You Can't Cheat an Honest Man - James Walsh [69]
What was going on was that the Schwartzes really were—by just about any standard—crooks. Government investigators discovered that they’d duped two pension funds and dozens of individuals into giving them nearly $8 million. (And they may have taken even more. Investigators for the U.S. Attorney only checked records back to 1989, though several STS Acquisition investors said the scam started earlier. One problem: Many investors failed to file complaints because they were embarrassed or because they invested to avoid taxes or to launder illicit money.)
Instead of using the money to make bridge loans, the Schwartzes paid off other investors and spent on themselves. Over the three years that investigators checked, Sidney and Stuart bought several Mercedes, homes on Long Island and in Florida, fancy dresses for their wives and various other trinkets of wealth.
In May 1996, Sidney and Stuart were both named in a 50-count federal indictment accusing them of conspiracy and mail and wire fraud. Their lawyers quickly arranged a plea bargain.
The Schwartzes claimed that all of the money raised in the scheme was gone. But many investors had doubts. Their homes were in upper-middle-class neighborhoods—but they weren’t mansions. (And, because they were both mortgaged, the lenders quickly foreclosed.) Their tastes may have been nouveau riche and vulgar, but the Schwartzes didn’t spend the big money that some Ponzi perps do— on things like yachts and private jets. Neither had a gambling or drug habit to eat up the cash. So, some of the old boys at Old Westbury grumbled that Sidney and Stuart had stashed the proceeds. “I’m sure there’s money in a shoe box or a vault,” said a member who’d invested in STS Acquisition.
In July 1996, Stuart started a 43-month sentence at the federal prison in Fort Dix, New Jersey. “I think he’s contrite,” said Stuart’s courtappointed lawyer. “He’s suffered from the day he was arrested. He has lost all his friends. He’s lost his assets.”
Sidney had wrangled several medical postponements but, in August, he was sentenced by U.S. District Court Judge Arthur D. Spatt who said, “There have been few cases involving a defendant of 80 years of age—in fact I could not find any. Maybe the reason is that people, when they get to [this] age, don’t commit crimes like this.”
Federal sentencing guidelines suggested 30 to 37 months. Sidney’s lawyer pleaded for a reduction because of the old man’s age and history of a stroke and heart irregularities. Spatt noted that the guidelines allowed for reduced terms for illness but not age: “This defendant is a youthful 80 years. He played golf up to the time these occurrences took place, and while in his 70s he knowingly cheated his friends and relatives of millions.” In the end, however, the judge took pity on Sidney and sentenced him only to 18 months in jail.
At his sentencing, Sidney read a prepared statement in a halting but unemotional voice. “I must confess that I have sinned,” he said. “I have been shamed and disgraced.” He said his health problems were God’s punishment for the money he stole from friends and family.
God’s punishment for leading his childish and naive son into a major criminal enterprise would, no doubt, come later.
What Constitutes an Innocent Spouse?
If your husband or wife runs a Ponzi scheme but keeps you in the dark, will the courts hold you liable for the resulting damages? Usually not. However, the Feds may try to tax you for your significant other’s ill-gotten gains.
The IRS has practice guidelines for dealing with married couples who have big legal problems. When one of the spouses turns out to be a crook, the other will usually try to avoid responsibility for the wrongdoing by claiming protection under the innocent spouse doctrine. The twin 1992 U.S. Tax Court decisions Phyllis M. Curtis Berenbeim