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Tax-Evasion Case Moved to Territory

July 6, 2007 — A Southern Illinois district court judge has ordered the trial of accused tax evaders to take place in the Virgin Islands, officials said Friday.
Because most of the witnesses in the tax-evasion trial are from the territory, it made sense to move the case there, said attorneys for Illinois car dealer James A. Auffenberg Jr. Judge Michael J. Reagan issued the order July 5. (See “Accused Tax Evader Wants St. Louis Case Moved to Territory.”)
Auffenberg, 56, is accused of illegally avoiding more than $74 million in taxes from 1999 to 2002 by joining a St. Croix Economic Development Commission (EDC) company, Kapok Management, L.P., as a partner and shipping money to the islands.
Kapok officials — Peter G. Fagan of De Leon, Texas, James W. Ferguson III of Amarillo, Texas, and J. David Jackson of St. Croix — are accused of using the St. Croix-based company as a tool for mainland business owners to avoid taxes in their states.
The men were indicted in March on 21 counts of conspiracy; income-tax evasion; filing, aiding and assisting in the filing of false individual and corporate income-tax returns; and wire fraud.
The indictment claims Kapok, which receives tax incentives under the EDC program, helped Auffenberg get 90-percent tax breaks on more than $300 million in revenue generated by Auffenberg's mainland companies.
In return, Kapok kept five percent of Auffenberg's money in exchange for bogus management fees, the indictment said.
Auffenberg runs at least two car dealerships in Southern Illinois. He also serves on the board of directors of the United Way of Greater St. Louis.
If convicted, the defendants face the following maximum potential sentences: On the conspiracy charge, five years imprisonment followed by up to three years supervised release and a $250,000 fine; on each income-tax-evasion charge, five years imprisonment, followed by up to three years supervised release, a $250,000 fine and costs of prosecution; on each false income-tax-return charge, three years imprisonment, followed by up to three years supervised release, a $250,000 fine and costs of prosecution; and, on the wire-fraud charge, five years imprisonment followed by up to three years supervised release and a fine of up to $32,475,285.
It was the second indictment against Kapok partners.
Insurance salesman Gary J. Payne pleaded guilty to tax fraud in 2004 after claiming EDC tax credits on money generated in Massachusetts. He also never lived in the islands full time.
Widespread media coverage of the Payne debacle prompted Congress to tighten the economic-development program, imposing strict rules.
V.I. lawmakers — most notably Delegate Donna M. Christensen — still hope to loosen those new rules to dissuade misuse of the program without scaring off investors.
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