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Software billionaire accused of hiding $2bn in income from IRS – potentially the largest tax scam in US history
CEO charged with tax evasion, wire fraud, money laundering, etc
The US Justice Department on Thursday charged billionaire software tycoon Robert Brockman with tax evasion, wire fraud, money laundering, and other offenses.
Brockman, 72, of Houston, Texas, and Pitkin County, Colorado, is the CEO of auto-dealership software maker Reynolds & Reynolds. He is alleged to have participated in a two-decade-long scheme to hide $2bn in income from the US Internal Revenue Service (IRS). The prosecution is said to be the largest individual tax case in US history.
"As alleged, Mr Brockman is responsible for carrying out an approximately two billion dollar tax evasion scheme,” said Jim Lee, Chief of Criminal Investigation for the IRS, in a statement.
“IRS Criminal Investigation aggressively pursues tax cheats domestically and abroad. No scheme is too complex or sophisticated for our investigators. Those hiding income or assets offshore are encouraged to come forward and voluntarily disclose their holdings."
Nonetheless, data suggests IRS scrutiny of the wealthy is disproportionately low. ProPublica last year reported that in 2018 millionaires were roughly 80 per cent less likely to be audited than they were in 2011.
Architect of tech contractor tax fraud scheme jailed for at least five yearsREAD MORE
Brockman, a former IBM salesperson who later founded Universal Computer Services, Inc, which subsequently merged with Reynolds & Reynolds, is said to have tried to conceal income earned from investments in a private equities fund from tax authorities. He is also accused of fraudulently obtaining about $67.8m in debt securities.
According to the government's indictment [PDF], Brockman created a complex network of offshore companies and trusts to conceal his income and designated various individuals to oversee these entities. To communicate with these people, he "created and used a proprietary, encrypted email system," and used a series of angling-oriented code names – he was "Permit" or "Permit1" and his associates had names like "Redfish," "King," "Bonefish," "Snapper," and "Steelhead." It's claimed he referred to the IRS in these encrypted messages as "the house."
Concerned about being caught, he is said to have directed one of his associates to purchase a software program called "Evidence Eliminator."
The indictment also alleges that Brockman went so far as to store old reams of paper for copy machines and laser printers in order to create more convincing backdated documents.
“[W]e need to also remember that all copy machine/laser printer paper has encoded into it the manufacturer of that paper as well as the year and month of manufacture," he said, according to the indictment. "For that reason I always set aside some packets of copy paper with dates on them – for potential future use.”
Around 2016, the indictment claims, Brockman came to believe that one of the companies involved in the alleged scheme would be subject to scrutiny by US authorities and began trying to obstruct investigators by destroying evidence that might link him to Point Investment, Ltd, and a network of other entities. He or his associates, it's claimed, destroyed documents with shredders and smashed electronic media with hammers to destroy data.
Efforts to conceal the alleged scheme appear to have been undone by the testimony of a cooperating witness. In a news conference on Thursday, David Anderson, US attorney for the Northern District of California, revealed that the case against Brockman is supported by the assistance of Robert Smith, the founder of Vista Equity Partners, a San Francisco-based investment firm that is said to have helped Brockman move money around. Smith has entered into a non-prosecution agreement with the government.
Brockman on Thursday pleaded not guilty on all counts and has been released on a $1m bond. Reynolds & Reynolds insists it's not involved in the case.
"The allegations made by the Department of Justice focus on activities Robert Brockman engaged in outside of his professional responsibilities with Reynolds & Reynolds," a spokesperson for Reynolds & Reynolds said in response to an inquiry from The Register. "The company is not alleged to have engaged in any wrongdoing, and we are confident in the integrity and strength of our business."
The Register understands that Brockman is working with external legal counsel and continues to serve as CEO of Reynolds & Reynolds. ®