Beanie Baby Maker Ty Warner Avoids Jail in Tax Case

Photographer: Chandler West/Sun-Times Media via AP Photo

Beanie Baby billionaire H. Ty Warner leaves federal court in Chicago, on Oct. 2, 2013. Close

Beanie Baby billionaire H. Ty Warner leaves federal court in Chicago, on Oct. 2, 2013.

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Photographer: Chandler West/Sun-Times Media via AP Photo

Beanie Baby billionaire H. Ty Warner leaves federal court in Chicago, on Oct. 2, 2013.

H. Ty Warner, the billionaire creator of Beanie Babies plush toys, avoided a prison sentence for hiding income from U.S. tax collectors in a Swiss bank account.

Warner was sentenced today to two years of probation for tax evasion by U.S. District Judge Charles Kocoras in Chicago. He must also perform a total of 500 hours of community service for three area schools, the judge said.

Warner, the founder of toymaker Ty Inc. and Ty Warner Hotels & Resorts, failed to report more than $24.4 million in gross income to the U.S. Internal Revenue Service from 1999 to 2007, according to an agreement signed with prosecutors on Oct. 2, when he pleaded guilty to a single count of tax evasion based on his 2002 liabilities.

“I never realized the biggest mistake of my life would cost me the respect of those closest to me,” Warner, 69, said in court today. “I am truly sorry.”

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Warner is among more than 100 people including bankers, lawyers and advisers prosecuted during the past five years in a U.S. crackdown on offshore tax crimes. Peter Troost, a grave-marker and monument maker, was sentenced last year to a year and a day in prison by a judge in the same Chicago courthouse after admitting he evaded taxes on more than $3.3 million in income.

$1.7 Billion

A resident of the Chicago suburb of Oak Brook, Illinois, Warner has a net worth of about $1.7 billion. He has donated $140 million in cash and toys to various charities and organizations, his lawyers said in a filing on Dec. 31.

Before passing sentence, the judge read letters of support for Warner from people who described some of the billionaire’s charitable deeds on behalf of a kidney dialysis patient, schools, Ty Inc. salesmen and his local municipal park district.

“Society will be best served by allowing him to continue his good works,” Kocoras concluded.

Advisory federal sentencing guidelines called for a prison term of 46 months to 57 months. Warner’s lawyers asked for probation and community service, saying their client’s conduct constituted a single deviation from an otherwise law-abiding life in which he has paid $1 billion in taxes.

Warner has paid a civil penalty of $53 million and filed amended tax returns for the years 1999 to 2008, his lawyers said. He has also paid $14 million in back taxes and interest, according to prosecutors.

Prison Time

Still, Assistant U.S. Attorney Michelle Petersen pressed Kocoras today for a punishment that included prison time. She said the sentence imposed on Troost, whose unpaid tax liability was only a fifth of Warner’s, should be the minimum term.

Failing to send him to jail would reduce the crime of tax evasion to “little more than a bad investment,” she said.

At a post-hearing press conference, Chicago U.S. Attorney Zachary Fardon said Warner had been held accountable. He rejected the notion Kocoras had sent a message that a wealthy man need only write a check to avoid prison. Judges must account for many circumstances in tailoring sentences to individual defendants, he said.

“There is no right or wrong when it comes to imposing sentence, and different judges are going to see similar facts and circumstances in different way,” Fardon said.

UBS Account

From 1996 to 2008, Warner parked some of his money first at UBS AG (UBSN) in Switzerland and then at Zuercher Kantonalbank, failing to tell his own accountants of those accounts, according to court papers. By 2008, the balance of his undisclosed account exceeded $107 million, Assistant U.S. Attorney James Conway told Kocoras in October.

Warner failed to pay almost $5.6 million in taxes on the undeclared income hidden in those accounts from 1999 to 2007, prosecutors said in a pre-sentence brief filed on Jan. 7.

Warner continued to hide the money until it was clear he was going to be found out, Petersen told the court today.

“Those withholding accounts should not be emboldened to continue to hide,” the prosecutor said.

Warner’s attorney, Gregory Scandaglia, said the fine his client paid was the largest of its kind in the history of U.S. tax enforcement. He said Warner accepted full responsibility for his actions and knew what he did was wrong.

“The judge heard from many people who have benefited from Ty’s quiet generosity over the years, and he crafted a sentence that allows Ty to continue to make amends in a way that most benefits society,” Scandaglia said in a statement after today’s hearing.

The case is U.S. v. Warner, 13-cr-00731, U.S. District Court, Northern District of Illinois (Chicago).

To contact the reporter on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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