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National Audit Defense Network (NADN) Scam
JUSTICE DEPARTMENT SEEKS TO BAR ALLEGED TAX SCAMS
Sham “Websites” and Home Businesses Allegedly Sold to 100,000 Customers for Obtaining Improper Tax Benefits-Bilking Treasury of an Estimated $324 Million
WASHINGTON, D.C. – The Justice Department announced today that it has filed a civil lawsuit asking a federal court in Las Vegas to issue a temporary restraining order against a telemarketing firm, the Las Vegas-based National Audit Defense Network, known as NADN. Court papers allege that NADN has sold fraudulent tax schemes-including phony website businesses-to an estimated 100,000 customers, costing the Federal Treasury an estimated $324 million to date. Also named in the suit, filed in U.S. District Court, were three other companies-ALR, Inc. (operating under the name Success Matrix Group), Free Trade Enterprises (operating under the name Oryan Management), and ADA Adventure-and thirteen individuals. The suit also asks the court to permanently bar NADN and four of the individual defendants from preparing federal income tax returns for others, and to order the defendants to turn over their customer lists.
In voluminous papers filed in the case, the Justice Department alleges that NADN-a telemarketer that also advertises on the radio and Internet-runs a “tax-scam boiler room” that sells bogus “websites,” home-based businesses and “incorporation” packages designed to help customers claim improper tax deductions and credits.
The “websites” are allegedly designed to help customers claim to have a business with a website, and then improperly claim tax deductions and credits for supposedly “modifying” the website-purportedly to comply with the Americans with Disabilities Act (ADA). According to court papers, NADN charges customers $2,495 to make sham website modifications, but also adds a sham $7,980 promissory note as part of the ostensible purchase price to artificially raise the total cost to $10,475. NADN allegedly tells prospective purchasers that they can use that inflated cost to claim a $5,000 ADA income-tax credit and a $5,475 business tax deduction, thereby reducing their taxes by more than double the $2,495 they paid for the “modifications.”
In reality, according to court papers, purchasers never received their own website or their own ADA modifications. Instead, in what court papers say is “one of the oldest swindles in the book,” NADN allegedly sold one website 17,000 times, and modified it only once while charging each purchaser for supposed separate modifications. Moreover, the Justice Department alleges, the supposed ADA modifications were largely useless to disabled computer users, making the scheme “a cruel hoax.” The IRS recently included ADA tax-credit schemes on its list of “dirty dozen” tax schemes, found at: http://www.irs.gov/newsroom/article/o,,id=120803,00.html.
“People ought to use their common sense: the fact that a scheme is advertised on the radio or Internet, or sold by a large company, doesn’t make it legitimate,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “The Justice Department is striving to bring people who sell fraudulent tax schemes the response they deserve: injunctions, penalties, and-where warranted-criminal prosecutions.”
“The scale of this scheme is truly staggering,” said IRS Commissioner Mark W. Everson. “As we’ve said time and time again, people shouldn’t fall prey to schemes and scams. No matter how slick the sales pitch, taxpayers should be wary of anyone promising to eliminate their taxes. There is no secret way to escape paying taxes, either through a home-based business or any other scam.”
The suit also alleges that NADN sells a sham home-business tax scam, telling purchasers that, by starting purported home-based businesses they can deduct the cost of such non-deductible personal expenses as meals, travel, and housing. Home-based business scams are also on the IRS Dirty Dozen list. More information on these scams is available at: https://www.irs.gov/pub/irs-news/ir-02-13.pdf. Court papers also allege that NADN misleads prospective customers about the tax savings that can be obtained by having NADN help the customers set up Nevada corporations.
According to the Justice Department complaint, California-based Free Trade Enterprises, d/b/a Oryan Management, originated the website-based ADA tax scam in 2000. Oryan and four of the individual defendants have agreed, in a stipulated proposed order filed with the complaint, to be enjoined. The agreed permanent injunction would bar Oryan and the four individuals from selling the website scheme or any other arrangement that misrepresents the tax benefits from using the arrangement.
The thirteen individuals named in the suit are Las Vegas-area residents Robert Bennington, Weston J. Coolidge, Alan L. Rodrigues, Adam Mangabang, Lee Panelli, Christine Reid, Jeffrey Klingenberg, Rich Klingenberg, and Marie Orie, as well as California residents Daniel W. Porter of Chino, Robert Goetsch of Hayward, Michelle M. Hernandez of Upland, and Joseph Prokop of Mt. Baldy.
NADN President Commits Suicide
Las Vegas Review-Journal
Tuesday, June 22, 2004
Founder of tax service investigated by government commits suicide
By JOHN G. EDWARDS
A founder of a tax service company that the Justice Department accused of promoting schemes that cheated the government out of $324 million in taxes died from a self-inflicted gunshot wound Sunday. The Clark County coroner’s office on Monday ruled that Robert Bennington, 40, a co-founder of the National Audit Defense Network, committed suicide. The shooting happened at 12:30 p.m. Sunday in a vehicle at University Avenue and Hualapai Way. National Audit Defense Network sold fraudulent tax schemes, including phony Web site businesses, to an estimated 100,000 taxpayers around the country, according to the Justice Department. That resulted in the loss of $324 million in federal taxes, according to the agency.
The Justice Department said individual defendants formerly associated with the company are using its customer lists and selling fraudulent tax schemes. While the company is in bankruptcy, “its former principals have taken NADN’s customer list without authorization and without payment and are continuing to scam customers” through other companies, according to a motion filed by tax division trial attorney Evan Davis.
Bennington started several years ago with three or four salespeople and two accountants who helped people with tax issues, according to his brother, Michael Berman “He started that business to help people, and it turned into something else,” Berman said. “His philosophy was to let the people run the business.” Larry Weinsteen, an attorney and friend, agreed. “Robert certainly would have never done anything intentionally to cheat or hurt anybody.” Weinsteen said. Berman said: “Somewhere along the line, it was turned around. He was overwhelmed, and he was embarrassed” about the Justice Department lawsuit. Earlier, “he was fun to be around, always optimistic. He was never depressed,” Berman said.
A divorced single father, Bennington was devoted to his two sons, age 9 and 12, and had a “heart of gold,” said a friend who asked not to be identified. “The kids were his life.”
The Justice Department is focusing its attention on businesses connected to former National Audit Defense Network executives, who are now marketing tax services to former company customers. A bankruptcy judge entered an injunction against further activities by the company, but the injunction didn’t stop individual defendants from pursuing similar businesses.
The injunction against National Audit Defense Network “has removed only one head of this hydralike operation,” the Justice Department said. “Swift action against individual defendants is needed to protect the public.” In several cases, representatives of the new firms told company customers that buying their services would prevent income tax audits.
Cort Christie, former company co-owner who runs Nevada Corporate Headquarters, is registered agent for four Nevada corporations with Global Management. They are among the companies that are using National Audit Defense Network customer lists to sell fraudulent tax services, according to the government. Christie didn’t return a call seeking comment Monday.
In one instance, Tim Franks called Lydia Montelongo, a National Audit Defense Network customer, and said he was going to work for Global, the government motion said. He offered to sell her a Web site, eliminate a loan and prepare her tax returns. Franks told her the company would get her a $5,000 tax credit for being disabled and a $5,475 tax deduction, which the government called “bogus.”
A representative of Allied Grant Writers of America called Allan Kerr, another former National Audit Defense Network customer, on his mobile telephone, offering to create a Web page for $4,000, according to the motion. The representative falsely claimed the Web page would show an intention to make a profit and would prevent an audit by the Internal Revenue Service, the motion said. Allied made a similar sales pitch to Joan Klanchnik, according to the motion. When she didn’t immediately agree, Allied tried to contact Klanchnik for 12 consecutive days, the motion said. Panos Papagiannopoulos and Adam Mangabang, two former National Audit Defense Network co-workers, are officers with Allied.