Prosecutor: Beanie Babies Billionaire Tax Cheat Didn't Deserve `Get-Out-Of-Jail' Card

May 9 2014, 10:36pm CDT | by

Federal prosecutors argued in a court filing today that the no-jail sentence given to  billionaire tax-cheat H. Ty Warner was “substantively unreasonable,’’ in part because the sentencing judge was unduly impressed by his “not so extraordinary” charity and by 70 letters attesting to his generosity written primarily by employees, business associates and those he had donated to after learning the government was investigating him.

Last September, in a deal with the U.S. Attorney for Northern Illinois, Beanie Babies inventor Warner pleaded guilty  to one felony count of tax evasion and agreed to pay a $53 million fine for hiding as much as $106 million in secret Swiss accounts and evading at least $5.5 million in tax on the accounts’ earnings over 12 years. According to the U.S. Sentencing Commission Guidelines, which ratchet up sentences with the dollar value of a white collar crime, the 69-year-old Warner should have been sentenced to between 46 and 57 months of jail time.

But in January, Chicago Federal District Court Judge Charles F. Kocoras let him off  with probation and community service,  after reading aloud from nine letters and declaring:  “Mr. Warner’s private acts of kindness, generosity and benevolence are overwhelming. Never have I had a defendant in any case —white collar crime or otherwise—demonstrate the level of humanity and concern for the welfare of others as has Mr. Warner.’’  Warner’s charity, the judge added,  “Trumps all of the ill-will and  misconduct he engaged in.”

The downward departure from guidelines in Warner’s case was particularly dramatic and the U.S. Attorney for Northern Illinois, who had asked Kocoras to give Warner jail time, is now appealing  the sentence to the 7th Circuit Court of appeals.  The rare appeal, which had to be approved by the U.S. Solicitor General, is hardly a slam dunk; the government hasn’t  won an appeal of a below-guidelines sentence for a tax crime since the Supreme Court ruled that the guidelines are not binding on sentencing judges.

In their opening appeals brief filed late Friday, prosecutors painted Warner as distinctly ungenerous when compared with either ordinary Americans or with the billionaires who have pledged to give at least half their net worth to charity. (Since Warren Buffett and Melinda and Bill Gates started The Giving Pledge  four years ago, 127 of the 1,650 or so billionaires that have been confirmed by Forbes, have signed the pledge, with a new crop, including Facebook COO Sheryl Sandberg, announced just this morning.)

At his sentencing, Warner’s net worth was pegged at $1.8 billion and his lawyers said he had donated $140 million to charity over the past decade. But prosecutors argued before the sentencing and again in their appeals brief, that that number was inflated because it reflected the retail value of the Beanie Babies Warner had donated and not his cost for producing the stuffed animals. They pegged the value of Warner’s contributions from 1998 to 2011 at just $35.7 million. Moreover, prosecutors pointed out, many of the donated toys “helped spur a Beanie Babies craze,’’  including, for example, a Beanie created for the benefit of the memorial fund for Princess Diana. Warner’s cash donations for an aquarium and bike path in Santa Barbara, Cal., they added, helped attract tourists to the nearby Four Seasons Resort he owned.

That $35.7 million Warner gave over 14 years, prosecutors calculated, amounted to  just 2% of his net worth at sentencing.  Translating that to common man equivalence, prosecutors noted that the median net worth of households in the U.S. in 2011 was  $68,828 and  that 2% of that is $1,377,  which would amount to  $100 a year of donations over 14 years.

“Warner is no `Robin hood.’ His past charitable contributions were not so  extraordinary, in light of his wealth, that they qualified as a `get-out-of-jail-card,’’’ the prosecutors wrote.

The prosecutors also pointed out, as they have before, that Warner has never said where the money he deposited in UBS AG in Switzerland in 1996 came from.  “The books and records of defendant’s company show the funds were not transferred from the company, nor did they come from defendant’s personal domestic bank accounts,’’ they wrote, raising the possibility that the money he stashed in UBS was  income he skimmed from his business and never reported to the IRS.  If that is the case, then Warner evaded a lot more than $5.5 million in tax.  (In 1999 alone, Warner, as the sole owner of Ty Inc., had an adjusted gross income of  $662 million.)

Before sentencing, Warner’s lawyers made much of the fact that he had tried to “rectify his mistake” by applying to the Internal Revenue Service’s Offshore Voluntary Disclosure Program in September 2009. More than 40,000 individuals with previously secret offshore accounts have entered that program, which gives miscreants  amnesty from criminal prosecution if they tell all and pay stiff penalties and back taxes. Warner was turned down for the program, however, because the government was already investigating him, making him ineligible.

In their brief, prosecutors noted for the first time that, as Forbes first reported in February, Warner resisted complying with a federal grand jury subpoena for his foreign bank records. (He turned over the records after an appeals court ordered him to, but nevertheless appealed anonymously to the Supreme Court, which declined to hear his case.)

Billionaires Who Spent Time Behind Bars

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

High powered MRI scans identify language centres in brain
Vienna, Oct 29 (IANS) A study from the Medical University of Vienna found how 7-Tesla ultra high-field magnetic resonance imaging (MRI) could be used to clearly show the brain areas responsible for speech processing and production.
 
 
Binge drinking hampers memory in long run
Washington, Oct 29 (IANS) High doses of alcohol during adolescence may continue to affect the brain even after drinking stops, leading to structural changes in the brain and memory deficits, says a significant study.
 
 
EU: inspiring innovation through 3D-printed robot
Brussels, Oct 29 (IANS) The European Union (EU) said that it has a 3D-printed robot ready to be introduced in schools to cultivate the creativity of students studying mechanics, computer sciences, electronics and 3D printing.
 
 
NASA cargo spacecraft explodes minutes after launch
Washington, Oct 29 (IANS) In a shocking incident, an unmanned commercial rocket carrying crucial scientific cargo for the International Space Station (ISS) exploded moments after lift-off Tuesday evening.
 
 
 

Latest from the Network

US unmanned spacecraft explodes shortly after launch
Washington, Oct 29 (IANS) An unmanned spaceship operated by a private US firm exploded just minutes after its launch Tuesday, media reported. The rocket blew up over the launch complex at Wallops Island, Virginia,...
Read more on Politics Balla
 
A$AP Rocky and Chanel Iman split
A$AP Rocky and Chanel Iman have reportedly ended their engagement. The 26-year-old rapper, who secretly proposed to the Victoria's Secret model in April after less than a year of dating, recently split from the 23-year-...
Read more on Celebrity Balla
 
Australian troops conduct G20 security training
Sydney, Oct 29 (IANS) Australian special forces troops have conducted G20 training exercises involving a mock hostage recovery operation in Brisbane Tuesday. Australian Defence Force spokesman for the G20, Maj. Gen....
Read more on Politics Balla
 
Nick Jonas angry over band split?
Los Angeles, Oct 29 (IANS) Pop star Nick Jonas is reportedly angry with his siblings over the breakup of their band - The Jonas Brothers. The trio disbanded in October last year after pulling out of a North American...
Read more on Celebrity Balla
 
Chinese peacekeepers to help build Ebola quarantine center
United Nation, Oct. Oct 29 (IANS) The Chinese contingent of the UN Mission in Liberia (UNMIL) will help build an Ebola Quarantine and Control Center in the capital city of Monrovia, a UN spokesperson said here Tuesday...
Read more on Business Balla
 
IS captures three gas wells in Syria
Damascus, Oct 29 (IANS) The Islamic State(IS) militants Tuesday captured three gas wells in Syria's central province of Homs, media reported. The IS captured the gas wells east of Palmyra in Homs after intense clashes...
Read more on Politics Balla
 
Jennifer Lawrence and Chris Martin's split wasn't dramatic
Jennifer Lawrence's split from Chris Martin reportedly ''wasn't dramatic.'' The 'Hunger Games' actress quietly decided to end her relationship with the Coldplay frontman a few weeks ago after four months of dating...
Read more on Celebrity Balla
 
Eddie Redmayne just wants to pay his mortgage
Eddie Redmayne says he is just trying to pay his mortgage. The 'Les Miserables' actor, who is set to marry antiques dealer Hannah Bagshawe in December, claims he doesn't consider himself ''a movie star'' and doesn't...
Read more on Celebrity Balla
 
Jane Lynch finalizes divorce
Jane Lynch's ex-wife Dr. Lara Embry received millions in their divorce. The 'Glee' star, whose split from clinical psychologist was finalized on Monday (10.27.14), following their separation in February 2012, reportedly...
Read more on Celebrity Balla
 
David McIntosh keen to marry Kelly Brook
London, Oct 29 (IANS) Following their recent reconciliation, actor David McIntosh says he wants to marry his on-off girlfriend Kelly Brook. The 28-year-old star is eager to wed the model in Mykonos, Greece, reports...
Read more on Celebrity Balla