Case 3:16-cr JO Document 71 Filed 01/16/18 Page 1 of 6

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1 Case 3:16-cr JO Document 71 Filed 01/16/18 Page 1 of 6 BILLY J. WILLIAMS, OSB # United States Attorney District of Oregon DONNA BRECKER MADDUX, OSB # Assistant United States Attorney Donna.Maddux@usdoj.gov SCOTT E. BRADFORD, OSB # Assistant United States Attorney Scott.Bradford@usdoj.gov 1000 SW Third Ave., Suite 600 Portland, OR Telephone: (503) Attorneys for United States of America UNITED STATES DISTRICT COURT DISTRICT OF OREGON UNITED STATES OF AMERICA 3:16-CR JO KARL R. BRADY, and LAURIE G. BRADY, v. STATEMENT OF FACTS Defendants. The United States Attorney's Office for the District of Oregon, defendants, Karl R. Brady and Laurie G. Brady, and their respective lawyers, Mark Ahlemeyer and Matthew Schindler, agree that the following facts are true, can be proved beyond a reasonable doubt, and are sufficient to suppmt guilty pleas by defendant Karl R. Brady to Counts One and Six and by defendant Laurie G. Brady to Count Six in the above captioned case. This Statement of Facts does not include all facts!mown to the government, and the government may rely on additional facts in the other phases of this case, including sentencing proceedings. Between 1986 and 2002, Karl R. Brady and Laurie G. Brady filed personal federal

2 Case 3:16-cr JO Document 71 Filed 01/16/18 Page 2 of 6 income tax returns. In 2003, Karl R. Brady and Laurie G. Brady stopped filing personal federal income tax returns. In 200 I, Daniel Mahler, Karl R. Brady, and Lyndon Fischer formed Nmthwest Behavioral Healthcare Services (NBHS), a residential mental health, drug, and alcohol rehabilitation center for adolescents. The business was incorporated in Oregon and is located in Gladstone, Oregon. Mahler, Karl R. Brady, and Fischer each own a third of the business and run its day-to-day operations: Mahler is the President and Chief Executive Officer; Karl R. Brady is the Vice President of Accounting; and Fischer is the Vice President of Marketing. In 2002, at Karl R. Brady's encouragement, the Bradys, Mahler, and Fischer began working with the promoter of an illegal tax scheme to hide their income and assets from the Internal Revenue Service (IRS). They each paid the promoter of the illegal tax scheme approximately $20,000. As part of the scheme, the Bradys, Mahler, and Fi&cher signed vows of poverty, claimed to become certified lymphologists, and created several nominee entities through which they funneled money for their personal use. In 2004, the Bradys, Mahler, and Fischer began using a different promoter with essentially the same illegal tax scheme. They filled out paperwork with the other promoter and continued to use their nominee entities to hide their income from the IRS. Mahler's nominee company was Performa Management Group LLC and was registered in the State of Oregon. Fischer's nominee company was Preferred Management Group LLC and was registered in the State of Washington. Over the course of the scheme, Karl R. Brady established two nominee companies, Fiduciary Management Group LLC and Progeny Services. Fiduciary Management Group LLC was registered in the State of Oregon, but Progeny Services was not registered in any state. Additionally, Karl R. Brady and Fischer created a joint nominee company, Atrio Business Management, which was registered in the State of Oregon. STATEMENT OF FACTS - PAGE 2

3 Case 3:16-cr JO Document 71 Filed 01/16/18 Page 3 of 6 Mahler, Karl R. Brady, and Fischer routinely met, usually weekly, to divide the company's funds available for distribution, after which they directed the booldceeper of the business to issue checks to their respective nominee companies for their shares of the distribution in order to avoid repmting payments to the IRS. Their bookkeeper represented these payments as management and professional fees in the business's general ledger. The payments to the nominee companies were not reflected in the business's books as being compensation for the personal services of Mahler, Karl R. Brady, and Fischer or as payments of the business's profits to the shareholders. Mahler, Karl R. Brady, and Fischer did not file tax returns for the nominee companies. By using these nominee companies, the Bradys, Mahler, and Fischer concealed assets and income from the IRS. In 2007, after the IRS contacted Mahler and Fischer about their failure to file federal income tax returns, the Bradys began using a third promoter of another illegal tax scheme. Under this third scheme, the Bradys formed a purported church, related nominee entities, and related bank accounts. Thereafter, the Bradys transfen-ed their homes into these nominee entities and funneled their money through the nominee bank accounts. The Bradys used these accounts to pay personal expenses. Such activity thwarted the IRS's ability to assess and collect taxes and enabled them to evade the payment of their federal income taxes. Between 2008 and 2014, the Bradys failed to report more than $3.8 million in income to the IRS, between 2008 and 2013, Mahler failed to report more than $2.1 million in income to the IRS, and between 2008 and 2012, Fischer failed to report income of more than $1.6 million. Specifically, as to Count One in case 16-CR-146-SI, defendant Karl R. Brady and others, beginning in or about 2001 and continuing through in or about April 2016, in the District of Oregon and elsewhere, unlawfully and knowingly combined, conspired, confederated, and STATEMENT OF FACTS - PAGE 3

4 Case 3:16-cr JO Document 71 Filed 01/16/18 Page 4 of 6 agreed together to defraud the United States by deceitful and dishonest means by impeding, impairing, obstructing, and defeating the lawful government functions of the IRS, an agency of the United States, in the ascertainment, computation, assessment, and collection of revenue, that is, federal individual income taxes. To carry out that conspiracy, as noted above, defendant Karl R. Brady and others used the business to hide income and pay personal expenses and used nominee entities and associated financial accounts to hide income and assets from the IRS. To further the conspiracy and to affect its objects, defendants Karl R. Brady and others committed the following overt acts in the District of Oregon and elsewhere: On or about January I, 2002, the Bradys signed a Vow of Pove1ty under the International Academy of Lymphology as Reverend, claiming to be without personal income from any source. On or about April I, 2002, the Bradys caused the creation of Fiduciary Management Group LLC. On or about August 22, 2002, defendant Laurie G. Brady signed a signature card for a bank account in the name of Fiduciary Management Group, LLC at Wells Fargo Bank. On or about September 20, 2007, the Bradys caused the creation of"ministerial trusts." On or about September 14, 2011, the Bradys created PLand-1 RC Trust. On or about September 14, 2011, the Bradys created PLand-3 RR Trust. On or about September 14, 2011, the Bradys created PLand-2 Condo Trust. On or about November 17, 2011, the Bradys transferred their rental property at S. Richard Court via Quit Claim Deed to "PLand-1 LRC Trust." STATEMENT OF FACTS - PAGE 4

5 Case 3:16-cr JO Document 71 Filed 01/16/18 Page 5 of 6 On or about November 17, 2011, the Bradys transferred their personal residence on 14.6 acres at S. Redland Road via Quit Claim Deed to PLand-3 RR Trust. On or about November 17, 2011, the Bradys attempted to transfer their vacation home at Hauula Homestead Rd. in Hauula, Hawaii, via Quit Claim Deed to PLand-2 Condo Trust. All in violation of 18 U.S.C As to Count Six in case 16-CR-146-SI, defendants Karl R. Brady and Laurie Brady admit that they received taxable income in 2013 and owed income tax on that income. Despite knowing that they owed tax on that income, they willfully failed to file an income tax return on or before April 15, 2014, as required by law, to any proper officer of the IRS and to pay the IRS the income tax. From on or about April 16, 2012, through April 2016, defendants Karl R. Brady and Laurie Brady, in the District of Oregon and elsewhere, willfully attempted to evade and defeat the income tax he owed to the United States of America for 2013 by committing the following affirmative acts of evasion: Creating nominees, including entities and trusts, and associated financial accounts to receive income and to hold legal title to real and personal property; Using nominees, including entities and trusts, and associated financial accounts to conceal and to attempt to conceal income and assets from the IRS; Using NBHS and nominees, including entities and trusts, and associated financial accounts to pay personal expenses; Causing false tax returns to be filed on behalf of NB HS; Causing NBHS to pay defendant Karl R. Brady's salary and other compensation to STATEMENT OF FACTS - PAGE 5

6 Case 3:16-cr JO Document 71 Filed 01/16/18 Page 6 of 6 nominees, including entities and trusts, to conceal and to attempt to conceal it from the IRS; and Otherwise concealing and attempting to conceal from all proper officers of the United States of America their true and correct income. All in violation of26 U.S.C Dated this--'-"-- of January DONNA BRECKER MADDUX, OSB #02375~ SCOTT E. BRADFORD, OSB # Assistant United States Attorneys DATE: DATE: t.lr G [I< ~- DA TE: _ 1 +/ /~~-( c~';'-~'-'/ Y~ 1 ~~ 1 I ( I _ i /rc(rqr1 DATE:-+-/-+j/'-"'10+-/~( f',~~- fi 0/ i f STATEMENT OF FACTS - PAGE 6