Co-founder of fake EDC company gets 5 years in prison
Published: January 10, 2014
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ST. THOMAS - Sentencing of a St. Thomas man convicted of defrauding the federal government was delayed in District Court on Thursday, while his co-defendant was sentenced to five years in prison.
District Judge Curtis Gomez sentenced Hansel Bailey, 36, of Orange County, Calif., to 60 months in prison for Bailey's involvement in a white collar scam in which the federal and territorial government together lost more than $1.9 million.
A federal jury in July convicted Bailey, along with 61-year-old David Haddow, of St. Thomas, of conspiracy to defraud the United States and conspiracy to evade or defeat taxes.
Together, Bailey and Haddow 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.
Compass marketed itself as offering strategic business, finance and accounting services, though it acted more as a slush fund, according to federal indictments.
"Clients were told that this was a tax savings plan, whereby their contributions to Compass would be used to create jobs in the U.S. Virgin Islands," one indictment stated.
Bailey was president of Compass, and Haddow functioned as chief operating officer, according to Assistant United States Attorney Bryan Foreman.
A third man, certified public accountant Dwight Padilla, functioned as a scout for Compass, Foreman said.
Gomez also was expected to issue Haddow's sentence in court on Thursday, though the judge delayed a ruling because of a "significant issue" brought to light by Haddow's attorney, Treston Moore.
Moore said he objected to issuing Haddow's sentence because, during Haddow's trial, Assistant U.S. Attorney Bryan Foreman failed to ask witnesses on the stand to identify Haddow.
"I cannot think of another case where the government has not identified the defendant - ever," Gomez said Thursday.
Gomez asked Moore and Assistant U.S. Attorney Kim Chisholm to research before Jan. 16 whether the issue could be resolved to continue with Haddow's sentencing.
Bailey was remanded into the custody of the U.S. Marshals Service. He also will be required to pay restitution to the U.S. Internal Revenue Service and the V.I. Bureau of Internal Revenue.
Bailey is expected to share responsibility of paying the restitution with Haddow and Padilla, who pleaded guilty to conspiracy to defraud the United States in June. Gomez sentenced Padilla to 15 months imprisonment in September.
It has yet to be determined how the shared responsibility of paying restitution will be divided.
The restitution will include slightly more than $1.1 million owed to the IRS and more than $821,000 owed to the Bureau of Internal Revenue.
According to court documents, the men collected almost $2 million from 2004 through 2007, during which time Compass operated out of offices in Buccaneer Mall on St. Thomas. About $3.8 million funneled through the business while it was in existence, according to indictments.
The "venture," as Bailey called it, began when Bailey, who was president of the operation, had the initial idea to create a tax savings business in the territory after hearing about tax incentives in the U.S. Virgin Islands.
During their trials, Bailey and Haddow's attorneys portrayed their clients as victims of Padilla, who they said conned the two men into trusting him that the operation would be in "good faith."
Padilla said that the two men were looking for loopholes in the tax system.
"I did my best to surround myself and enlist the help of men better than myself," Bailey said prior to his sentencing.
Haddow did not address the court Thursday.
Prior to being remanded to the U.S. Marshals Service, Bailey also addressed the conditions of his imprisonment, noting that he began serving time following his conviction and that his health has suffered since then.
Bailey noted that he had suffered from a bacterial infection that required an emergency surgery and ongoing treatment because of the conditions at his current prison, Guaynabo Metropolitan Detention Center.
Bailey took issue with the conditions and claimed that he also is on a drug cartel's hit list, had avoided several stabbings and had been denied rights by prison staff.
Gomez asked the U.S. Attorney's Office to look into Bailey's claims.
For the time being, Bailey will stay within the territory until the U.S. Marshals Service is able to transfer him to another federal prison.
Bailey requested that he be transferred to Taft Correctional Institution in California so that he can be closer to his family, including his wife and four sons. Bailey said his family relies solely on him for their income.
- Contact Jenny Kane at 714-9102 or email firstname.lastname@example.org.