disbarment was included in documents filed with the Illinois Supreme Court, which has not yet issued a decision.\44/
• In Missouri, Bonnie Sue Larson was recently sentenced to three years in federal prison without parole and ordered to pay over $119,000 in restitution for embezzling Social Security funds from 120 wards while she was Buchanan County Public Administrator.\45/
• In Ventura County, California, Juanita Ann Canley, a/k/a Juanita Browne, CA, has been sentenced for theft she committed and kickbacks she received while employed as a Deputy Public Guardian.\46/
• The New York trial of Anthony D. Marshall, son of heiress Brooke Astor, indicted on charges that he defrauded her and stole tens of millions of dollars from her as she suffered from Alzheimer’s disease in the twilight of her life, has ended.
She was found to be living in disgraceful conditions. The case created a media frenzy.
Marshall was found to be guilty and faces up to 25 years in prison. Sentencing is scheduled for December 9th, but since the trial produced about 18,000 pages of transcript and thousands more pages of exhibits, an appeal will take a long time.
Co-defendant, Francis X. Morrissey Jr., a lawyer who did estate planning for Mrs. Astor, was also convicted of a series of fraud and conspiracy charges, as well as one count of forging Mrs. Astor’s signature on an amendment to her will. \47/
While the majority of media reports would have us believe that family members commit most of the financial crimes against the elderly, a March 2009 research report\48/ regarding thefts and other forms of financial exploitation of the elderly concluded that professionals such as lawyers and investment advisers account for the largest group of offenders at about 18 percent, followed closely by family
members. The perpetrators of elder financial abuse are typically not strangers, and most are people who have gained the trust of the older individual, including business and service professionals and family members.
Elder financial abuse costs Americans more than $2.6 billion a year, according to a press release by MetLife insurance.\49/ But those are just rough estimates of obvious losses, the researchers say. What we don't know is what is the present cost to taxpayers and what the future will hold for them as the Baby Boomers reach the age of vulnerability. Will they become potential victims of guardianship and
wind up on Medicaid rolls as a result?
In today’s economic condition, it is a given that the fraud and feeding frenzy will grow exponentially, unless stopped now!
Criminalizing Guardianship Abuse
The states have criminal statutes for elder abuse. Fortunately, legislators are beginning to realize the need to react to criminal activities by fiduciaries:
• West Virginia has amended its criminal code to add penalties for caregivers/guardians who intentionally misappropriate or misuse the funds or assets of an incapacitated adult.\50/
• Michigan's criminal statutes include felony treatment for vulnerable adult abuse by a caregiver or "other person with authority over the vulnerable adult."\51/
NASGA enthusiastically supports and will work towards legislation enhancing criminal penalties.
______________
Footnotes:
33 Phillips had the temerity to make a run against the incumbent DA, whose office – it was rumored – was instrumental in promoting the guardianship.
34 Our Time Press, The Disturbing Case of the Estate of Judge John L. Phillips, by David Mark Greaves (08/06/09) http://ourtimepress.com/?p=475
35 Judicial Reports, Fallen Guardian Angels, by Leah Nelson (09/12/07) http://www.judicialreports.com/2007/09/fallen_guardian_angels.php
36 New York Post, Judge Money Melee: Guardian Lax On Tax, by Alex Ginsberg (06/03/07) http://www.nypost.com/seven/09032007/news/regionalnews/judge_money_melee.htm
37 26 U.S.C. 2002, Liability for Payment
38 http://www.irs.gov/app/vita/globalmedia/p559.pdf - (See “Penalty”)
39 Joplin Globe, Probe Of Former Administrator Referred To Federal Authorities, by Susan Redden (07/24/09) http://www.adaeveningnews.com/joplinglobe/carthage_jasper_county/local_story_205015131.html
40 Fox 9 News, Caregiver Sentenced for Lying Under Oath (07/07/09) http://www.myfoxtwincities.com/dpp/news/crime/Caregiver_Faces_Judge_for_Lying_Under_Oath_july_07_200
41 ABA Journal, Court-Appointed NY Lawyer Accused of Stealing $4M from Clients, by Martha Neil (01/28/09) http://www.abajournal.com/news/court-appointed_ny_lawyer_accused_of_stealing_4m_from_clients
42 http://www.courts.state.ny.us/courts/ad2/calendar/webcal/decisions/2009/D24068.pdf
43 Belleville News-Democrat Editorial, Will Justice Be Served? (01/25/09) http://www.bnd.com/editorial/story/820940.html
44 Belleville News-Democrat, He’s Contrite About What Happened: Attorney Who Used Client’s Money Will Give Up License, By Laura Girresch, (10/08/09) http://www.bnd.com/news/local/story/957211.html
45 St. Joe News, Lawson Sentenced To 37 Months, by Gretchen Mollenhour (04/14/09) http://www.stjoenews.net/news/2009/apr/14/lawson-sentenced-37-months
46 Moorpark Acorn, Former Public Guardian Sentenced (01/30/09) http://www.mpacorn.com/news/2009-01-30/Community/Former_public_guardian_sentenced.html
47 New York Times, Brooke Astor’s Son Guilty in Scheme to Defraud Her, by John Eligon (10/08/09) http://www.nytimes.com/2009/10/09/nyregion/09astor.html
48 MetLife's Mature Market Institute, Broken Trust: Elders, Family, and Finances (March 2009) http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-study-broken-trust-elders-family-finances.pdf
49 MetLife, Mature Market News, Financial Abuse Costs Elders More than $2.6 Billion Annually (03/17/09) http://www.metlife.com/assets/cao/mmi/publications/mmi-pressroom/mmi-press-releases-financial-abuse.pdf
50 West Virginia Criminal Code §61-2-29a http://www.legis.state.wv.us/WVCODE/ChapterEntire.cfm?chap=61&art=2§ion=29
51 Ch. 750 Sec. 145m - http://www.michigan.gov/documents/bhs_750_153839_7.145m-750-145r.pdf
Fiduciaries may deliberately omit paying their wards’ taxes, nursing facility bills and other obligations, in order to assure that the money will be available for payment of their fees, or because they have engaged in outright conversion.
More and more fiduciaries may engage in this type of misconduct, which often is not discovered promptly enough for any corrective action to be taken, because of lack of monitoring and oversight.
Judge John L. Phillips, in a much publicized Brooklyn case, had approximately $10 million in assets when he was declared mentally incompetent.\33/
"’The Brooklyn Supreme Court Guardianship Program has been hijacked by Mafia-style crime,’ charges Reverend Samuel Boykin, court-appointed guardian for Judge John Phillips, the ‘Kung Fu Judge.’
Phillips was a Brooklyn Civil Court Judge for 13 years serving two terms between 1976 and 1994.
"His story should serve as a cautionary tale for all."
"Judge John L. Phillips said to me regularly that if all of these illegal activities can be successfully committed against a judge, they can be committed against anyone,’ says Reverend Boykin.
“Of larger concern is what has happened to judicial oversight of the court-appointed guardians and of the whole Guardianship program. As Boykin says in his complaint to Comptroller William Thompson, ‘There were 12 judges involved in the Judge John L. Phillips Guardianship case, either involved in overseeing the case as presiding judges, issuing decision orders, judicial hearing judges, administrator judges, judges sealing records. We believe none of these judges are legally able to state they were not aware of the illegal activities going on in the Judge John L. Phillips Guardianship case, we believe the case is a good example of the need for oversight of the Guardianship program.’”\34/ (Emphasis added)
At least two of his court-appointed “protectors” were proven to have converted thousands of dollars from Judge Phillips’ estate. After his death, it was revealed that his estate owed the IRS over $1 million in back taxes, plus penalties and interest, but there was not enough money left to pay the bill. He was plunged into debt only AFTER the adjudication!
“Four court-appointed fiduciaries and Kings County Supreme Court Justice Michael Pesce have been referred to the Internal Revenue
Service for alleged violations of tax law pertaining to their role in the guardianship of John L. Phillips, a former judge himself.
“From 2000 to 2007, four separate court appointed guardians - Harvey Greenberg, Frank J. Livoti, Ray Jones, and Emani Taylor - sold
approximately $10 million of real estate for an alleged incapacitated person, retired judge John L. Philips. No tax returns were filed or paid; current estimates are $1.5 million in taxes are owed. All above said guardians are lawyers.”\35/
Emani Taylor’s law license was suspended in 2008, and although ordered to repay the estate $403,000 she took from the judge's accounts, she has appealed the decision. Relatives of Judge Phillips were forced to put a remaining theatre property up for sale to satisfy the tax debt.
The Phillips case illustrates a hefty tax loss\36/ and is undoubtedly not isolated.
The IRS does not currently penalize guardians who fail to pay their ward’s taxes, pursuing collection from the ward and family instead.
Does the IRS simply allow these violations and write off these enormous losses when there are no assets or property left in the wards’ estate, without pursuing the fiduciaries for payment?
There are provisions in the IRS Code making fiduciaries in decedents’ estate cases responsible for filing and payment of taxes, imposing liability for payment,\37/ and a penalty for failure to file.\38/
Are there any similar obligations and penalties for fiduciaries in guardianships who fail to file/pay taxes?
How much revenue does the IRS lose as a result, and what does it cost the American taxpayer? And what is or will be done about it?
Which leads us to the next question: Are these fiduciaries paying their own income taxes?
Criminal Prosecutions of Fiduciaries
Reports of law enforcement concerning criminal activity by fiduciaries are increasing.
• Rita Hunter, a Joplin Missouri Public Administrator, has been replaced for overbilling, and she is presently under criminal investigation.\39/
• Fox 9 Minnesota ran a four-part investigative series exposing conservator Sheila Gast and encouraging the court to take action against her. Gast eventually pled guilty to perjury, was sentenced to community service, fined $3,000, and removed from all her court-appointed cases.\40/
• In Brooklyn, New York, attorney Steven Rondos and his law firm were accused of stealing over $4 million from 23 incapacitated victims between 2001 and 2008 by openly depositing the bulk of the victims’ lawsuit awards into his firm’s account. The press labeled Rondos a “predator.” Rondos agreed to disbarment. He and his firm were indicted on charges of grand larceny, money laundering and scheme to defraud. He faces 25 years in prison if convicted of grand larceny. Mr. Rondos was formerly vice-chair of the Guardianship
Committee of the New York State Bar Association's Elder Law Section.\41/
As of January 5, 2009, Rondos was disbarred in New Jersey, and on September 8, 2009, he was disbarred in New York. His criminal trial was scheduled to begin in August of 2009 and was adjourned, but he has since pled guilty and faces six to 18 years when he will be sentenced on January 22, 2010.\42/
• In Illinois, St. Clair County’s Public Guardian and Administrator, John F. Pawloski has been accused by state regulators of unauthorized use of his wards’ funds. Pawloski has refused to account for more than $50,000 of wards’ and deceased persons’ money, citing his Fifth Amendment right to avoid self- incrimination.
He has appealed a judge’s demand that he provide the accountings, and that appeal is pending. Pawloski has agreed to repay the estates of several of his victims; and has yet to be charged with a criminal offense. The media, however, continues to press for criminal charges against Pawloski; one such article is titled, “Will Justice Be Served?”\43/
John F. Pawloski's request for disbarment was included in documents filed with the Illinois Supreme Court, which has not yet issued a decision.\44/
• In Missouri, Bonnie Sue Larson was recently sentenced to three years in federal prison without parole and ordered to pay over $119,000 in restitution for embezzling Social Security funds from 120 wards while she was Buchanan County Public Administrator.\45/
• In Ventura County, California, Juanita Ann Canley, a/k/a Juanita Browne, CA, has been sentenced for theft she committed and kickbacks she received while employed as a Deputy Public Guardian.\46/
• The New York trial of Anthony D. Marshall, son of heiress Brooke Astor, indicted on charges that he defrauded her and stole tens of millions of dollars from her as she suffered from Alzheimer’s disease in the twilight of her life, has ended.
She was found to be living in disgraceful conditions. The case created a media frenzy.
Marshall was found to be guilty and faces up to 25 years in prison. Sentencing is scheduled for December 9th, but since the trial produced about 18,000 pages of transcript and thousands more pages of exhibits, an appeal will take a long time.
Co-defendant, Francis X. Morrissey Jr., a lawyer who did estate planning for Mrs. Astor, was also convicted of a series of fraud and conspiracy charges, as well as one count of forging Mrs. Astor’s signature on an amendment to her will. \47/
While the majority of media reports would have us believe that family members commit most of the financial crimes against the elderly, a March 2009 research report\48/ regarding thefts and other forms of financial exploitation of the elderly concluded that professionals such as lawyers and investment advisers account for the largest group of offenders at about 18 percent, followed closely by family
members. The perpetrators of elder financial abuse are typically not strangers, and most are people who have gained the trust of the older individual, including business and service professionals and family members.
Elder financial abuse costs Americans more than $2.6 billion a year, according to a press release by MetLife insurance.\49/ But those are just rough estimates of obvious losses, the researchers say. What we don't know is what is the present cost to taxpayers and what the future will hold for them as the Baby Boomers reach the age of vulnerability. Will they become potential victims of guardianship and
wind up on Medicaid rolls as a result?
In today’s economic condition, it is a given that the fraud and feeding frenzy will grow exponentially, unless stopped now!
Criminalizing Guardianship Abuse
The states have criminal statutes for elder abuse. Fortunately, legislators are beginning to realize the need to react to criminal activities by fiduciaries:
• West Virginia has amended its criminal code to add penalties for caregivers/guardians who intentionally misappropriate or misuse the funds or assets of an incapacitated adult.\50/
• Michigan's criminal statutes include felony treatment for vulnerable adult abuse by a caregiver or "other person with authority over the vulnerable adult."\51/
NASGA enthusiastically supports and will work towards legislation enhancing criminal penalties.
______________
Footnotes:
33 Phillips had the temerity to make a run against the incumbent DA, whose office – it was rumored – was instrumental in promoting the guardianship.
34 Our Time Press, The Disturbing Case of the Estate of Judge John L. Phillips, by David Mark Greaves (08/06/09) http://ourtimepress.com/?p=475
35 Judicial Reports, Fallen Guardian Angels, by Leah Nelson (09/12/07) http://www.judicialreports.com/2007/09/fallen_guardian_angels.php
36 New York Post, Judge Money Melee: Guardian Lax On Tax, by Alex Ginsberg (06/03/07) http://www.nypost.com/seven/09032007/news/regionalnews/judge_money_melee.htm
37 26 U.S.C. 2002, Liability for Payment
38 http://www.irs.gov/app/vita/globalmedia/p559.pdf - (See “Penalty”)
39 Joplin Globe, Probe Of Former Administrator Referred To Federal Authorities, by Susan Redden (07/24/09) http://www.adaeveningnews.com/joplinglobe/carthage_jasper_county/local_story_205015131.html
40 Fox 9 News, Caregiver Sentenced for Lying Under Oath (07/07/09) http://www.myfoxtwincities.com/dpp/news/crime/Caregiver_Faces_Judge_for_Lying_Under_Oath_july_07_200
41 ABA Journal, Court-Appointed NY Lawyer Accused of Stealing $4M from Clients, by Martha Neil (01/28/09) http://www.abajournal.com/news/court-appointed_ny_lawyer_accused_of_stealing_4m_from_clients
42 http://www.courts.state.ny.us/courts/ad2/calendar/webcal/decisions/2009/D24068.pdf
43 Belleville News-Democrat Editorial, Will Justice Be Served? (01/25/09) http://www.bnd.com/editorial/story/820940.html
44 Belleville News-Democrat, He’s Contrite About What Happened: Attorney Who Used Client’s Money Will Give Up License, By Laura Girresch, (10/08/09) http://www.bnd.com/news/local/story/957211.html
45 St. Joe News, Lawson Sentenced To 37 Months, by Gretchen Mollenhour (04/14/09) http://www.stjoenews.net/news/2009/apr/14/lawson-sentenced-37-months
46 Moorpark Acorn, Former Public Guardian Sentenced (01/30/09) http://www.mpacorn.com/news/2009-01-30/Community/Former_public_guardian_sentenced.html
47 New York Times, Brooke Astor’s Son Guilty in Scheme to Defraud Her, by John Eligon (10/08/09) http://www.nytimes.com/2009/10/09/nyregion/09astor.html
48 MetLife's Mature Market Institute, Broken Trust: Elders, Family, and Finances (March 2009) http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-study-broken-trust-elders-family-finances.pdf
49 MetLife, Mature Market News, Financial Abuse Costs Elders More than $2.6 Billion Annually (03/17/09) http://www.metlife.com/assets/cao/mmi/publications/mmi-pressroom/mmi-press-releases-financial-abuse.pdf
50 West Virginia Criminal Code §61-2-29a http://www.legis.state.wv.us/WVCODE/ChapterEntire.cfm?chap=61&art=2§ion=29
51 Ch. 750 Sec. 145m - http://www.michigan.gov/documents/bhs_750_153839_7.145m-750-145r.pdf