Published: Sun, October 18, 2020
Economy | By

Jury indicts Texas billionaire in $2B decades-long tax fraud scheme

Jury indicts Texas billionaire in $2B decades-long tax fraud scheme

Technology executive Robert Brockman has been charged in the biggest tax evasion case in U.S. history after fellow billionaire Robert Smith turned against him to avoid prosecution himself, the Justice Department said on Thursday (Oct 15).

He set up a tangled web of charitable trusts and offshore entities to hide assets from the IRS while failing to pay taxes for 20 years, according to an indictment filed in a San Francisco federal court.

While little known on Wall Street, Mr. Brockman helped launch the career of Mr. Smith, who has become the wealthiest Black person in the USA and one of the private-equity industry's most prominent figures, thanks to his firm's high returns and unique strategy for turning around software companies - as well as his own splashy philanthropy.

To keep up the scheme, Brockman used secret, encrypted email systems to coordinate with offshore money handlers, according to the indictment.

At a press conference in San Francisco, US Attorney David Anderson said Brockman was also charged in a securities fraud scheme, after he bought and sold debt securities in his own company, "breaking a promise to investors that he would not buy or sell his own company's debt".

Along with the tax offenses, the indictment alleges that Brockman engaged in a fraudulent scheme to obtain approximately $67.8 million in the software company's debt securities.

Smith's partnership with Brockman goes back to 2000, when he used $1 billion of Brockman's seed money to start his first private equity firm. Brockman was also charged with money laundering and other crimes.

Mr. Brockman pleaded not guilty on all counts and was released on a $1 million bond after a hearing conducted remotely.

Kathryn Keneally, a lawyer for Brockman, said, "We look forward to defending him against these charges".

As the CEO of Reynolds & Reynolds, Brockman oversees one of the largest vendors of software to manage auto dealerships in the USA and overseas. The 57-year-old billionaire only escaped prosecution by cooperating in the case against Robert Brockman. Under the agreement, the Department of Justice said it would not prosecute Smith if he paid more than $139 million in taxes and penalties, abandoned $182 million in charitable deduction claims and cooperated with ongoing investigations.

The settlement puts a lid on an investigation that's been going on for at least four years into over $200 million in financial assets that Smith's Vista equity fund had set up in business entities in the Caribbean.

The founder, chairman and CEO of Vista Equity Partners, which owns Datto, has entered a non-prosecution agreement involving an worldwide tax fraud scheme. This amounted to an estimated $40 million.

That comes to about $140 million altogether, which Smith has consented to pay in exchange for a non-prosecution agreement with the Department of Justice. The Vista chief put over $200 million of his own profits into one offshore entity and used another to hide his ownership and control of the first entity, the government said Thursday.

That clean image may run into trouble due to a recent agreement with the IRS showing that Smith lied for years to avoid paying taxes.

But starting in 1999, prosecutors say, Brockman began carefully stashing money overseas and covering his tracks to avoid investigators. They said he had used income hidden from taxation to buy and renovate a $2.5 million vacation home in Sonoma, California; to buy two ski properties and a piece of commercial property in France; and to build and make improvements to a home in Colorado that was used charitably for disadvantaged children and wounded veterans.

-Laura Saunders contributed to this article.

Like this: