September 3, 2014

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Take in alleged tax fraud reportedly $3 million

LORAIN — The amount of money that Lorain tax consultant and financial planner Richard Zakarian is suspected of bilking his clients out of is growing larger as the investigation into his business practices continues.

“Based upon what we’ve heard, I think it’s fair to say it’s going to be several million dollars,” Lorain County Prosecutor Dennis Will said Tuesday.

Will said his office has fielded roughly 25 calls from Zakarian’s clients in the past month. Although most of the complaints leveled against the jailed Zakarian are still being investigated, he already has been charged in connection with three theft cases.

Anthony Giardini, the attorney for Spitzer Management Inc. who alerted Will’s offices to his suspicions that Zakarian wasn’t making payments to the U.S. Internal Revenue Service or the state on behalf of Spitzer, said he’s received calls from more than a dozen potential victims since he sued Zakarian in August.

He estimated that Zakarian, 47, has stolen more than $3 million from clients spread across the county ranging from businesses and nonprofit community groups to churches and individual investors.

The lawsuits and criminal complaints filed against Zakarian, whose billboards advertising his services once featured him appearing to use a dynamite detonator, so far have accused him of three different types of schemes and Giardini said other victims he’s spoken to have been the targets of the same tactics.

He said eight other victims have hired him to pursue Zakarian. Including what Zakarian allegedly stole from Spitzer, Giardini estimated his clients alone have lost a combined $1.2 million.

Kristina Supler, an attorney who until earlier this month represented Zakarian in the Spitzer lawsuit, has previously said her client intends to address the allegations against him. She said Tuesday that she still represented Zakarian in his criminal cases, but declined additional comment.

Follow the money

Exactly where the money Zakarian is accused of stealing went remains a question that Giardini and Zakarian’s clients very much want to answer.

Giardini said he’s found about $50,000 in local bank accounts so far, but that’s nowhere near enough to cover what Zakarian is accused of stealing from his clients, who could ultimately be held responsible by the IRS for paying off the money Zakarian was supposed to forward to the government.

Giardini said he’s learned that over the past two years or so Zakarian has invested upward of $3 million in the commodities market in Chicago through a brokerage firm there. Giardini said he doesn’t know if Zakarian gambled on commodities and lost or hit it big and stashed the money someplace where it couldn’t be found.

But whatever happened in Chicago, Giardini said there’s no doubt that Zakarian was deliberately misusing his clients’ money for his own ends.

He said he doesn’t know if Zakarian planned to use a Bernie Madoff-style Ponzi scheme to pay off some clients with money belonging to other clients or if he planned to take his ill-gotten gains and flee the country.

“It could be the exit strategy was to squirrel away as much money as you can and get out of Dodge before they catch you,” Giardini said.

Corporate clients

Spitzer, by far the client who has claimed the largest loss of any of the victims whose identities are publicly known, is a prime example of how Zakarian allegedly ripped off companies who hired him to provide payroll and tax services.

According to Spitzer’s lawsuit, Zakarian’s firm, Benjamin Franklin Tax Service, was hired by Spitzer to handle the payroll and tax withholdings of the company. That was supposed to consist of Zakarian filing paperwork with the IRS and then using money provided by Spitzer to cover tax liabilities.

Giardini said Zakarian made the best offer to provide those services, and the company’s then-chief financial officer made a reasonable decision to hire Zakarian’s firm.

Between July 2011 and June 2012, the lawsuit contends, Spitzer gave Zakarian $753,831 to pay taxes to the IRS and the Ohio Department of Taxation. Of that money, $567,130 was supposed to go to the IRS with another roughly $186,000 destined for the state treasury.

But according to the lawsuit, Zakarian only made deposits totaling $24,456 with the IRS during that time. Giardini said Tuesday that he is waiting to see whether there’s any truth to a claim that Zakarian may have made another payment of approximately $200,000 to the IRS on Spitzer’s behalf.

That would cut the tax liability of Spitzer and its employees to around $500,000, he said.

Giardini said Zakarian appears to have relied on a gap in the IRS’s fraud detection system to steal. Had Zakarian filed the proper paperwork with the IRS detailing Spitzer’s tax obligations and not paid the money, it would have come to light quickly.

But because Zakarian didn’t file the paperwork — although Giardini said the tax consultant completed the paperwork and gave copies to his victims — it took the IRS about a year to catch on.

Once the missing money came to Spitzer’s attention, Zakarian’s attorneys offered to repay the company, but Giardini said he didn’t trust the offer and told that to Spitzer Chairman and CEO Alan Spitzer.

“I said, ‘I believe deep in my heart if he does pay us it will be with someone else’s money,’ ” Giardini said.

Rather than let Zakarian “rob Peter to pay Paul,” Giardini said he went to Will’s office, which launched the current investigation.

Zakarian was quickly indicted for the alleged theft from Spitzer and already is facing another theft charge for allegedly stealing $20,198 from Pallens Auto Concepts in Lorain.

Tom and Jack’s Lounge, a Wooster restaurant, filed a lawsuit Tuesday accusing Zakarian of failing to file tax documents and pay at least $160,456 due to the government. The restaurant first hired Benjamin Franklin Tax Service in September 2011, according to the lawsuit.

Nonprofits

While companies were offered low prices to hire Benjamin Franklin Tax Service, Zakarian was giving away his services to nonprofits, according to Giardini.

In a lawsuit filed last week, attorneys for Pooh County Day Nursery School wrote that Mark Douglas, an account executive with Zakarian’s firm, told school officials the nonprofit might be eligible for a grant to provide payroll, tax and accounting services.

The school was informed in an Oct. 21, 2010, letter, which identifies Zakarian as the executive director of the Benjamin Franklin Foundation, that it had been awarded a $3,360 grant to cover two years’ worth of services that would be provided by Ben Franklin Payroll Services.

Over an 18-month period, the lawsuit said, Zakarian’s company withdrew more than $117,000 from the school’s accounts to cover taxes that were never paid.

Zakarian was running a charity, according to documents filed with the Ohio Secretary of State’s Office.

Zakarian Charities was formed “to give back to the community and to do for the officers and give scholarships and training to those in need,” according to the purpose clause attached to its articles of incorporation filed in April 2007.

But the charity’s certificate was canceled on June 27, 2012, because it failed to file a statement of continued existence, according to state records.

Another nonprofit, Animal Charity Humane Society in Youngstown, has filed a report with Lorain police accusing Zakarian of not paying its payroll and unemployment taxes. That nonprofit gave Zakarian’s firm $62,059, according to the police report.

Giardini said some of his clients, whom he said he plans to formally add to Spitzer’s lawsuit against Zakarian later this week, are nonprofits whom Zakarian’s firm solicited with what ended up being fraudulent grants.

“Obviously, there were no such grants and if there were, he was paying for them himself,” he said.

Investors

The third set of clients Zakarian is accused of stealing from is investors who turned over cash for him to invest in his capacity as a financial planner.

Zakarian was indicted on a theft charge last week for allegedly taking about $14,000 that a client believed had been invested in an individual retirement account. According to prosecutors, Zakarian went so far as to give the man fake paperwork showing the money had been invested.

Giardini said he’s heard from two or three investors who have similar stories, although he doesn’t represent them.

Zakarian also is named as a defendant in a divorce filed earlier this year in Lorain County Domestic Relations Court between another couple because his firm handled an investment for the family.

“It appears that my client’s husband rolled over $15,000 to Zakarian to invest in what would be an IRA and stock was purchased,” Allen Spike, the attorney representing the wife in the case, said.

According to court documents, Zakarian is currently barred from distributing the money from that investment, although Spike said Zakarian’s company has offered to pay back the money.

He said he’s not intimately familiar with the details of the investment, but something about it strikes him as suspicious.

“Something doesn’t smell right,” he said.

Contact Brad Dicken at 329-7147 or bdicken@chroniclet.com.