Caribbean Medical School Founder Guilty at Tax TrialDavid Voreacos and Susannah Nesmith
A Florida psychiatrist who helped her husband build two Caribbean medical schools was found guilty by a federal jury of tax charges related to offshore accounts.
Patricia Hough, 67, was convicted yesterday in Fort Myers, Florida, of conspiring to defraud the Internal Revenue Service and filing false returns from 2005 to 2008. Prosecutors said Hough didn’t tell the IRS about more than $35 million that she and her husband, David Fredrick, made when the schools and real estate were sold in 2007.
Prosecutors said Hough and Fredrick used funds in undeclared offshore accounts to buy an airplane, two houses in North Carolina, and a condominium in Sarasota, Florida. Fredrick vanished after the indictment, leaving his wife to face trial alone. U.S. District Judge John Steele, who oversaw a trial that began Oct. 8, declared Fredrick a fugitive.
“Dr. Hough’s financial transactions were nothing more than a shell game to hide her income,” Richard Weber, the IRS criminal division chief, said in a statement. “Her earned income was placed into foreign bank accounts to advance her tax fraud.”
Hough intends to appeal, said her attorney, Nathan Hochman.
“We believe that the government’s case abjectly failed to prove any of the elements of the crimes charged,” Hochman said in a telephone interview.
The case is the largest, in dollar value, of four that 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 accounts.
After jurors convicted Hough and were dismissed, Steele set sentencing for Feb. 10. As he set the date, Hough fainted, according to Steele’s courtroom deputy, Brenda Alexander. Paramedics were called, though Hough declined to go with them. She faces as long as five years in prison.
Hough’s lawyers said she helped Fredrick 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.
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.
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.
Hough and her husband “used 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,” the Justice Department said yesterday in a statement after the verdict.
In his opening, 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 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,” 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.
In an interview after the verdict, Hochman said an IRS revenue agent expert conceded that Hough over-reported, rather than under-reported, her total income by more than $13,000.
“The expert further conceded that for 2006, Dr. Hough was owed a refund,” Hochman said. “Nevertheless, the jury found that Dr. Hough under-reported her income for that year -- a truly startling result.”
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.
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).