Co-conspirator in tax fraud gets 3 years in prison
Published: February 7, 2014
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ST. THOMAS - The final co-conspirator in a federal tax fraud case involving a company in a Virgin Islands tax incentive program received a three-year sentence Thursday in District Court.
A federal jury in July last year convicted David Haddow, 62, of conspiracy to defraud the United States and the U.S. Virgin Islands in the collection of taxes.
The same jury also found his co-defendant, Hansel Bailey, guilty, while a third defendant, Dwight Padilla, pleaded guilty a month earlier.
Haddow and Bailey created a company called Compass Diversified, which was incorporated in the Virgin Islands in 2004 and became a beneficiary of the Economic Development Commission in 2005 to provide strategic business, finance and accounting services. The company had offices in Buccaneer Mall on St. Thomas and operated from September 2004 to January 2007.
The criminal aim of the company, according to an indictment, was to collect large sums from Californians, and the money, for the most part, later was returned so that the clients could write it off as non-taxable gifts.
According to court documents, the men collected almost $2 million from 2004 through 2007, and about $3.8 million funneled through the business while it was in existence.
Prosecutors said the company tried to take advantage of legal loopholes whereby Virgin Islanders are not taxed on gifts, but the whole scheme was fraudulent.
Bailey was president of Compass; Haddow functioned as chief operating officer; and Padilla, a certified public accountant, functioned as a scout for Compass.
In January, Gomez sentenced Bailey to 60 months in prison, and in September, he sentenced Padilla to 15 months.
On Thursday, District Judge Curtis Gomez sentenced Haddow to three years of supervised release to follow his incarceration. Haddow will be required to enroll in educational or vocational classes during his incarceration and his supervised release.
Additionally, Gomez ordered Haddow to share the responsibility of paying restitution to the U.S. Internal Revenue Service and the V.I. Bureau of Internal Revenue.
Together, Haddow, Bailey and Padilla owe the U.S. Internal Revenue Service $1,104,741 and the V.I. Bureau of Internal Revenue $821,094. It has yet to be determined how the shared responsibility of paying restitution will be divided.
"I did not benefit in any manner from my employment at Compass. In fact, I lost money," Haddow said in addressing Gomez prior to sentencing.
Haddow said in court Thursday that he made clear that he had no tax service expertise, only accounting.
"At no time did I participate when I thought there was something wrong," Haddow said to Gomez just before receiving his sentence.
Haddow said that he took full responsibility for his actions, noting that, when he did realize something was awry within the operation, he sought legal counsel.
Haddow said in court Thursday that when he found out a federal investigation was under way, he preserved and stored documents that he was told to destroy but thought might be of interest to the U.S. Attorney's Office.
Assistant U.S. Attorney Kim Chisolm, who did not prosecute the case, said that while Haddow was cooperative and did speak with the U.S. Attorney's Office on several occasions, he never stated outright that he was guilty of the charges that he faced.
"Since he did go to trial, it's hard to say that he took responsibility," Chisolm told the court.
Haddow's attorney, Treston Moore, said that Haddow did as much as he could to help the prosecution and that he always had been of assistance to the community.
Gomez said that he had to impose a sentence that would deter similar activity in the territory in the future and would encourage respect for the law.
Haddow is expected to appeal his sentence, as Moore had been seeking a sentence without incarceration.
Haddow's sentencing initially was scheduled for January, but Gomez delayed it after Moore realized that the prosecution never required witnesses during the trial to identify Haddow, a standard practice during trials.
It is unclear whether the questions of how the misstep could affect Haddow's sentence or conviction or whether it ever was resolved.
Haddow was remanded into the custody of the U.S. Marshals Service following the sentencing.
- Contact Jenny Kane at 714-9102 or email firstname.lastname@example.org.