H. Ty Warner, the billionaire creator of Beanie Baby plush toys, asked a judge to give him probation, not prison, for evading taxes on secret Swiss accounts that held as much as $107 million.
Warner, 69, faces 46 months to 57 months in prison under nonbinding guidelines when he’s sentenced Jan. 14 in Chicago. The maker of plush toys and hotel operator asked U.S. District Judge Charles Kocoras to impose a term of probation with community service, according to a Dec. 31 court filing.
Warner is among more than 100 people prosecuted in the past five years during a U.S. crackdown on offshore tax evasion. His lawyers argued that “dozens of individuals who engaged in the exact same conduct with respect to undisclosed overseas accounts” got probation.
“This case concerns an isolated event in Ty’s otherwise law-abiding life, during which he has paid approximately $1 billion in taxes,” according to the filing. “There is no reason to believe prison time is necessary to prevent him from engaging in tax evasion again.”
Warner owns Ty Inc., which makes Beanie Babies, and Ty Warner Hotels & Resorts, whose operations include the Four Seasons Hotel in New York. He pleaded guilty Oct. 2 to evading more than $5.5 million in taxes on assets in Swiss accounts he hid from the Internal Revenue Service.
Under the guidelines, Kocoras can consider such factors as other sentences around the U.S., Warner’s charitable gifts and his pledge to pay penalties, back taxes and interest of more than $69 million. Warner also asked the judge to weigh the fact that he was denied entry into an IRS amnesty program that has let more than 38,000 Americans with offshore accounts avoid prosecution.
Warner’s name was on a list of account data for 285 Americans that his former bank, UBS AG (UBSN), gave to the Justice Department in avoiding prosecution in February 2009. Zurich-based UBS, the biggest Swiss bank, also paid $780 million and admitted to fostering tax evasion. UBS later turned over 4,450 more names.
After Warner applied for the voluntary disclosure program in September 2009, the IRS rejected him because it wasn’t available to those already known to the agency, according to the filing. A U.S. presentence report cited by Warner’s lawyers said the IRS learned of his Swiss accounts “a few years before UBS turned over client account information” to the U.S.
“Ty’s behavior was no different legally or factually from that of tens of thousands of taxpayers who were never sentenced -- or even prosecuted -- because they were admitted into IRS voluntary disclosure programs,” according to the filing, a sentencing memorandum.
Warner’s lawyers proposed that the judge impose “substantial community service,” including work at the Ellen H. Richards Career Academy High School and the Edward Tilden Career Community Academy High School, both in Chicago.
The Justice Department hasn’t filed its sentencing memo.
Warner’s filing describes how he became a “self-made American success story” despite growing up in an unhappy Chicago family with “little financial or emotional support.” His mother was a paranoid schizophrenic, and his father played “little or no role” in her care, according to the document.
After attending military school in Wisconsin, he worked in menial jobs and dropped out of Kalamazoo College because he couldn’t afford tuition, his lawyers wrote. He was a busboy, bellman, valet car parker, fruit market vendor and door-to-door encyclopedia salesman.
He then became the top seller for Dakin Toy Co., which made plush toys.
In 1985, he founded Ty Inc., designing and selling toy cats out of his condominium, according to the filing. In the early 1990s, he designed the Beanie Baby, a plush toy filled with plastic pellets. By the mid-1990s, Westmont, Illinois-based Ty Inc. was a multibillion-dollar company, his lawyers wrote.
“While he entrusted corporate matters to the executives, lawyers, and accountants he employed, Ty treated the final decision about the particular fabric or color of the company’s next Beanie Baby as a non-delegable assignment,” the filing said.
He entered the hotel and resort industry, also delegating “property management, legal, and financial affairs to others, leaving himself the time and space to focus on his passion for design,” his lawyers wrote.
“For all his sophistication with respect to the design and manufacture of plush dolls, and the beauty and design of hotel properties, he remains a relative novice when it comes to financial issues,” according to the filing.
Ty Inc. created thousands of jobs, and Warner gave away $140 million in cash and toys after 1995 to organizations such as the Children’s Hunger Fund and the Princess Diana Memorial Fund, according to the filing.
In pleading guilty, Warner admitted to opening an account at UBS in 1996 and transferring $93.6 million in 2002 to Zuercher Kantonalbank, a small Swiss bank.
He filed a false return in 2002 that reported income of $49.1 million, while omitting his UBS income of $3.2 million. He also didn’t file a Treasury Department form called a Report of Foreign Bank and Financial Accounts, known as an FBAR. He amended his 2002 return in 2007, yet still understated his tax by $885,300.
In pleading guilty, Warner acknowledged that from 1999 through 2007, he underreported his gross income by $24.4 million.
Warner, whose tax returns contain thousands of pages, has been tax compliant since 2008, according to his lawyer. He will pay an FBAR penalty of $53.6 million and back taxes and interest of at least $16 million, according to the filing.
The case is U.S. v. Warner, 13-cr-00731, U.S. District Court, Northern District of Illinois (Chicago).
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