Beanie Babies, Tax Evasion, and the Federal Sentencing Guidelines

 

 

Ty Warner started a small plush toy company in 1985 out of his condominium. It was not until the early 1990’s that Warner got his big break with the introduction of the Beanie Baby. The Beanie Baby turned TY Inc. into a multi-billion dollar company. It would be this turn of fortune that led Warner to seek the advice of UBS AG (a global financial firm) who counseled Warner to open an off shore account in Zurich, Switzerland in 1996. Following the advice of his bankers, Warner instructed the bankers not to send him any correspondence and all records be destroyed within 5 years. Additionally, Warner failed to report the account to the Internal Revenue Service (“IRS”). Warner was not alone in following the advice of UBS. Many Americans were opening similar accounts.

In 2008, the Department of Justice began to aggressively pursue offshore tax evasion, and they started their investigation with UBS. The Department of Justice reached a deferred prosecution agreement with UBS a little over a year later in which UBS admitted to wrongdoing and agreed to hand over records on Americans using offshore accounts. The government gave tax-evaders one month to come forward voluntarily to avoid criminal prosecution if they pay taxes, interest and penalties. Warner applied to the program towards the end of the month window but was ineligible for the program, because he was already under investigation.

After a grand jury indicted him on one count of willful tax evasion, Warner entered into a plea agreement in which he would pay full restitution and a civil penalty of 50% of the maximum balance in his offshore account in 2008.  As part of the agreement, both parties agreed to an advisory sentence range of 46 to 57 months in prison. Prior to sentencing, the government requested a downward departure from the sentence range and the probation officer also recommended a much lower sentence. Attorneys for Warner argued a sentence of probation would be sufficient, and he provided character-reference letters from approximately 70 people to support his position.

At the sentencing hearing, the Judge sentenced Warner to two years probation with the requirement that he perform at least 500 hours of community service at three South Side schools he identified. The Court also imposed the maximum available fine of $100,000 and ordered Warner to pay costs. The judge explained his downward departure was a result of the letters he received describing an overwhelming history of “kindness, generosity and benevolence.” In his view, a downward departure was justified under 18 U.S.C. § 3553(a)(1) which allows the Court to take into consideration “the nature and circumstances of the offense and the history and characteristics of the defendant.” The Court proceeded to read several letters demonstrating the acts of generosity that persuaded him Mr. Warner was truly unique among the defendants who have appeared before him. He also acknowledged that other § 3553(a) factors may suggest a harsher sentence but reinforced Warner was 69 years old with no criminal history and highly unlikely to commit further crimes.

On appeal, the government argued Warner’s sentence was unreasonable, because it did not include a prison term. The Court of Appeals for the Seventh Circuit disagreed and upheld Warner’s sentence. The opinion started by pointing out that the statute did not expressly require the imposition of a prison term, thus, the sentencing court had discretion to chose prison or a term of probation. It is the district court’s job “to weigh and balance the various factors” and then make a decision appropriate for the individual before it. The court is free to impose a sentence outside the range presented, so long as, the court explains and supports the deviation.

The Court of Appeals went on to state that they will uphold a sentence outside the range if it rests on reliable evidence, is consistent with § 3553(a), and “yields a sentence within the broad range of objectively reasonable sentences in the circumstances.” The court held that, although Warner’s sentence was lower than the range advised, the sentencing judge provided ample explanation to justify a variance. The court also pointed out that the government also recommended a sentence lower than the guideline range provided, essentially setting the stage for a downward departure. The sentencing judge went through great lengths to explain the characteristics of this particular defendant that he felt mitigated the seriousness of the offense and justified a lesser sentence.

The Warner case illustrates the broad discretion that Federal Judges have in criminal sentencing matters. Although the guidelines establish a sentencing range, lawyers for a criminal defendant can argue numerous factors to persuade the Court to depart from the recommendation to a lower sentence or even probation. This makes it crucial for a defendant in Federal Court to have an experienced, knowledgeable attorney advocating on their behalf.

 

If you need a lawyer for a criminal or Federal case, call Attorney W. Joseph Edwards (614-309-0243) who has over 25 years experience representing clients in these legal matters.

 

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