Ottumwa man pleads guilty to tax charges in connection with Ponzi scheme. Known to TV viewers of a certain age as the home of Radar O’Reilly, Ottumwa, Iowa now also has its own Ponzi scam. CBSNews.com reports:
An Ottumwa, Iowa investment manager is likely heading to prison after pleading guilty to charges of wire fraud and tax evasion stemming from a $1.1 million Ponzi scheme.
John Francis Holtsinger pleaded guilty Friday during a hearing in federal court in Des Moines as part of a plea agreement with prosecutors.
The plea deal says that Mr. Holtsinger told people that he would invest their money, and he instead spent most of it. On what? Things that might be sold to recover funds for the investors? The indictment doesn’t offer much hope for recovery (my emphasis):
Of the $493,000 in funds received from investors, only $155,000 was transferred to an investment account at Interactive Brokers. The remainder was deposited into accounts controlled by Holtsinger and used by him to further his scheme and for his personal use including, but not limited to, legal expenses, cas withdrawals, payment of living expenses, trips, accessing web-based “dating” sites, and other purposes different than he represented to investors.
Interesting scare quotes around “dating.” In any case, it’s not an investment likely to produce anything that his victims would want.
The indictment and plea deal together show that there were warnings to his investors. He wasn’t a registered investment advisor, for starters. And this from the indictment should have triggered BS detectors:
After conducting trades on behalf of investors for a short period of time, Holtsinger offered and sold investments to the investors in the form of promissory notes. He represented that the notes would yield high returns with no risk including, but not limited to, what he called an “inheritance investment” that would be invested through his mother and pay out upon her death. The “inheritance investment” required a $20,000 deposit and was to pay annual returns of 9% with automatic liquidation and payout if the investment dropped below 3% of its initial value.
The “high returns with no risk” fairy is the Tax Fairy’s evil twin sister. When she shows up, it’s time to back away quickly from whoever brings her into the room. Other red flags:
– When he couldn’t come up with cash, he came up with excuses, like “informing investors… that their funds had been frozen as a result of actions taken by state or federal authorities.”
– After learning he was being investigated, “…he attempted to convince investors to lie to law enforcement and under oath regarding the purpose of the funds they had given to him. The defendant instructed these individuals to describe their payments to him as ‘interest-free loans,’ when in reality they were investments. The defendant also threatened that anyone who cooperated with law enforcement would not be repaid.”
Unfortunately, the not getting repaid part was already true. The plea deal says that Mr. Holtsinger faces a four-to-seven year sentence.
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As long as the foreign contractor is not a U.S. person and the services are wholly performed outside the U.S., then no Form 1099 is required and no withholding is required.
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