Beanie Baby billionaire H. Ty Warner, the founder of the company that makes the collectible plush toys, may get prison time for hiding income from U.S. tax collectors in a Swiss bank account.
U.S. District Judge Charles Kocoras in Chicago is being asked by prosecutors to impose at least some jail time when he sentences Warner today. Warner’s lawyers have asked for probation and community service.
“This is a crime committed not out of necessity, but greed,” Chicago U.S. Attorney Zachary Fardon’s office said in a court filing last week. “The government recommends a sentence which includes a term of imprisonment.”
Warner, 69, 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. Another suburban Chicago man, grave marker and monument maker Peter Troost last year was sentenced to a year and a day in prison by a judge in the same courthouse after admitting he evaded taxes on more than $3.3 million in income.
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.
A resident of the Chicago suburb of Oak Brook, Illinois, Warner has a net worth of about $1.7 billion. He’s donated $140 million in cash and toys to various charities and organizations, his lawyers said in a pre-sentence brief filed on Dec. 31.
Their client’s conduct constitutes a single deviation from an otherwise law-abiding life in which he’s paid $1 billion in taxes, they said. Warner has agreed to pay a civil penalty of $53 million and to file amended tax returns for the years 1999 to 2008. He will also pay more than $16 million in back taxes and interest.
“Ty is paying dearly for his mistakes and will continue to do so for the rest of his life,” Warner’s lawyers said.
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 their pre-sentence brief filed on Jan. 7.
Advisory federal sentencing guidelines call for a prison term for Warner of 46 months to 57 months. His attorneys contend a sentence of probation with home confinement is appropriate.
“There is no reason to believe prison time is necessary to prevent him from engaging in tax evasion again,” according to his Dec. 31 filing.
In their argument for leniency, Warner’s lawyers cited his rejection from an IRS amnesty program that allowed more than 38,000 Americans with offshore accounts to avoid prosecution.
By the time he sought entry to that program, the government already knew of his conduct, prosecutors have countered.
“Warner deserves little credit for admitting what he knows the government already had largely determined,” Fardon’s office said in its Jan. 7 filing. “Warner is telling the court what he thinks he needs to say in order to appear to the court to be open, honest and ashamed.”
Warner probably will avoid prison and, if he doesn’t, the term won’t be long, said Alfredo Mendez, a former federal prosecutor.
“Hardly anyone in this type of conduct has received a significant amount of jail,” said Mendez, a partner with the New York law firm Abrams Fensterman Fensterman Eisman Formato Ferrara & Wolf LLP.
Citing Warner’s restitution, fine and charitable giving, Mendez, who isn’t involved in the case, said the judge may ask himself, “What purpose does it serve to put this guy in jail, even a token amount?”
Warner has been “hit in the pocket extremely hard,” Mendez said. “If that’s not deterrence for this type of crime, I don’t see what else is.”
The case is U.S. v. Warner, 13-cr-00731, U.S. District Court, Northern District of Illinois (Chicago).
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