Michael A. Vallone convicted of participating in a nearly decade-long scheme to market and sell sham domestic and foreign trusts

Michael A. Vallone of Orland Park, Ill., was one of the founders and the executive director of The Aegis Company, now defunct and formerly based in south suburban Palos Hills, which marketed and sold trust packages to some 650 wealthy taxpayer clients throughout the United States. Vallone and five co-defendants were convicted in May of participating in a nearly decade-long scheme to market and sell sham domestic and foreign trusts through a network of promoters, sub-promoters, managers, attorneys and accountants. Vallone and the others essentially diverted income from businesses into sham trusts for clients, hiding hundreds of millions of dollars in income for those clients and resulting in a $60 million tax loss to the United States, making the case one of the largest of its kind, according to Nathan J. Hochman, Assistant Attorney General for the Justice Department's Tax Division; Patrick J. Fitzgerald, U.S. Attorney for the Northern District of Illinois; Eileen Mayer, Chief of the Internal Revenue Service Criminal Investigation Division (IRS-CI); and Alvin Patton, Special Agent-in-Charge of the IRS-CI in Chicago.
U.S. District Judge Charles Norgle sentenced Vallone to serve 223 months in prison, followed by three years of supervised release. The judge will rule later on the government's request for forfeiture of more than $4 million, his home and off-shore bank accounts, as well as of the costs of prosecution. Vallone also remains liable for any taxes, penalties and interest owed. In addition to tax fraud conspiracy, Vallone was found guilty of and sentenced on 24 counts of aiding and assisting the filing of false tax returns, three counts of personal income tax evasion, seven counts of mail fraud and two counts of wire fraud.
"Today's sentence sends a powerful and unequivocal message to those who seek to evade and help others evade their taxes, that they will be investigated, prosecuted, convicted, and sent to prison for years," said Assistant Attorney General Hochman.
"There are numerous variations on abusive trust schemes, but in general, promoters say the trusts are designed to shift income and assets into vehicles that are either not subject to U.S. taxes or will make it impossible for authorities to trace," said IRS-CI Chief Mayer. "However, the financial investigative efforts of IRS special agents continue to unmask these abusive financial transactions for what they really are -- methods of tax evasion."
"IRS nationwide has ongoing criminal and civil investigations of abusive trust tax fraud schemes involving both promoters and purchasers. Establishing abusive trusts for the purpose of evading taxes is a crime and one of the worst abuses of our nation's tax system. Today's sentence sends a clear message that there are serious consequences for those who engage in these abusive tax schemes," said Special Agent-in-Charge Patton of the IRS-CI in Chicago.
Vallone and his co-defendants were convicted following an 11-week trial. The defendants were indicted in 2004, following a lengthy undercover investigation by IRS agents, code-named "Operation Trust Me," and the seizure of approximately 1.5 million documents, computer files and related materials. Nationwide, the Chicago-based investigation has resulted in convictions of more than 30 defendants and charges against approximately 30 other defendants around the country, including in Florida, Illinois, New York, Ohio and West Virginia.
All six defendants were found guilty of one count of tax fraud conspiracy -- specifically, conspiracy to defraud the United States by impeding the IRS in the collection of tax revenue and conspiracy to aid and assist the preparation and filing of false tax returns on behalf of Aegis clients. All six defendants were also found guilty of additional tax offenses, while two of the six were also acquitted on some counts. Sentencing for the remaining defendants will take place at various times in October and November. The other defendants are: Edward B. Bartoli of Clearwater, Fla., a former attorney, who was also one of the founders of Aegis, and its legal director; Robert W. Hopper of Gadsden, Ala., also one of the founders of Aegis and the managing director; Timothy Shawn Dunn of Chesterton, Ind., a certified financial planner, who was a promoter and manager of Aegis trusts, and the managing director of the Aegis Management Company, which he created with Vallone, Bartoli and Hopper; William S. Cover of Naperville, Ill., also a promoter and manager of Aegis trusts, and the president of Sigma Resource Management Inc., which provided management services to purchasers of Aegis trusts; and Michael T. Dowd of Glenview, Ill., also a promoter and manager of Aegis trusts who provided management services to purchasers of Aegis trusts through Aegis and Sigma Resource Management Inc.
Two other defendants in this case, David E. Parker of Williamsville, N.Y., an attorney who was the legal director of the Aegis Management Company, and John C. Stambulis of Palos Heights, Ill., an attorney and a trust counsel of Aegis, both pleaded guilty and testified for the government at trial. They are also awaiting sentencing.