Caribbean Med School Founder Didn’t Cheat IRS, Jury ToldSusannah Nesmith and David Voreacos
A Florida psychiatrist never spent any of the millions of dollars that prosecutors claim she hid from the Internal Revenue Service, her attorney told jurors at the start of her tax trial in federal court in Fort Myers.
Patricia Hough, who helped her husband David Fredrick build two Caribbean medical schools, is accused of conspiring to use secret Swiss accounts to cheat the IRS. Prosecutors said the couple didn’t report $34 million they made when the schools were sold in 2007. After their May 15 indictment, Fredrick vanished.
Dan Saunders, an attorney for Hough, said his client never believed the money held at UBS AG, the largest Swiss bank, and in other offshore banks belonged to her. Rather, he said, she thought it belonged to the foundation that ran the schools.
“It wasn’t her money, and she never believed it was,” Saunders said in his opening statement.
The case is the largest, in dollar value, of four that have reached trial since the U.S. started a crackdown on offshore tax evasion in 2008. Prosecutors have secured 61 guilty pleas, including several involving larger sums than in Hough’s case.
Assistant U.S. Attorney Leigh Kessler opened the trial by telling jurors that the couple used an array of accounts in the names of businesses to hide their money from the IRS.
“You will see evidence that these nominee accounts served no business purpose other than to hide the income of the defendant and David Fredrick,” Kessler said.
Saunders said the accounts did serve a business purpose: to protect the assets of their nonprofit foundation from people attempting a hostile takeover. Hough and Fredrick used the foundation to build Saba University School of Medicine, on the island of Saba in the Netherlands Antilles, and the Medical University of the Americas, or MUA, on Nevis in the West Indies.
“The $50 million or so the government wants you to believe was stolen from the Saba Foundation, it isn’t sitting in her account,” he said. “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.
Kessler said Hough and her husband used the proceeds of the school sales to buy a $1.6 million airplane, a $1.1 million house in Asheville, North Carolina, a $590,000 house in Greenville, North Carolina, and an $800,000 condominium in Sarasota, Florida. She said they also gave money to relatives.
Hough is charged with conspiracy to defraud the IRS, as well as filing false individual tax returns for 2005, 2006, 2007 and 2008. She faces as long as five years in prison on the conspiracy charge. The trial is expected to last two weeks.
Prosecutors accused Hough of scheming with her husband and two unindicted co-conspirators, Swiss financial adviser Beda Singenberger and UBS banker Dieter Luetolf. 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. Luetolf hasn’t been charged.
Both Hough and Fredrick hold doctoral degrees, and Hough 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, a private-equity firm based in Greenwich, Connecticut, bought the schools for $36 million in 2007.
Since 2009, Hough has worked for the Florida Department of Health in Sarasota. She makes $60 an hour working part-time seeing patients with behavioral health problems, according to Courtney Gager, a health department spokeswoman.
The case is U.S. v. Fredrick, 13-cr-00072, U.S. District Court, Middle District of Florida (Fort Myers).