Consumer Fraud

Alabama company Pays New York State $40 Million To Settle False Claims Act Tax Fraud Case

IRS tax law whistleblower Flickr 315x210 Alabama company Pays New York State $40 Million To Settle False Claims Act Tax Fraud CaseAn Alabama investment group and some of its top executives have agreed to pay New York State $40 million to settle a New York False Claims Act lawsuit brought by a whistleblower who claimed the company committed tax fraud, cheating New York out of millions of dollars in taxes.

The settlement is the largest-ever recovery of its kind since New York’s False Claims Act law was expanded to include tax claims. It resolves allegations that Birmingham-based Harbert Management Corporation, sponsor of Harbinger Capital Partners, a $26 billion New York City-based hedge fund, failed to pay millions in state taxes on performance income for several years.

When businesses operate both inside and out of New York City and State, they must apportion for tax purposes that part of their income derived from or connected with New York. The whistleblower suit alleged the Harbinger Fund and its executives owed New York for taxes between 2004 and 2009.

The $40 million settlement covers the amount of taxes owed as well as penalties and interest on millions of dollars in income that went unreported to New York State.

The fund was controlled by billionaire New York City hedge fund exec Philip Falcone who was barred by federal authorities in 2013 from participating in the securities industry for five years over allegations of securities fraud.

“Our investigation uncovered a brazen and deliberate decision to avoid paying millions in taxes owed to New York State,” said New York Attorney General Eric T. Schneiderman. “Harbert Management made a clear choice to skirt the rules and as a result, ordinary New York taxpayers were left footing the bill. On tax day, this sends a forceful reminder to businesses that if they think they can get away with tax evasion in New York, they should think again.”

The whistleblower who filed the original False Claims Act case, whose name the Attorney General’s office did not reveal, receives $8.8 million as an award for helping the state recover the taxes. New York’s False Claims Act law awards whistleblowers whose lawsuits successfully lead to a recovery for the state between 15 and 25 percent of the total amount recovered.

Source: New York Attorney General Eric. T. Schneiderman