One more Franklin fraudster pleads guilty

Mathis enters plea deal for role in J.C. Reed & Co. debacle; counsel says firm's late founder was 'architect' of scheme
Apr 12, 2010 2:51 PM

Financial fraudsters' fruitless appeals

Convicted conmen Gordon Grigg and Barry Stokes have both been denied an early release by District Court judges Aleta Trauger and Robert Echols. James Nix has the details.
Mar 23, 2010 8:33 AM

Tax tips for Ponzi victims

A press release this morning from the Tennessee Society of CPAs has unfortunately widespread relevance in the Nashville area. The accountants' trade group wants victims of Ponzi schemes and similar financial frauds to know they can get some relief under the federal tax code. Locally, investors who lost money with J.C. Reed, Hanover Corp., Gordon Grigg and other alleged scam artists may be able to deduct some of their losses:

The name Bernard Madoff will forever be associated with investment fraud. Unfortunately, however, Madoff is not the only bad apple involved in handling the money of trusting investors. With the softening in the stock market, many fraudulent investment schemes across the country have come tumbling down like a house of cards. If you have fallen victim to one of these schemes, the Tennessee Society of CPAs advises that you may qualify for tax relief on your losses in an investment scam.

Fraud victims may never recover most of the money that they lose from a con artist like Madoff, but they may be able to lower their tax burden as a result of their loss by using an optional safe harbor method for computing and reporting these losses. That's because the Internal Revenue Service announced last year that Ponzi scheme victims generally can deduct as much as 95 percent of their qualified investment, as long as they are not involved in a lawsuit to recover those losses. If they are suing for recovery, they can deduct up to 75 percent of their qualified investment. The deductible amount is reduced by any actual recovery and potential recovery claims under insurance policies or through an appeal to the Securities Investor Protection Corp. (SIPC), which reimburses victims of investment fraud, theft or failure.

Keep in mind that the tax relief does not apply to investment losses you may have incurred due to a drop in stock market prices or similar trading losses. It is aimed at fraudulent business practices, not bad investment choices. It is only in force for those who fall victim to what the IRS refers to as "specified fraudulent arrangements." In these cases, the con artist must have received cash or other property directly from the investors, falsely told the investors that the money was invested and earning income, reported income amounts to the investors that are partially or totally fictitious, stolen some or all of the investor's money, and made payments to some investors using money obtained from other unwitting investors in the scam. In other words, the fraud must essentially meet the definition of a classic Ponzi scheme, as Madoff's scam did.

You are not allowed to deduct losses unless there is some official acknowledgement that a crime may have occurred. To that end, the person or group leading the scheme must have been charged under federal or state law with fraud, embezzlement or a similar crime that would be considered a theft under the definition of theft in the Internal Revenue Code, or must have been the subject of a state or federal complaint alleging such a crime. In addition, the victims must have been unaware of the fraud. Although the scam may have gone on for a long period, taxpayers are eligible to take the deduction in the year they became aware of the fraud. That means that on the tax returns being prepared now, you can deduct losses on frauds you discovered in 2009.

An IRS ruling issued last year specifies that the fraudster need not have been convicted for a victim's losses to be deductible. Another ruling later set out the safe harbor treatment that taxpayers can opt to use in computing deductions for fraud losses.
Mar 22, 2010 11:41 AM

Fugitive politician indicted by feds

Former legislative hopeful and financial adviser, on the run with wife and nine children, now faces charges that could put him behind bars for decades
Feb 25, 2010 11:10 AM

Suspected Ponzi scheme conspirator declares bankruptcy

Individual connected to major investment scam files papers, mother questions validity of financial statement
Aug 17, 2009 7:45 AM

Ponzi schemer 'more vicious than Madoff'

Brentwood money manager who pleaded guilty back in April receives bigger sentence than guidelines called for
Aug 6, 2009 2:43 PM

Grigg guilty plea official

Brentwood Ponzi schemer to be sentenced in August
Apr 29, 2009 2:13 PM

Grigg could face eight years for Ponzi scheme

Investment adviser from Franklin admits to $4.9 million fraud that included claims of TARP involvement
Apr 23, 2009 1:44 AM

SEC goes after Franklin man for TARP-related fraud

Securities regulators accuse investment adviser of duping investors out of $6.5 million with claims involving federal bailout funds [Updated 3:11 p.m. with statement from defendants' attorney]
Jan 28, 2009 2:13 PM