Hedge fund founder Thomas Sandell paid $105 million to settle claims he fraudulently evaded New York and State taxes on more than $450 million on fees he earned.
In the settlement, a whistleblower will receive more than $22 million in reward, which is the largest recovery in New York state history under the False Claims Act. Thw NY state law was amended more than a decade ago to allow claims related to purposefully evaded taxes.
The $105 million settlement covered both taxes and damages, according to state Attorney General Letitia James and city Corporation Counsel James Johnson. The whistleblower’s reward represents 21 percent of that amount.
Officials said Sandell opened “a shell office” with three employees in Boca Raton, Florida, which he and his company claimed were SAMC’s sole American operation.
That was despite the fact they had agreed to a finding by the Securities and Exchange Commission the company’s principal place of business continued to be New York City.
Even after multiple advisors, including an accounting firm that had prepared his taxes for years, warned Sandell that “his tax position was problematic,” he “nonetheless claimed that he owed no New York taxes on the fee income he recognized in 2017,” the press release said.
He said that Sandell’s alleged evasion was striking because he “already had access to an amazing tax break” which allowed him to invest the money earmarked as fees in a non-qualified retirement plan, where it could earn returns for years before the fees had to be declared for tax purposes.
Fox that 49 states allow whistleblowers to sue under false claims acts which provide for rewards for flagging fraud on government entities.
But about half of those states limit the law for use only to recover damages for fraud related to state-run Medicaid programs, he noted.
Fox said that New York was the only state until recently to allow false claims actions for any kind of fraud. Some states do not bar tax-related false claims suit, but they do not invite those kinds of actions, he said.
“The big question in my mind is why are all of these states leaving money on the table … when you think about the difference between the taxes paid and the taxes owed,” Fox said.
He said that the estimate shortfall in federal taxes actually owed versus those taxes paid are $380 billion, annually.
A less precise estimate says that New York state loses $10 billion per year in taxes that should have been paid, he said.
“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,” said Johnson.
“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.”