19910208a Letter To Yamaguchi Requesting Investigation

u.s.

Department of Justice

Federal Bureau of Investigation

In Reply, Please ReIer t.o

FIle No

450 Golden Gate Avenue San Francisco, CA 94102

February B, 1991

yt Ji$-~rtL! ,( ''''''! liI.'6enhtJ/ II Mr. william T. Mc Givern

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united states Attorney Northern District of California 450 Golden Gate Avenue

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P.O. Box 36055

San Francisco, California 94102 Attn:

Mr. Michael Yamaguchi Assistant u.s. Attorney Chip Armstrong, dba Hamilton Taft and company #1 Market ~'Plaza, Spear s~et Tower San Fr~cisco, Ca 94105 Possi~e Fraud by Wirer

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Dear Mr. Me Givern: Our office is SUbmitting the following information to you for a prosecutive opinion as to 'whether a violation of Federal Law has taken place.

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The San Francisco Division first became cognizant of the existence of Hamilton Taft and Company in August of 1988 when I ~as interviewed at our office. I I was the co-founder of Hamilton Taft and the other founder was one, I I who founded the company in ,1979. For your information r Hamilton Taft is a service company which provides. a tax paying service on behalf of their clients. Hamilton Taft and Company collects money from their ~us clients and in turn pays their clients various feder~, state~ and local income Addressee 1 - 196A-2868 1 -

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taxes. Unemployment taxes and other various tax liabilities are also paid by Hamilton Taft. When a company becomes a client of Hamilton Taft, it notifies Hamilton of the companies payroll dates, pertinent payroll information, the state in which the

company is required to pay taxes and the type of taxes which need to be paid and on what dates. Hamilton collects monies from these various clients and in turn pays the clients tax obligation whether they be local, county, state and/or federal income taxes, unemployment taxes and/or other tax liabilities. b7C I I advised that when a client company enrolls with Hamilton Taft, the company notifies Hamilton of its payroll dates, pertinent payroll information the state in which the company is required to pay taxes and the type of taxes which need to be paid. The company then remits to Hamilton Taft on a timely basis its payroll tax liability. The client company will also remit funds to Hamilton Taft which would be used to pay the aforernentionedtax liabilities. Historically the funds were either wired to a Hamilton Taft Impound Account each time a payroll is paid by the company or Hamilton Taft gains access to the companies account by a depository transfer check. Hamilton Taft was also responsible for filing all

applicable federal, state, county and local tax filing

information on behalf of its client and pay their various taxes as they become due for the service Hamilton Taft charges its clients a fee based on the number of times a client renders a payroll and the number of areas taxing agencies which have to be ultimately paid. Hamilton Taft also receives the interest in which it can generate on the funds its clients deposit with it. All this information is revealed to the client prior to a contract being entered into by the client and Hamilton Taft. This is also done orally by Hamilton Taft's sales representatives.

As Hamilton Taft grew, the company became concerned with what its liability may be with the funds they were collecting on behalf of their clients. Because of this internal concern in 1981, the firm contacted Baker and McKenzie Attorney's at Law, 555 California street, San Francisco, California, 94104 and requested that this firm provide Hamilton with an opinion of the characterization of the funds it was holding on behalf of its clients for tax payments. On October 29, 1981, Baker and McKenzie issued an opinion that basically stated that at the time a payroll is rendered, that is paid by the employer, the funds representing the withheld taxes belong to the federal government. The employer becomes a trustee for those funds and as such the duties and responsibilities of a trustee are mandated under common law. 2

In addition various state and federal law mandates how a trustee needs to act in his capacity as a trustee. "'.

Although Hamilton Taft is not the employer but an independent agent, it was the opinion of Baker and McKenzie that the funds are still trust funds and the holder of these funds (Hamilton Taft) still bears the responsibility of a trustee.

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When interviewed by the Federal Bureau of Investigation ~~ ~ I I went so far as to stat,e that some <:i::i:::individuals representing clients have stated that the collected j.~;.;.~ funds need to be put in a bank account separate from other funds ~ ."~ ~ of that particular entity. In addition~ during his tenure at ~ "'~~, Hamil ton Taft, Hamil ton ,Taft considered themselves to be trustees "'-t..it ~i , for those funds on behalf of the various taxing agencies. :L:"t>:;; . ~ "~ i.' (FBI)

in August of 1988,

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By way of background information, stated that in August of 1984, Hamilton Taft was sold to the Cigna.Corporation the large insurance conglomerate out of Philadelphia, Pennsylvania and Hartford, Connecticut. At that time, Hamilton Taft had approximately 900 corporate clients and was -handling on '"a daily basis, approximately $100,000,000 in client deposits.

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According to a personality conflict developed between himself and one formally Executive Vice President of cigna Corporat~on W 0 was placed by that corporation as the person in charge of Hamilton Taft's operation. Because of landl lonel I tbe persynality differences be~enl Jwas appointed as President of Hamilton Taft.

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Shortly after leaving ,Hamilton Taft in the latter half~\ of 19~5,1 ,1stated he became aware th. at Hamilton Taft stc;rted 1 to lose approx1mately $100,000 per month. He noted that whlle he (. was President of Hamilton Taft, that the company although not highly profitable, was able to stay in a slight profit position. He understands that Hamilton Taft hired another President but'the company continued to lose, money in C.igna and soon thereafter began to look for a buyer for Hamilton "Taft. In December of 1987, Maxphrama Incorporated of Dallas, Texas paid $500,000 to Cigna Corporation as a down payment for the purchase of Hamilton Taft.

On February 29, 1988, Maxphrama Incorporated completed 'its

purchase of Hamilton Taft from Cigna Corporation.

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____~'also stated to onel I former Executive Vice President in charge of operations for Hamilton Taft provided him with the foregoing information. r--1allegedly toldl Ion February 27,1988 that~ I ~iml ! transfer $5,000,000 by wire transfer to a brokerage house in New brl~ans, Louisiana called the Howard Wiel Labluisse Friedricke Investment Security Incorporated. Al1eqediy~toldl I that this wire transfer was td'"purchase a Treasury B111 at 5 1/2% interest. r I allegedly asked Iwhy she was purchasing a Treasury" Birr--

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with such a short yield period,

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the $5,000,000 was exclusive~stomer funds which were put on deposit with Hamilton Taft. ~told' ~that at the time the transfer was made, Hamilton Taft did not have any funds of its own. ~__I noted that the form 8-K report which,. was filed in -'-'. the Securities Exchange Commission (SEC) by Maxphrama for the purchase of Hamilton Taft, Maxphrama states it has used a $5,000,000 Treasury Bill to secure a promissory note which funds

were used to conclude the ~urchase of Hamilton Taft from Cigna Corporation. According tal Itold him that these funds had been transferred to th~s brokerage firm from customer funds in the custody of Hamilton Taft. According toL' . ~ also advised thatl Ihad directed him to wire transfer $50,000 in an unrelated transaction. J

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In order to assist you in preventing your opinion from fs a historical point of view~ Yle are enclosing a copy of the actual r ~I~ FD-302 noting interview Of, with appropriate copies of -J /~'~ '1\ documents provided byl to our agent. --/-t

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was also interviewed in December of 1988. I~--:===~Ih~a~d~b~e~e~n~hiired by Hamilton Taft as TreasurerManager of the firm. I I is a Certified Public Accountant (CPA) having become a CPA in the state of ta~;f:rnia I Ibasically stated that shortly after became President of Hamilton Taft, she told him t a sewall e making the day to day investment decisions regarding the funds of Hamilton Taft. She instructed him not to make any investment b7C unless she okayed them. He explained to her that any monies collected from the clients only had a two or three day "window" during which they could be invested prior to having to be paid to taxing entities. Thereafter, all investments he made, other than

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into commercial paper, were done at the direction

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~would assist in the preparation of the monthly financial statements for Hamilton Taft. Each month a meeting would be held to discuss a just completed financial statement for the previous month. At the close of such a meeting in April, 1988, after the close of the April financial statements,l lstated that he had a conversation with in her office. During this conversation was bragging on the financial strength of Maxphrama an ow axphrama was in the process of purchasing C & H Nationwide Incorporated, a specialized trucking company. Apparently, in order to sUbstanti~te herr statements and the strength of Maxphrama, she showedL _ the Hamilton financial statement which listed Hamilton Taft's assets in excess of 30,000,000. financial picture was quite different than the financial statements which he had prepared for Hamilton from the month of April, 1988. J3i{))~. x ~~'lJJ~~ l~.~'~~~~'~;} - , :~: ~~'J~t::1JDL~~~ ~/~:.~~,

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lin looking at the financial showed him that someone had taken the April, 1988 financ~a statements of Hamilton and re-did them. The financial statement prepared for Hamilton Taft showed its reta)U:d earnt'ngs at approximately $200,000. , Istated he toldL _ . during this conversation that he thought the financ~al statements which she had showed him for Hamilton Taft were a fabrication and not rl:prese:ta~ive of Hamilton Taft's actual financial condition. _ ~ Jreplied that the people in Dallas were taking care of these f~nancial statements.

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~~~_rnoted that the above incident concerning what he considered false and misleading financial statements was a major factor in his ultimate decision to sever his employment with Hamilton Taft. A copy of the interview form FD-302 the interview oil I is incorporated as part of this communication.

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It should also be noted that was interviewed in september of 1988 regarding his former employment with Hamilton Taft. At the time of this interview,c::J stated

that he was self-employed as a consultant specializ~ng in employment taxes. He stated that prior to being self-employed, he was employed for five years with Hamilton Taft in San Francisco as their Chief Operations Officer and Executive Vice President. A copy of the interview conducted withc::J is attached hereto. This matter was informally presented to the united states Attorney's office which concluded that there was a lack of (. evidence to support the violation of any federal law at that time. Our case was subsequently closed. I IttI j J.'j(J ; : .'. ". /$. ' .~..-,.. ~/Dd tl~/ w(J~ rJ~ . ..,..,,~.fJ _~,~M:.,•.'" On December 24, 1990 7 -the.

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( stated that he was the current Controller of Hamilton Taft and that he was calling the FBI because he felt that his employer was).

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cheating the Internal Revenue Service - (IRS) by not paying ta~es (--/1'li'~ I-J; ,'iiI owing to not only the I~S but other taxing entities wh~n th~Y J ;~~ wer,e due. I ~advlsed that at least $20,000,000 J.n cl~ent rJIJ ' ! --~:'t funds have been transferred to accounts controlled by Chip ~B~ . Armstrong, the new CEO of Hamilton Taft. I I stated that were used to purchase one or more companies in Texi?-s. ~ stated that Hamilton Taft had approximatel: 100 . emp oyees in San Francisco in July of 1990. I t advised Armstrong is basically operating a Ponzi scheme, ut~lizing the tens of millions of dollars which are sent to Hamilton Taft for the ultimate payment of tax liabilities sustained by Hamilton Taft I s clients. I ~ has documentation, to support his claims r~~ t; ~r\ ~ and is scheduled to present same to t~e rBI on Jar:uary 13" ~991 7"~t:"S~'" ~ at 10: 00 am. I I furth 7r stated that th 7re ~s an ongo~ng , i.; ~:-% ~: procedure for prov1d~ng lul11ng letters to c11ents who actually ~~~< ~ comPlain to Hamilton Taft when they, the client, receive a late ~ t~·~ ~, ~

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notice from the IRS. , ~ states that a letter on Hamilton Taft stationery is generated to the IRS berating the IRS for having made an error in showing at least the front copy of a check drawn on Hamilton Taft/s checking account allegedly demonstrating that payment was actually made on a particular date

for a particular tax liability_ These checks were never sent to the IRS but a copy of the letter was sent to the client, thereby stalling the clients further inquiries. Please contact us at your earliest convenience so that we might discuss this matter in greater detail. Sincerely yours, RICHARD W. HELD

Special Agent in Charge

By:

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