Medical School Founder Hough Gets Two Years in Tax Case

A Florida psychiatrist who helped her husband build two Caribbean medical schools was sentenced to two years in prison for her role in a conspiracy to hide millions of dollars in income from the Internal Revenue Service.

Patricia Hough, 67, was sentenced today in Fort Myers, Florida, where she was convicted on Oct. 25 of conspiring to defraud the IRS and filing false tax returns. Prosecutors said she didn’t tell the agency about more than $60 million of income that she and her husband, David Fredrick, made on the operation and 2007 sale of the schools, cheating the government out of $15 million in taxes.

“Hough’s crimes were neither impulsive nor isolated but required sophisticated transactions, coordination with foreign bankers, annual lies to the federal government, and by her own admissions, trips to Switzerland,” prosecutors wrote in a sentencing memo on April 14. “Hough made calculated decisions to cheat, over and over again.”

The case is one of dozens that U.S. authorities have brought in a crackdown on offshore tax evasion. Prosecutors accused the couple of crafting their scheme with UBS AG (UBSN) banker Dieter Luetolf and Swiss financial adviser Beda Singenberger, both unindicted co-conspirators.

Offshore Accounts

Singenberger, who was separately charged with helping 60 U.S. clients hide $184 million in offshore accounts, hasn’t responded in federal court in New York. He’s one of three dozen bankers, lawyers or advisers charged in the crackdown. Prosecutors also accused more than 70 taxpayers of offshore tax crimes since 2009, including at least six Singenberger clients who pleaded guilty. Luetolf isn’t charged.

The government asked for a term of 78 to 97 months, while Hough sought a year of home detention. Fredrick, who disappeared before the trial began on Oct. 8, was declared a fugitive by U.S. District Judge John Steele.

Steele also ordered Hough to pay restitution of $15.5 million to the IRS.

Hough intends to appeal her conviction and sentence, her attorney Nathan Hochman said.

“We look forward to justice at the end of this process for a woman who has dedicated her entire life to the service and betterment of thousands of this country’s and the world’s poor, elderly and mentally ill people,” Hochman said in an e-mail.

Two Houses

Prosecutors said Frederick and Hough, who was convicted of filing false returns for 2005, 2007 and 2008, used funds in undeclared offshore accounts to buy an airplane, two houses in North Carolina and a condominium in Sarasota, Florida.

Hough’s lawyers said she helped Fredrick build Saba University School of Medicine, on the island of Saba, and the Medical University of the Americas, on Nevis, both in the West Indies.

Her lawyers argued that Hough never believed the money held at UBS, the largest Swiss bank, and in other offshore banks belonged to her. Rather they said she thought it belonged to the foundation that ran the schools.

Prosecutors said the couple used an array of accounts in the names of businesses to hide their money and employed “e-mails, telephone calls and in-person meetings to instruct Swiss bankers and asset managers to make investments and transfer funds from their undeclared accounts at UBS.”

Business Purpose

At trial, Hough’s lawyers argued that the accounts served the business purpose of helping protect the assets of their nonprofit foundation from people attempting a hostile takeover. Hough and Fredrick used the foundation to build the two medical schools.

“The $50 million or so the government wants you to believe was stolen from the Saba Foundation, it isn’t sitting in her account,” attorney Dan Saunders told jurors. “It’s not buried under a palm tree. It’s in the Saba Foundation account.”

Hough believed she was merely a signer on accounts for the foundation, which ran the school, in case something happened to her husband, Saunders said.

Both Hough and Fredrick hold doctoral degrees, and Hough also has a medical degree. Through the Saba Foundation, which they first funded in 1988, the couple opened Saba University School of Medicine in 1993. Fredrick served as president and a foundation director. Hough was associate dean for clinical medicine.

Equinox Capital Inc., a private-equity firm based in Greenwich, Connecticut, bought the schools for $36 million in 2007.

The case is U.S. v. Fredrick, 13-cr-00072, U.S. District Court, Middle District of Florida (Fort Myers).

To contact the reporter on this story: David Voreacos in federal court in Newark, New Jersey, at

dvoreacos@bloomberg.net; Susannah Nesmith in Miami at susannahnesmith@gmail.com

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Fred Strasser, Andrew Dunn

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