COUNT ONE (The Tax Shelter Fraud Conspiracy) Background

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1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x UNITED STATES OF AMERICA : -v- : FELONY INFORMATION DOMENICK DEGIORGIO, : 05 Cr. ( ) Defendant. : x COUNT ONE (The Tax Shelter Fraud Conspiracy) The United States Attorney charges: Background 1. At all times relevant to this Information, DOMENICK DEGIORGIO, the defendant, was a certified public accountant and resident of Cold Spring Harbor, Long Island, New York. 2. From at least 1996 until approximately December 31, 2003, DOMENICK DEGIORGIO, the defendant, was employed by Bayerische Hypo und Vereinsbank ( HVB ), a German bank and financial institution that maintained a branch office in New York, New York. 3. While employed at HVB between 1996 and 2003, DOMENICK DEGIORGIO, the defendant, was co-head of HVB s Financial Engineering Group ( FNE ), located in New York, New York. As co-head of FNE between 1996 and 2003, DEGIORGIO was responsible for supervising HVB s participation in various tax shelter transactions, including the transactions that went by the name Bond Linked Issue Premium Structure, or BLIPS. In carrying out that supervisory role, DEGIORGIO met and corresponded with various tax shelter promoters to 1

2 discuss whether HVB would participate in certain tax shelter transactions; met and corresponded with other senior officials of HVB to advocate HVB s participation in tax shelter transactions; with the approval of senior management of HVB, committed HVB to participate in over $3,300,000,000 worth of purported financing of tax shelter transactions that resulted in United States taxpayers claiming over $1,300,000,000 of purported tax losses from the transactions; caused the drafting and execution of various documents that purported to describe HVB s role in the tax shelter transactions; and caused HVB to receive and send, through its bank accounts located at HVB in New York, New York various funds related to the tax shelter transactions in which HVB was involved. The Tax Shelter Fraud Conspiracy 4. Between 1996 and 2003, DOMENICK DEGIORGIO caused HVB to participate in certain tax shelter transactions that DOMENICK DEGIORGIO, the defendant, knew were fraudulent. The tax shelter transactions were fraudulent because, as DOMENICK DEGIORGIO the defendant, well knew and understood, they were based on, among other things: false and misleading factual representations made and caused to be made by the tax shelter promoters, including but not limited to DOMENICK DEGIORGIO and HVB, and other participants in the transactions; false and misleading descriptions of the tax shelter transactions contained in the written documents relating to the transactions; false and misleading entries made in HVB s books relating to certain aspects of the transactions; and false and fraudulent losses being claimed on the tax returns filed by participants in the transactions. Statutory Allegations 5. From in or about 1996 until in or about 2003, in the Southern District of New York and elsewhere, DOMENICK DEGIORGIO, the defendant, together with others known and 2

3 unknown, unlawfully, wilfully and knowingly did combine, conspire, confederate and agree together and with others to defraud the United States and an agency thereof, to wit, the Internal Revenue Service ( IRS ) of the United States Department of Treasury, and to commit offenses against the United States, to wit, violations of Title 26, United States Code, Sections 7201, 7206(1), and 7206(2). Objects of the Conspiracy 6. It was a part and object of the conspiracy that, during the period from in or about 1996 through in or about 2003, DOMENICK DEGIORGIO, the defendant, and others, unlawfully, wilfully and knowingly would and did defraud the United States of America and an agency thereof, to wit, the IRS, by impeding, impairing, defeating and obstructing the lawful governmental functions of the IRS in the ascertainment, evaluation, assessment, and collection of income taxes. 7. It was a further part and object of the conspiracy that, during the period from in or about 1996 through in or about 2003, DOMENICK DEGIORGIO, the defendant, and others, unlawfully, willfully and knowingly, would and did attempt to evade and defeat a substantial part of the income taxes due and owing by various United States taxpayers who participated with HVB and others in certain tax shelter transactions, in violation of Title 26, United States Code, Section It was further an object of the conspiracy that, during the period 1997 through in or about 2003, DOMENICK DEGIORGIO, the defendant, unlawfully, wilfully and knowingly would and did cause certain United States taxpayers who participated in tax shelter transactions to make and subscribe United States individual, corporation, and partnership income tax returns for 3

4 the years 1997 through 2002, which returns contained and were verified by written declarations that they were made under the penalties of perjury, and which DOMENICK DEGIORGIO and others did not believe to be true and correct as to every material matter, in violation of Title 26, United States Code, Section 7206(l). 9. It was further an object of the conspiracy that, during the period 1997 through in or about 2003, DOMENICK DEGIORGIO, the defendant, unlawfully, wilfully and knowingly would and did aid and assist in, and procure, counsel, and advise the preparation and presentation under, the internal revenue laws, of certain United States individual, corporation, and partnership income tax returns for the years 1997 through 2002, which were fraudulent and false as to material matters, in violation of Title 26, United States Code, Section 7206(2). Means and Methods of The Tax Shelter Fraud Conspiracy 10. Among the means and methods used by DOMENICK DEGIORGIO, the defendant, and his co-conspirators, to achieve the objects of the conspiracy were the following: a. Between 1996 and 2003, DOMENICK DEGIORGIO caused HVB to participate in certain tax shelter transactions that DOMENICK DEGIORGIO, the defendant, knew were fraudulent, including BLIPS. b. DOMENICK DEGIORGIO, the defendant, and HVB were enlisted to participate in BLIPS in October 1999 after one of the promoters of BLIPS contacted DEGIORGIO and explained that they wanted HVB to participate because another German financial institution, which had already agreed to participate in approximately fifty-four BLIPS transactions, had decided not to commit to additional such transactions at the time. The promoters of BLIPS provided DEGIORGIO and others at HVB with copies of the deal documents employed by the other German 4

5 bank and others in the previous BLIPS deals. DEGIORGIO and HVB employed the copies of those deal documents in fashioning HVB s own deal documents. c. In the BLIPS transactions, which took place between 1999 and 2001, the promoters of BLIPS made various factual and written representations regarding BLIPS, including that: BLIPS was a three stage, seven year investment program which seeks to exploit trading opportunities in the markets for foreign debt securities and currencies, particularly emerging market currencies that were tied, or pegged, to the currencies of major developed countries, such as the United States dollar; that the BLIPS investment strategy can best be achieved through a long-term investment horizon ; that the trading strategy would include trying to identify and take positions in those pegged currencies that were likely to be devalued when the peg broke; that the utilization of a high degree of leverage was integral to the investment program; that a premium loan, that is, one with an above-market interest rate, would be employed to produce the desired leverage for the investment program; and that the investment program was reasonably expected to produce a profit for the investors, exclusive of interest and costs. d. Notwithstanding the foregoing representations, DOMENICK DEGIORGIO, the defendant, and other promoters of BLIPS well knew and understood that: the true duration of the investment program and the attendant loans was not seven years, because BLIPS was specifically promoted and implemented with the understanding and full expectation that the transactions of which the loans were a part would unwind, or close down, in approximately sixty days; the purported loans of billions of dollars made by HVB, which loans were integral to the tax losses ultimately claimed by the taxpayer participants on their United States Individual Income Tax Returns, were not bona fide loans because the loan funds had to be kept in accounts at HVB as full collateral for the loans ; 5

6 contrary to the statements and representations made by the BLIPS promoters, the loan did not provide any leverage for, and was not otherwise connected to, the purported investment component of the BLIPS transactions because the loan funds could not be employed in the purchase of positions in foreign currencies pegged to the United States dollar, which was the centerpiece of the purported investment strategy underlying the BLIPS transactions; there was no reasonable expectation that the purported investment component of the BLIPS transactions would produce a profit, exclusive of fees and costs, because, as the promoters of BLIPS themselves acknowledged, the profit potential was, at best, remote ; and HVB never set aside any of its own funds or procured funds from the banking market to actually fund, or advance actual monies for, any of the sham BLIPS loans. e. In order to disguise the fact that the BLIPS loan was going to be employed not to take positions in pegged foreign currencies but, instead, to produce a time deposit effectuated through a swap transaction, a promoter of BLIPS requested an HVB official in October 1999 to refrain from using a single swap ticket to effectuate and record the swap and to use, instead, two separate trade tickets, which gave the appearance of the execution of two separate and independent trades rather than a unified swap. f. Notwithstanding DOMENICK DEGIORGIO s knowledge of the fraudulent nature of various tax shelter transactions, including BLIPS, he sought and obtained the approval of senior officials of HVB to participate in numerous such transactions. The BLIPS transactions alone involved phony financing, in the form of sham loans and loan premiums, totaling over $2,800,000,000. g. Following the unwinding of the tax shelter transactions, including the BLIPS transactions, the taxpayer participants filed and caused to be filed with the IRS U.S. Individual 6

7 Income Tax Returns that claimed false and fraudulent losses stemming from the tax shelter transactions, including BLIPS. h. In addition to resulting in over $1,000,000,000 of false and fraudulent losses being claimed by taxpayer participants, the tax shelters transactions involving HVB resulted in extraordinary fees being reaped by the promoters of, and other participants in, the transactions, including HVB. Overt Acts 11. The following overt acts, among others, were committed, and caused to be committed, in the Southern District of New York, by DOMENICK DEGIORGIO, the defendant, and others in furtherance of the conspiracy and to effect its objects: a. On or about August 11, 1999, a partner at the accounting firm promoter of BLIPS sent an to a New York, New York attorney, also a promoter of BLIPS, stating that he and the attorney had received a get out of jail free card as a result of obtaining permission from others at the accounting firm to proceed with BLIPS. b. In or about September 1999, DOMENICK DEGIORGIO met at the offices of HVB in New York, New York, with a tax shelter promoter from San Francisco, California. c. In or about October 1999, DOMENICK DEGIORGIO met at the offices of HVB in New York, New York, with a tax shelter promoter from San Francisco, California. d. In or about October 1999, DOMENICK DEGIORGIO executed various documents relating to HVB s involvement in a group of BLIPS transactions. e. In or about October 1999, one of the promoters of the BLIPS transactions, located in San Francisco, requested a treasury official of HVB in New York to execute a swap 7

8 transaction involving a BLIPS loan by employing two separate trade tickets rather than a single swap transaction ticket. f. In or about mid-october 1999, the accounting firm promoter of BLIPs deployed a number of its partners and other personnel to the New York, New York offices of HVB to aid in processing various BLIPS transactions in order to allow the transactions to be initiated and terminated by the end of the calendar year. g. In or about February 2000, DOMENICK DEGIORGIO executed certain documents committing HVB to participate in a second group of BLIPS transactions. h. In or about 2000 and 2001, various participants in the BLIPS tax shelter transactions filed various tax returns that falsely and fraudulently claimed over $1,000,000,000 in phony tax losses generated by the BLIPS transactions. (Title 18, United States Code, Section 371.) COUNT TWO (Unreported Fee Income Conspiracy) The United States Attorney further charges: 12. The allegations set forth in Paragraphs 1-3 of this Information are repeated, realleged, and incorporated by reference as though fully set forth herein. The Conspiracy 13. From in or about 1996 until in or about 2003, in the Southern District of New York and elsewhere, DOMENICK DEGIORGIO, the defendant, together with others known and unknown, unlawfully, wilfully and knowingly did combine, conspire, confederate and agree together and with others to defraud the United States and an agency thereof, to wit, the Internal Revenue Service ( IRS ) of the United States Department of Treasury, and to commit offenses against the 8

9 United States, to wit, violations of Title 26, United States Code, Sections 7201 and 7206(1). Objects of the Conspiracy 14. It was a part and object of the conspiracy that, during the period from in or about 1996 through in or about 2003, DOMENICK DEGIORGIO, the defendant, and others, unlawfully, wilfully and knowingly would and did defraud the United States of America and an agency thereof, to wit, the IRS, by impeding, impairing, defeating and obstructing the lawful governmental functions of the IRS in the ascertainment, evaluation, assessment, and collection of income taxes. 15. It was a further part and object of the conspiracy that, during the period from in or about 1996 through in or about 2003, DOMENICK DEGIORGIO, the defendant, and others, unlawfully, wilfully and knowingly would and did attempt to evade and defeat a substantial part of the income taxes due and owing by DOMENICK DEGIORGIO, and others, in violation of Title 26, United States Code, Section It was further an object of the conspiracy that, during the period 1997 through in or about 2003, DOMENICK DEGIORGIO, the defendant, and others, unlawfully, wilfully and knowingly would and did make and subscribe United States individual, corporation, and partnership income tax returns for the years 1996 through 2002, which returns contained and were verified by written declarations that they were made under the penalties of perjury, and which DOMENICK DEGIORGIO and others did not believe to be true and correct as to every material matter, in violation of Title 26, United States Code, Section 7206(l). Means and Methods of The Conspiracy 17. Among the means and methods used by DOMENICK DEGIORGIO, the 9

10 defendant, and his co-conspirators, to achieve the objects of the conspiracy were the following: a. In connection with various tax shelter transactions in which HVB was involved between 1996 and 2003, DOMENICK DEGIORGIO, the defendant, had extensive dealings with other participants in the transactions, including the promoters of the tax shelter transactions. Those promoters included: tax shelter boutiques from California that devised or helped devise the tax shelter transactions and thereafter endeavored to market, or sell, the tax shelters to United States taxpayers; accounting firms; and other individuals who assisted in devising and marketing the transactions. b. Between 1996 and 2003, DOMENICK DEGIORGIO, the defendant, and various promoters of the tax shelter transactions in which HVB was involved, agreed that they would fail to report to the IRS, and take steps to conceal from the IRS, various fees that they would be receiving for their participation in certain tax shelter transactions. As part of this agreement, DOMENICK DEGIORGIO, the defendant, and others (i) caused certain payments to be made in executing these transactions to persons, including foreign persons, and entities ostensibly involved in these transactions; and (ii) thereafter caused those persons and entities to funnel payments back to DOMENICK DEGIORGIO, the defendant, in various ways, and to other tax shelter promoters, or to entities that those promoters controlled, in a manner that disguised and hid from the IRS the fact that those payments constituted income to DEGIORGIO and those promoters. c. Among the ways by which DOMENICK DEGIORGIO, the defendant, received payments that were funneled to him was through the direct payment by a co-conspirator of various personal credit card bills of DOMENICK DEGIORGIO. d. Although DOMENICK DEGIORGIO, the defendant, and the others who 10

11 received these secret payments knew and understood that the payments constituted reportable income to them, DOMENICK DEGIORGIO, the defendant, and the other promoters agreed and understood that they would not report that income to the IRS on their U.S. Individual Income Tax Returns, Forms Overt Acts 18. The following overt acts, among others, were committed, and caused to be committed, in the Southern District of New York, by DOMENICK DEGIORGIO, the defendant, and others in furtherance of the conspiracy and to effect its objects: a. At various times between 1996 and 2002, DOMENICK DEGIORGIO, the defendant, and others caused international wire transfers of funds to be made from HVB in New York, New York to foreign persons ostensibly involved in tax shelter transactions. b. At various times between 1997 and 2000, a tax shelter promoter located in California caused various funds to be transferred to New York to pay certain personal bills and obligations of DOMENICK DEGIORGIO, the defendant. c-f. In or about 1998, 1999, 2000, and 2001, DOMENICK DEGIORGIO, the defendant, signed and caused to be filed with the IRS false and fraudulent U.S. Individual Income Tax Returns, Forms 1040, for himself for the tax years 1997, 1998, 1999, and 2000, on which he failed to report as income the fees alleged in this conspiracy. g. On or about August 11, 2001, a tax shelter promoter located in California sent an to DOMENICK DEGIORGIO, the defendant. (Title 18, United States Code, Section 371.) 11

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13 COUNT THREE (Wire Fraud) The United States Attorney further charges: 19. The allegations set forth in Paragraphs 1-3 of this Information are repeated, realleged, and incorporated by reference as though fully set forth herein. Statutory Allegations 20. On or about and between 1999 and 2001, in the Southern District of New York, DOMENICK DEGIORGIO, the defendant, having devised and intending to devise a scheme and artifice to defraud, and for obtaining money and property by means of false and fraudulent pretenses, representations, and promises, transmitted and caused to be transmitted, by means of wire communications in interstate and foreign commerce, writings, signs, signals, pictures, and sounds for the purpose of executing such scheme and artifice, to wit, DOMENICK DEGIORGIO, the defendant, sent and caused to be sent certain interstate wire transfers. Mechanics Of The Scheme To Defraud HVB 21. In or about and between , DOMENICK DEGIORGIO oversaw HVB s participation in a tax shelter transaction ( the Transaction ). During the course of the Transaction, DOMENICK DEGIORGIO, the defendant, took by fraud, and converted to his own use, certain funds under the care and control of HVB, which funds were paid to HVB in connection with the Transaction. DEGIORGIO carried out the fraud scheme by causing participants in the Transaction to make certain payments to HVB bank accounts, and thereafter causing hundreds of thousands of dollars of funds to be unlawfully diverted from those HVB bank accounts in New York, New York to pay various personal creditors of DOMENICK DEGIORGIO, including a construction company performing work on DOMENICK DEGIORGIO s residence on Long Island. 13

14 In order to effectuate the aforementioned fraudulent transfers, DOMENICK DEGIORGIO, the defendant (a) took various steps to disguise the nature of the payments, including making it appear as if the transfers were legitimate payments made as part of the Transaction, and (b) caused certain interstate wire transfers to be sent, including a transfer of approximately $312,000 sent on June 8, 1999 from HVB in New York, New York to National Westminster Bank in New Jersey. (Title 18, United States Code, Section 1343.) COUNT FOUR (Tax Evasion) The United States Attorney further charges: 22. The allegations set forth in Paragraphs 1-3 and 21 of this Information are repeated, realleged, and incorporated by reference as though fully set forth herein. 23. From January 1, 1997, through and including April 15, 2001, in the Southern District of New York and elsewhere, DOMENICK DEGIORGIO, the defendant, unlawfully, willfully and knowingly did attempt to evade and defeat a substantial part of the income due and owing by DOMENICK DEGIORGIO, the defendant, to the United States of America for the tax years , by various means, including, among others, by (a) preparing and causing to be prepared, signing and causing to be signed, and filing and causing to be filed with the Internal Revenue Service, false and fraudulent United States Individual Income Tax Returns, Forms 1040, for the calendar years 1997 through 2000, wherein DOMENICK DEGIORGIO failed to report as income (i) payments he received from tax shelter transactions in which his employer, HVB, participated, and (ii) fees siphoned by fraud from his employer, HVB; and (b) causing certain of such income to be paid for his personal benefit directly to his creditors, including credit card companies and various contractors, whereas, as DOMENICK DEGIORGIO, the defendant, then and 14

15 there well knew and believed, in the calendar years 1997 though 2000 he had substantial additional taxable income, to wit, in excess of $900,000, upon which additional taxable income substantial amounts of additional taxes were due and owing to the United States. (Title 26, United States Code, Section 7201.) DAVID N. KELLEY United States Attorney 15

COUNT ONE (Conspiracy - Peter Iulo and James Murray) BACKGROUND

COUNT ONE (Conspiracy - Peter Iulo and James Murray) BACKGROUND UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------- --------- - - ---)( UNITED STATES OF AMERICA, -v.- SEALED INDICTMENT 11Cr LJ PETER IULO and JAMES MURRA Y, Defendant. - -