Lorain tax consultant Richard Zakarian was charged Tuesday in federal court with mail and wire fraud for allegedly bilking more than $4.4 million from about 100 clients and investors in schemes dating back more than a decade.
The federal charges against Zakarian, 47, came in the form of a charging document typically used when a defendant is likely to enter a plea in a case.
Mike Tobin, spokesman for U.S. Attorney for Northern Ohio Steven Dettelbach, said the case remains under investigation.
Zakarian’s attorney, Charles Northcutt III, did not return calls seeking comment Tuesday.
Even before the federal charges came down, Zakarian was facing theft charges and lawsuits in Lorain County for allegedly stealing from his clients, which included private investors, businesses, charities and churches.
“Zakarian orchestrated multiple financial schemes that all had one common thread, monetary benefit to him,” FBI Special Agent in Charge Stephen Anthony, who heads the FBI’s Cleveland office, said in a statement.
Zakarian, who has been jailed since last summer, also is charged with filing fraudulent tax returns.
According to prosecutors and attorneys familiar with the case, the money Zakarian allegedly stole is long gone, spent on personal and business expenses and risky investments that failed to pay off for the certified financial planner or his clients.
The charging document, known as an information, lays out two separate schemes prosecutors contend Zakarian used to steal.
Between 2010 and August 2012, Zakarian allegedly took more than $3 million from at least 72 business and nonprofit clients whose payroll and tax services he was supposed to be handling.
He also is accused of defrauding 23 individual investors of more than $1 million since 2002. They also didn’t get the hundreds of thousands of dollars Zakarian had promised they would see as a return on their investments.
Zakarian allegedly launched his scheme to defraud those who invested with him in late 2002, convincing a friend to invest his retirement into an expansion of Zakarian’s tax business.
As time went on, Zakarian allegedly expanded his pool of victims, targeting friends and their relatives, a person he met at a real estate seminar and someone who responded to one of his formerly prominent billboards. But his primary victims were those whose tax returns he prepared.
“Zakarian selected tax preparation clients who he knew, from their tax information and his interactions with them, were financially unsophisticated, had available retirement funds, and/or had developed a relationship of trust in him,” the information said.
Some of the victims were retired, nearing retirement, suffered from disabilities or were out of work.
Andy Holp was among those who invested with Zakarian and ended up losing what remained of his life savings. The 69-year-old retired telephone company worker said he and his wife gave Zakarian, who had done his taxes, around $30,000 to invest.
“He convinced me I should give it to him at 12.5 percent,” Holp said. “I said, ‘Oh, that’s really high. It’s almost too good to be true.’ And it was.”
Holp said he had planned to use the investment, which his last statement from Zakarian said had grown to $34,600, to pay off his Lorain home and bills.
For the first several years of the investment scheme, prosecutors contend, Zakarian set up accounts for his clients through unnamed companies specializing in self-directed individual retirement accounts.
Zakarian controlled his clients’ IRA accounts as their representative and put their money in promissory notes he issued.
Many of his clients thought they were making investments with high return rates and didn’t realize their investments consisted of promissory notes with little or no value, according to prosecutors
In 2006, one of the IRA companies began refusing to set up new accounts for Zakarian’s clients “due to the risky nature of the promissory notes,” the information said. That company continued to operate its existing accounts for Zakarian even after it stopped taking on new clients.
In 2008, after a second IRA company he was using stopped allowing investments in personal promissory notes, Zakarian began issuing promissory notes in the name of Viewcrest Properties LLC, which prosecutors described as a shell corporation that owned no property and conducted no business.
Zakarian ceased using Viewcrest in 2009 after he fell under scrutiny by the Ohio Department of Commerce’s Division of Securities, prosecutors wrote. He promised the state that “he would stop using promissory notes for his (clients’) investments and would make efforts to return monies to his clients.”
Instead, according to the information, he began offering new IRA clients stock in Ben-Tax Inc., which he operated as Benjamin Franklin Payroll Services.
Even after he stopped offering promissory notes, Zakarian continued to maintain the illusion that the notes he’d already issued were generating profit.
When clients pressed for their money back, Zakarian resisted those efforts, but when he did pay, it was often with money from other clients, according to prosecutors.
In one instance, he paid a client through a confidential settlement agreement to avoid a fraud claim.
In spring 2010, Zakarian allegedly hatched a new scheme to defraud clients of Benjamin Franklin Payroll Services. Under that scheme, the information said, Zakarian held himself as a reputable business, but instead of paying off his clients’ tax liabilities, as he was supposed to, he kept the money for himself.
“Zakarian devised the scheme in hope of raising money to be able to pay victims of his investment fraud scheme … as well as to have additional funds for business and personal use,” the information said. “Zakarian hoped to generate large, quick profits through his high-risk short-term investments of diverted client tax monies, which he would then use to cover his operating expenses, pay his clients’ employment taxes, repay his investment clients, and have money left over.”
At first, Zakarian tried to build his clientele by offering his services to businesses for free or at cut-rate prices.
When that failed to generate enough new clients, he began soliciting churches, charities and nonprofit organizations as the executive director of the Benjamin Franklin Foundation, a charity he described as “an effort to give back to the community.”
Zakarian would require the charitable groups to apply for a two-year grant giving them free payroll and tax services. The grant scheme succeeded, according to prosecutors.
“Many of the organizations he solicited were facing serious budgetary difficulties because of the economy, making them vulnerable to the appeal of substantial cost savings,” the information said. “Second, unlike his extremely low-cost offers to businesses, which may have seemed suspicious to some, Zakarian’s marketing of the grant program through a purported charitable organization provided an appearance of credibility.”
But whether it was a business or a non-profit client, Zakarian allegedly didn’t forward most of the money he took to the appropriate tax authority, although he had his staff send paperwork to clients indicating the taxes had been paid.
Sometimes clients caught on to the problems with their tax liabilities or noticed errors with employee paychecks. Zakarian explained away those as “clerical errors or oversights,” according to prosecutors.
Of the victims who lost a combined $3 million through that scheme, at least 43 were private businesses and at least 29 were nonprofits such as St. Paul’s Center, a Rensselaer, N.Y., homeless shelter for mothers and their children.
David Rossetti, the shelter’s executive director, said that for his small organization, which has 15 employees and an annual budget of about $600,000, the loss has meant cutting back on some services. For instance, he said there are now fewer follow-up visits with families after they leave the shelter.
“Not only did he take from us, he took from a very vulnerable population,” Rossetti said Tuesday.
Even if Zakarian is convicted, it seems unlikely that any of his victims will ever see their money again.
“Zakarian consistently lost his client’s money on his investments,” the information said.
But that hasn’t stopped the victims from suing Zakarian and his businesses. He is already on the hook for the money he’s accused of stealing from several former clients.
Lord of Life Lutheran Church in Chagrin Falls, for instance, just won a court order Monday against Zakarian for $96,676 for money he was supposed to use to cover the church’s tax obligations. Zakarian, who has yet to mount a defense against any lawsuit filed against him, also was ordered to pay the church another $96,676 in punitive damages.
Anthony Giardini, the attorney representing Spitzer Management, which lost more than $500,000 to Zakarian’s alleged schemes, said Zakarian either spent the money or lost it in high-risk commodities investments.
Spitzer and 11 other Giardini clients won an order for a combined $1.4 million against Zakarian and have yet to collect
Giardini, who touched off the investigation when he brought his concerns about Zakarian to Lorain County Prosecutor Dennis Will last year, said that, to date, he’s only been able to find perhaps $60,000 in Zakarian’s name.
Even worse for some of Zakarian’s alleged victims, is that they’re still liable for the taxes he was supposed to be paying.
“All of Zakarian’s victim clients had and continue to have the obligation to pay to the IRS and local taxing authorities the employment taxes fraudulently diverted by him, possibly including interest and penalties, placing some in jeopardy of financial hardship or possible insolvency,” the information said.
Rossetti said St. Paul’s is negotiating with various government agencies in an attempt to at least avoid having to pay penalties.
Giardini said he also will likely be filing additional lawsuits against the brokerage firm and other financial institutions that Zakarian used in his failed investment efforts. He said the sheer size of the trades Zakarian was making, coupled with his limited personal finances should have sent up red flags
“How does a guy with a $100,000 net worth invest and lose $3 or $4 million?” Giardini said.
Contact Brad Dicken at 329-7147 or firstname.lastname@example.org.