A federal court in Pensacola, Fla., has sentenced three of nine promoters of a fraudulent tax-and-debt-elimination scheme to prison terms for their roles in tax fraud, wire fraud and money laundering, the Justice Department and Internal Revenue Service (IRS) announced today. Four others were sentenced in July to prison terms ranging from 5 to 12 years. The remaining two will be sentenced in October.
The court sentenced Eugene Casternovia to 7 years in prison and sentenced Arthur Merino to 3 years and 4 months in prison. Mark Lyon, who cooperated with the government and testified at trial, was sentenced to 18 months in prison.
On March 31, 2010, a federal jury returned guilty verdicts against eight people, following a month-long trial in Pensacola involving the promotion of fraudulent schemes through Pinnacle Quest International, also known as PQI and Quest International. The ninth, Lyon, entered a guilty plea and testified against the other eight at trial.
According to the evidence presented during trial, PQI was an umbrella organization for numerous vendors of tax and credit card debt elimination scams. Some of the PQI vendors, such as Southern Oregon Resource Center for Education (SORCE), sold bogus theories and strategies for tax evasion. For fees starting at $10,000, SORCE assisted its customers in the creation of a series of sham business entities in the United States and Panama. Other tax-related PQI vendors denied the legitimacy of the income tax system on various theories and provided customers with a “reliance defense” that consisted of a paper trail of frivolous correspondence which a client could allegedly use as evidence of good faith if the client were prosecuted.
At trial, the government established that other PQI vendors sold fraudulent schemes for eliminating credit card debt, the most successful of which was called Financial Solutions. Financial Solutions charged its customers thousands of dollars for a series of letters to send to credit card companies disputing the lawfulness of the underlying debt. The product was wholly ineffective, and customers typically were sued by their creditors and often forced into bankruptcy.
According to the evidence, another PQI vendor, MYICIS, operated as a sophisticated, computerized “warehouse bank.” MYICIS was a single bank account in which customers pooled their money. MYICIS was promoted to PQI’s clients as a method to hide their assets from the IRS as a result of the pooled nature of the account. MYICIS had 3,000 clients and approximately $100 million in deposits over a three year period.
Evidence introduced at trial showed that PQI purported to sell only CDs and tickets to offshore conferences. However, PQI acted as a gateway to its fraudulent vendors. PQI clients seeking the tax evasion and debt elimination vendors could only access the product if they joined PQI first. The cost of membership ranged from $1,350 to $18,750, depending on the level of access. In May 2008, a federal district court issued a preliminary injunction against the promoters of Pinnacle Quest International.
“There are consequences for disobeying the laws of our nation. These defendants are now being held accountable for their criminal behavior,” said Victor S. O. Song, Chief, IRS Criminal Investigation. “They helped form a series of sham business entities and then promoted fraudulent debt elimination tactics intended for the sole purpose of concealing income from the IRS. Their tactics were fraudulent. There is no secret formula that can eliminate an individual’s tax obligation.”
Alleged Facts From Preliminary Injunction
- PQI is an organization that arose out of the now-defunct Institute of Global Prosperity. PQI was founded by former Global Prosperity organizer David Struckman and Global Prosperity salesperson Claudia Hirmer using Global Prosperity’s website, sales database, and sales force.
- PQI is operated out of Hirmer’s home in Fort Walton Beach, Florida.
- PQI is operated by an Executive Council. The Executive Council consists of approximately fifteen to twenty-five PQI salespeople.
- The Executive Council is responsible for administering and operating PQI, including determining what other individuals or entities PQI will allow to present goods or services to PQI customers at PQI-hosted conferences.
- The following Defendants are now or were in the past members of PQI’s Executive Council, and in that role actively participated in managing and directing PQI’s questionable activities:
• Claudia Hirmer
• Armand Bright
• S. Anthony (“Tony”) Larson
• Douglas Hagerty
• Michael Leonard
• Arnold Manansala
• Nadine Griffin
• Ellen Stubenhaus
• Dover Perry
• Joseph (“Joe”) McPhillips
• Lee Williams
• Michele Brown
- SPI is the PQI division that brings PQI promotions to PQI customers. SPI organizes PQI’s conferences, SPI ships PQI’s products to customers, and PQI’s sales force orders PQI products for customers exclusively through SPI.
- PQI sells three products, called Q1, Q2, and Q3. PQI and SPI sell and distribute these products through a multilevel marketing system.
- PQI’s operation is extensive: From 2002 to 2006, a team of 830 Qualified Consultants sold PQI products to over 11,500 customers. During this same period, Qualified Consultants earned commissions of $38 million, and PQI received gross receipts of $16 million.
- PQI sells Q1, Q2, and Q3 through a large network of salespeople called “Qualified Consultants,” who are compensated within a multilevel marketing structure. PQI’s multilevel marketing structure gives Qualified Consultants strong incentives to sell more PQI products and attract new Qualified Consultants to PQI.
- For each Q1 sold to a customer at $1,350 the Qualified Consultant receives $1,000. For each Q2 conference ticket sold for $7,500 the Qualified Consultant receives between $5,000 and $6,000. For each Q3
conference ticket sold for $18,500 the Qualified Consultant receives $12,000. For all three products, PQI receives the balance.
- PQI’s Q1 product consists of 21 audio compact discs, each of which contains an interview of a person who PQI touts as an expert in a particular subject matter. PQI claims its Q1 is an educational course in
- The individuals who speak on PQI’s Q1 audio course include Bill Benson, purveyor of the discredited Reliance Defense Package; Dan Shaw, a representative of IMF Decoder; and Sherry Peel-Jackson, a convicted tax defier. These individuals make false and fraudulent statements about the internal revenue laws on PQI’s Q1 audio course.
- When a customer purchases Q1, the customer gains access to PQI’s “Online Resource Center,” which is hosted on PQI’s website and contains a collection of false statements about federal tax laws.
- PQI’s two other products, Q2 and Q3, are conferences at which PQI invites other individuals and entities, known as vendors, to speak to PQI customers in order to advertise the products and services those individuals or entities sell to PQI’s customers.
- PQI, acting through its Executive Council, establishes mutually beneficial exclusive-dealing arrangements the PQI vendors. These arrangements give the vendors permission to hawk their wares to PQI customers.
- PQI and its Qualified Consultants advertise exclusive access to the goods and services of PQI vendors, who are billed as “experts,” as part of the wealth-building strategy PQI sells.
- PQI’s Executive Council claims to solicit in-depth information from potential vendors, and votes on whether or not to allow those vendors to sell their products to PQI customers, a process which PQI refers to as “aligning with a resource.”
- As part of this “aligning” process, vendors are required to certify that they will only market to PQI customers those products PQI’s Executive Council has specifically approved.
- In addition to only selling approved products, vendors must agree that they will sell their products only to individuals who have purchased at least Q1 from PQI.
- Despite the detailed information elicited from each PQI-approved vendor about its goods and services, PQI allows vendors promoting fraudulent tax schemes to its customers and to present at Q2 and Q3 conferences.
- Several of vendors who present at PQI’s Q2 and Q3 conferences promote fraudulent tax schemes. Vendors who have promoted fraudulent tax schemes through PQI at Q2 and Q3 conferences include IMF Decoder, Bill Benson, and Southern Oregon Resource Center Educational Services (SORCE).
- IMF Decoder was a PQI vendor. During 2004 and 2005, PQI customers could purchase the services of an organization called IMF Decoder; during 2005 IMF Decoder only made its fraudulent scheme available to
- IMF Decoder falsely told PQI customers that they are not required to pay federal income taxes unless they live in a federally-administered territory or are engaged in an excise-taxable activity. IMF Decoder falsely stated that the IRS inserts codes into taxpayers Individual Master Files (IMF) that indicate the taxpayer resides in a federal territory or is engaged in an excise-taxable activity so as to create a federal income tax liability where none otherwise would arise.
- IMF Decoder advertised to PQI customers at PQI conferences, on PQI organized conference calls, and in other promotional materials that it could help customers remove these allegedly fraudulent codes in order to eliminate the customer’s federal income tax liability.
- PQI customers purchased IMF Decoder’s services in order to avoid paying their federal income tax liabilities.
- SORCE was another PQI vendor. SORCE sold a fraudulent asset protection plan and a fraudulent disenfranchisement scheme to PQI customers.
- Through the “asset protection” scheme, SORCE helps people unlawfully evade federal tax and tax-collection by helping them create bogus entities to which the customers transfer and hide their income, assets, and businesses, while still maintaining complete control over them. SORCE falsely tells customers that income generated by their transferred businesses and assets is not taxable. To help their customers accomplish these fraudulent transfers, SORCE provides its customers with instructional materials, guidance, and staff support.
- Through the “disenfranchisement” scheme, SORCE falsely tells customers that the federal income tax system is voluntary, and that customers can opt out of their federal income tax obligations by revoking their social security numbers and other government identification numbers.
- PQI investigated SORCE’s tax schemes and approved them for sale to PQI customers.
- PQI customers purchased SORCE’s fraudulent schemes in order to avoid paying their federal income taxes.
- Bill Benson formerly marketed his Reliance Defense Package through PQI, including at PQI conferences and on PQI’s Q1 audio course.
- Benson promised PQI customers that he could help them avoid criminal prosecution for non-payment of federal income taxes by showing the customer how to properly introduce documents in court proceedngs that purportedly show that the Sixteenth Amendment to the United States Constitution was not properly ratified.
- PQI promoted Benson’s scheme even though Benson’s legal position has consistently been rejected as frivolous and that Benson himself was convicted for willful failure to file in spite having raised the arguments
presented in his Reliance Defense Package.
- Sherry Peel Jackson is a convicted tax defier who advances her frivolous tax arguments on PQI’s Q1 audio course. At PQI’s June 2004 Q2 conference in Cabos San Lucas, Jackson also promoted a tax-fraud product known as the “861 Evidence Disc,” which purports to show why U.S. citizens are not required to pay federal income taxes. Jackson also spoke on pre-recorded phone calls available to PQI Qualified Consultants as a tool to recruit new PQI members.
- SPI is the part of PQI responsible for delivering the Q1 audio course to customers and arranging the Q2 and Q3 conferences.
- PQI and the vendors whose products PQI promotes harm the United States by depriving it of income tax revenue it would otherwise collect and by encouraging non-compliance with the federal income tax laws.
- PQI and its vendors have deprived the United States of substantial amounts of federal income tax revenue. Each customer who purchased SORCE’s services has deprived the United States, on average, of $22,576 of forgone revenue per customer per year. Over the 350 known SORCE customers, that yields a total annual loss to the United States of $7,901,600.
- Another PQI vendor, IMF Decoder, has sold its tax-fraud products in more than 40 states. The IRS has determined from audits of IMF Decoder’s customers a total loss of revenue of approximately $4.9 million caused by its customers’ failure to file tax returns and pay income taxes. Additionally, because IMF Decoder’s customers filed numerous frivolous and harassing FOIA requests, the IRS has also had to devote substantial resources to processing these requests.
- In addition to forgone revenue, the United States is harmed because it must dedicate scarce resources to identifying and auditing PQI and PQI’s vendors’ customers. Identifying and auditing all present and future PQI customers may be impossible, which may result in a permanent loss to the United States Treasury.
- Customers are harmed because they have paid for erroneous tax advice, as a result of which many individuals have not filed federal income tax returns, thereby subjecting themselves to possible penalties and interest. – Source
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