Tailor Mohanbhai “Mohan” Ramchandani and his business corporation, Mohan’s Custom Tailors, Inc., pled guilty to felony charges related to a ten-year scheme to evade payment of New York sales and income taxes.
Mohan will pay $5.5 million to settle separately filed civil claims that were first raised by a whistleblower under New York State’s False Claims Act.
The whistleblower was represented by Stephen Weiss of Seeger Weiss in New York.
The whistleblower case was filed in September 2012.
“Mohan perpetrated a sophisticated tax fraud for over ten years that cost New York’s taxpayers and the state treasury millions of dollars,” said Mr. Weiss. “Today’s settlement demonstrates how necessary and effective whistleblower laws are in uncovering small business fraud that may be known and visible only to company insiders,” added Mr. Weiss. “We should all be grateful to whistleblowers like my client, who risk their reputations and wellbeing to do the right thing and bring wrongdoers like Mohan to justice.”
Under the relator award provisions of New York’s False Claims Act, the relator will receive a $1.1 million whistleblower reward.
Mohan, 66, owns and operates Mohan’s Custom Tailors, a men’s custom clothing business on East 42nd Street in Manhattan that markets itself as outfitting celebrities and sports stars.
Mohan faces up to three years in prison.
Attorney General Eric Schneiderman’s investigation revealed that since at least 2002, Mohan and his business knowingly failed to pay at least $1.7 million in state and local sales taxes that they nevertheless charged to customers. In addition, for tax years 2007, 2008 and 2009, Mohan knowingly failed to pay at least $256,000 in state and local personal income taxes.
“There are no excuses for tax cheats – regardless of how prominent they are. Mr. Ramchandani’s conviction for orchestrating this multi-million dollar scheme to defraud taxpayers sends a clear message that those who rip off the public will be held accountable for their crimes,” said Attorney General Schneiderman. “Honest citizens are harmed by people who break the law to avoid paying their fair share, making it harder for New York State to provide essential services. This office will continue to bring aggressive action against tax evaders who believe they are above the law.”
Schneiderman’s office investigated the claims of a whistleblower with credible insider information about Mohan and Mohan’s Custom Tailors’ illegal tax practices.
As set forth in the Attorney General’s civil complaint, filed today, one indicator that Mohan was falsifying his sales taxes was his consistent use of numbers on his tax forms that he manipulated to be consistent with his belief in numerology, resulting in his reporting of figures with a level of consistency that could not have occurred by chance.
When he reported a tax number, he made sure the individual digits added up to a multiple of ten.
Thus, in one quarter he manipulated the figure for sales tax due so it appeared to be $13,484, and 1+3+4+8+4 equals 20, which is a multiple of 10.
Mohan repeated this type of manipulation for nearly all of his quarterly sales tax filings.
As part of the pleas, Mohan made a detailed and lengthy confession, admitting that with intent to defraud New York State and the Department of Taxation and Finance, he and his business willfully and knowingly failed to pay nearly $2 million in sales and income taxes.
Mohan admitted that between September 2002 and June 2012, although Mohan’s Custom Tailors made at least $28,046,064 million in taxable retail sales, Mohan fraudulently reported only $5,674,738 in retail sales on the tax returns.
In exchange for his guilty plea, Mohan will be sentenced to a prison term of one to three years.
He and his business must pay $5.5 million dollars in damages and penalties as part of the settlement of the Attorney General’s civil False Claims Act action.
This multi-million dollar civil settlement marks the first time that the False Claims Act has been used in resolving a tax case.
The law requires defendants to pay treble damages and civil penalties if found liable.
New York’s False Claims Act was strengthened in 2010 by amendments authored by Attorney General Schneiderman when he was a State Senator, and one of these changes was to allow whistleblowers to come forward with claims about substantial violations of the tax laws.
Early in his term, Attorney General Schneiderman created the Taxpayer Protection Bureau to fight fraud against the government and handle cases under the False Claims Act.
The False Claims Act entitles whistleblowers who report fraud against the government to a share of the recovery.
“In 2010 Eric Schneiderman authored and passed the only False Claims Act in the nation that expressly allows for whistleblowers to sue big ticket tax cheats on behalf of the government, and to be protected and rewarded for coming forward,” said Neil Getnick, Chairman of Taxpayers Against Fraud, a nonprofit advocacy group for whistleblowers. “This case has national importance because it conclusively shows that such a law, along with aggressive enforcement methods and an openness to working with whistleblowers, works and benefits taxpayers.”
In an interview in December 2012 with Corporate Crime Reporter, Gregory Krakower, a special assistant to Schneiderman, explained how the law came about.
“Whistleblowers have been so effective in fighting Medicaid fraud and defense contracting fraud and fraud against educational programs under the False Claims Act,” Krakower told Corporate Crime Reporter. “So we thought – why a loophole for tax cheats? It was something we thought we could fix.”
“The False Claims Act is universally accepted as the most effective tool governments have in fighting fraud. So, why keep this loophole?”
“We all wanted to close this loophole. And it was closed.”