April 18, 2021

Volume XI, Number 108

Advertisement

April 16, 2021

Subscribe to Latest Legal News and Analysis

April 15, 2021

Subscribe to Latest Legal News and Analysis

New York Secures $105 Million Dollars from Hedge Fund Manager’s Tax Fraud

Earlier this week, New York Attorney General Letitia James issued a press release announcing that the State and City of New York recovered $105 million dollars in owed taxes and damages under New York’s false claims act tax fraud statute from Thomas Sandell, his hedge fund company Sandell Asset Management Corporation (SAMC), and SAMC Partners LC.

Sandall owed over $50 million dollars in taxes from over $450 million dollars in fees earned in 2017. The taxes were due in December 2017 as a result of a change in the deferred management and performance fee rule in 2008. Sandall attempted to avoid paying the taxes by enlisting the help of several accounting firms on tax avoidance, one of whom incorrectly advised him that if SAMC’s presence and operations were removed from New York before 2017, he would not have to pay the taxes owed. Sandell thereafter took more affirmative measures to evade tax liability. Sandell moved from New York to London from August 2016 to mid-2019, opened a shell office in Boca Raton, Florida, and attempted to make it appear as though SAMC was no longer principally operating in New York City when it was.

New York was tipped off to its deception when a whistleblower filed a complaint in October 2018. During their investigation, it was confirmed that the services at issue were performed exclusively in New York and that the deferred fees were taxable to the state and city of New York.

This settlement demonstrates the importance that both whistleblowers and the tax fraud false claims provision play in cutting greed off at the head, shifting the tax burden from ordinary New Yorkers, and recouping resources for state and local government. In her statement, Attorney General James said:

“The greed that allowed one man to try to avoid paying his fair share of taxes is astonishing. Thomas Sandell and his company bilked New York taxpayers out of tens of millions of dollars in a single year — placing a tremendous burden on our system and forcing ordinary New Yorkers to bear that cost. My office remains committed to ensuring that those who knowingly commit tax fraud — and those who facilitate their misconduct — pay a steep price for doing so.”

In a similar vein, New York City Corporation Counsel James E. Johnson emphasized the importance of this recovery especially in light of the ongoing COVID-19 Pandemic:

“Tax revenues pay for vital city services. When a deadly pandemic has eviscerated the economy and severely strained our city’s budget, every dollar counts. . . Hedge funds are obligated to pay taxes just like everybody else, and when they don’t, we’ll use our legal tools and strategies to hold them accountable. Period.”

By one estimation, New York loses approximately $10 billion dollars a year in unpaid taxes. Tax fraud claims and whistleblower actions are essential to ensuring that these taxes are recovered and reallocated for the general welfare. Whistleblowers do not go unrecognized for the critical role they play. The whistleblower who filed the complaint here will receive a $22.05 million dollar reward, constituting 21% of the recovery.

Advertisement
© 2021 by Tycko & Zavareei LLPNational Law Review, Volume XI, Number 64
Advertisement
Advertisement

TRENDING LEGAL ANALYSIS

Advertisement
Advertisement

About this Author

Jennifer Thelusma Public Interest Attorney Tycko & Zavareei
Fellow

Jennifer Thelusma graduated from Duke University School of Law in 2019 with a J.D. and a certificate in Public Interest and Public Service.

While at Duke Law, Jennifer gained legal experience through various practical projects. For example, during the Fall of her 2L year, as a legal intern in the Duke Wrongful Convictions Clinic, she worked to move five cases through post-conviction review by conducting legal research, interviewing witnesses, and drafting a motion for appropriate relief. During the Fall of her 3L year, Jennifer externed full...

510-254-6808
Advertisement
Advertisement