Hedge fund founder Thomas Sandell paid a whopping $ 105 million on Tuesday to settle allegations that he fraudulently evaded New York city and state taxes for more than $ 450 million in fees he earned, officials said.
The settlement – of which a whistleblower will receive more than $ 22 million – is the largest recovery in New York State history under the False Claims Act.
That state law was amended more than a decade ago to allow claims related to intentional tax avoidance.
Swedish-born billionaire Sandell, who admitted no wrongdoing, tried to evade his liability for tens of millions of dollars in taxes owed to the city and state for the fees he earned in 2017 through his firm, Sandell Asset Management Corp., officials said.
The $ 105 million settlement will cover both taxes and damages, said Attorney General Letitia James and Municipal Corporation counsel James Johnson. The whistleblower’s remuneration is 21 percent of that amount.
“The greed that allowed a man to try to avoid his fair share of taxes is astonishing,” said James.
“Thomas Sandell and his company paid New York taxpayers tens of millions of dollars in one year – a huge burden on our system and forced ordinary New Yorkers to bear those costs,” said James.
Chris Doyle, a lawyer who represented Sandell in the False Claims lawsuit, told CNBC, “Mr. Sandell and his companies are declining to comment.”
Sandell closed its hedge fund in 2019 and transformed it into a family office.
In 2007, Sandell’s company agreed to pay more than $ 8 million to settle claims of the Securities and Exchange Commission Asset Management for entering into unauthorized short sales related to trading in a New Orleans-based holding company after the hurricane Katrina in 2005.
In the latest case in New York, officials said that due to a change to the rules in 2008 regarding the recognition of deferred benefits in 2017, Sandell had to recognize about $ 450 million in such income and pay taxes on that money to the state and the city.
“But to avoid this liability, Sandell left New York to live in London from August 2016 to mid-2019,” officials said in a press release.
“And while SAMC continued to operate in New York City, Sandell and SAMC took steps to make it look like SAMC’s operations were no longer taking place in New York City, often with the help of an international accounting firm.”
As part of the plan, officials said Sandell opened “an empty office” with three employees in Boca Raton, Florida, which he and his company claimed was SAMC’s only US operation.
Despite having agreed to a Securities and Exchange Commission finding, the company’s headquarters remained in New York City.
Even after several advisers, including an accounting firm that had prepared his taxes for years, warned Sandell that “his tax position was problematic,” he nonetheless claimed that he did not owe New York taxes on the fee income he recognized in 2017, ” the press release said.
Randy Fox, a whistleblower attorney who is suing Sandell under the False Claims Act for alleged tax evasion, declined to identify the person or persons who created the limited liability company, Tooley LLC, which is the said plaintiff in the lawsuit.
When asked what his client or clients would do with the $ 22,050,000 reward – a fraction of which will get Fox under a contingency settlement – the attorney said, “I don’t know.”
“At least get a nice bottle of champagne,” Fox added.
Fox was the founding chief of the Taxpayer Protection Bureau of the Attorney General’s Office in New York.
He said Sandell’s alleged evasion was striking because he “ already had access to an amazing tax break ” that allowed him to invest the money set aside as benefits into an unqualified retirement plan, where it could earn returns for years before the benefits had to be paid. paid. are declared for tax purposes.
Fox that 49 states allow whistleblowers to prosecute false claims that provide rewards for flagging fraud with government agencies.
But about half of those states restrict the law to use only to seek damages for fraud related to state-run Medicaid programs, he noted.
Fox said that until recently, New York was the only state to allow false claims for fraud of any kind. Some states don’t stand in the way of tax-related false claims, but they don’t invite actions like this, he said.
“The big question in my head is why all these states are leaving money on the table … when you think about the difference between the taxes paid and the taxes due,” Fox said.
He said the estimated deficit of actually owed federal taxes versus the taxes paid is $ 380 billion per year.
A less accurate estimate says New York State loses $ 10 billion a year in taxes that should have been paid, he said.
“Tax revenues pay for vital city services. When a deadly pandemic has eroded the economy and seriously strained our city’s budget, every dollar counts,” Johnson said.
“Hedge funds are obligated to pay taxes just like everyone else, and if they don’t, we will use our legal tools and strategies to hold them accountable. Period.”