Charges with Mail, Wire And Health Care Fraud, Filing False Tax Returns, Perjury, Obstruction Of An Official Proceeding, Hiring And Employing Unauthorized Aliens And Related Charges, In Connection With A Manhattan Restaurant He Owned And Operated
NEW YORK–(ENEWSPF)–April 28, 2014. A 20-count indictment was unsealed this morning in federal court in Brooklyn charging Michael Grimm with five counts of mail fraud, five counts of wire fraud, three counts of aiding and assisting in the preparation of false federal tax returns, one count of conspiring to defraud the United States, one count of impeding the Internal Revenue Service, one count of health care fraud, one count of engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, two counts of perjury and one count of obstructing an official proceeding.1 Since 2011, Grimm has served as a member of the United States House of Representatives, representing New York’s 11th Congressional District, which includes the borough of Staten Island and parts of the borough of Brooklyn, in New York City. Grimm will be arraigned later today before United States Magistrate Judge James Orenstein at the U.S. Courthouse, 225 Cadman Plaza East, Brooklyn, New York.
The indictment was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, George Venizelos, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), and Richard Weber, Chief, Internal Revenue Service-Criminal Investigation (IRS-CI).
“In 2007, Michael Grimm, former Marine, former FBI agent, accountant and attorney, was poised for success as a small business owner. Instead, as alleged, Grimm made the choice to go from upholding the law to breaking it. In so doing he turned his back on every oath he had ever taken. Even after his return to public service, when called to account for his actions and questioned under oath Grimm went for the cover up, and lied about his role in his own business,” stated United States Attorney Lynch. “The obligation to deal honestly and testify truthfully is shared by everyone in our society. We will continue to work with our law enforcement partners to enforce our laws across the board.”
“As a former FBI agent, Representative Grimm should understand the motto: fidelity, bravery, and integrity. Yet he broke our credo at nearly every turn. In this twenty-count indictment, Representative Grimm lived by a new motto: fraud, perjury, and obstruction. We demand the best from our political leaders. Yet today, we again find ourselves expecting and rightfully wanting more. And as citizens of this great nation we rightfully demand it,” stated FBI Assistant Director-in-Charge Venizelos.
“While occupying a position of trust in the community, Mr. Grimm is alleged to have committed a multitude of criminal violations,” said Chief, IRS Criminal Investigation Weber. “No matter your political position, how much power you have, how much money you make, or who you know, IRS-CI investigates all allegations of tax fraud. The American public expects and deserves the equitable enforcement of our tax laws.”
As alleged in the indictment, Grimm was one of the owners and the managing member of “Healthalicious,” a fast food restaurant located in Manhattan. From 2007 through 2010, Grimm oversaw the day-to-day operations of the restaurant, which included the reporting and distribution of the restaurant’s payroll. Specifically, Grimm set the employees’ rates of pay, reported their pay-rates and hours worked to the companies that Healthalicious retained to manage its payroll and withhold taxes due and owing to the federal and New York State governments (the “Payroll Processing Companies”), and distributed wages to employees. When Grimm was not present at the restaurant to perform these tasks himself, he delegated those responsibilities to managers under his supervision and control.
Grimm is charged with engaging in schemes to fraudulently under-report the wages he paid his workers – many of whom did not have legal status in the United States – and fraudulently under-report the true amount of money the restaurant earned to both federal and New York State tax and insurance authorities. Specifically, Grimm paid a large portion of Healthalicious’ employees’ wages in cash and did not report those cash wages to federal and state authorities, thereby lowering the restaurant’s payroll tax costs. Grimm also under-reported the true amount of Healthalicious’ payroll to the New York State Insurance Fund (“NYSIF”), allowing him to receive lower monthly workers’ compensation premiums. In addition, Grimm substantially under-reported the amount of gross receipts Healthalicious earned to both the federal and New York State governments, thereby dramatically lowering the federal and state tax the restaurant owed and paid. In total, Grimm concealed over $1 million in Healthalicious sales and wages, fraudulently depriving the federal and state governments of sales, income, and payroll taxes. Further, when Grimm was deposed by an attorney representing a former Healthalicious employee in 2013 as part of a federal lawsuit, Grimm lied under oath about his business practices, including falsely denying that he paid workers cash wages.
II. The Scheme to Fraudulently Under-Report Healthalicious’ Payroll
As alleged in the indictment, Grimm paid a significant portion of Healthalicious’ employees’ wages in cash. Many employees received approximately half of their weekly pay in cash and the other half by check or through direct deposit into a bank account, while others received their entire weekly pay in cash. Grimm handed out cash payments to his employees on numerous occasions, and those cash payments were taken from the daily cash receipts of Healthalicious. Further, Grimm hired and continued to employ workers who did not have legal status and accordingly did not have valid authorization to work inside the United States.
To execute his scheme, Grimm lied, or directed others to lie, to the Payroll Processing Companies by concealing the cash wages paid to the Healthalicious employees. The Payroll Processing Companies had no record of those employees who received the entirety of their pay in cash, or the amounts of pay those employees had received. By under-reporting employee hours and concealing the existence of some employees, Grimm ensured that the Payroll Processing Companies – which were responsible for filing numerous state and federal tax returns on behalf of the restaurant – calculated and then reported less than half of the wages actually paid to the employees. To further his scheme, Grimm maintained electronic spreadsheets detailing the true payroll information pertaining to Healthalicious, which included cash wages paid to Healthalicious employees, and concealed them from the Payroll Processing Companies, among others.
By concealing the off-the-books wages from the Payroll Processing Companies and from an accountant Grimm retained to file other state and federal tax returns for the restaurant (the “Healthalicious Accountant”), Grimm caused a number of false filings to occur, resulting the in underpayment of state and federal taxes as well as an artificially-reduced monthly workers’ compensation insurance premium. Those false filings and misrepresentations included:
1) Federal quarterly payroll tax returns that did not report the true wages Healthalicious employees earned and that did not withhold the proper amount of Federal Insurance Contributions Act (“FICA”) taxes due and owing to the federal government;
2) Federal partnership tax returns filed with the IRS for tax years 2008, 2009, and 2010 that did not accurately report the correct total wages Grimm paid his employees; and
3) False payroll statements submitted to NYSIF by the Payroll Processing Companies and the Healthalicious Accountant during audits conducted by NYSIF that fraudulently lowered the monthly workers’ compensation premiums paid by Healthalicious.
III. The Scheme to Fraudulently Under-Report Healthalicious’ Gross Sales
Grimm also fraudulently concealed from the Healthalicious Accountant a significant amount of the cash sales that the restaurant generated from April 2007 through August 2010. As a result, Grimm filed numerous false tax returns with the federal government and the State of New York through the Healthalicious Accountant. These false filings, among other things, concealed over $1 million of income that Healthalicious earned but did not report to New York State, causing a substantial sales tax loss to the state.
Specifically, those false tax returns included:
1) New York State Form ST-100 quarterly sales tax returns filed with the New York State Tax Department from June 2007 through August 2010; and
2) Federal partnership tax returns for Healthalicious for tax years 2008, 2009, and 2010. Each false return did not report the true amount of Healthalicious’ gross receipts for each tax year. As a result of Grimm’s fraudulent concealment of the restaurant’s income, Healthalicious’ true earnings were not reported on those tax returns. Consequently, those earnings did not flow through to the partners of the business and were not reflected on the personal income tax returns of the partners, including Grimm.
IV. Perjury and Obstruction of Justice
Two former Healthalicious employees filed a federal civil lawsuit against Grimm in the Southern District of New York, alleging that he did not pay them the minimum wage or overtime pay pursuant to the Fair Labor Standards Act and the New York Labor Laws. In January 2013, an attorney representing a plaintiff deposed Grimm, who answered questions under oath relating to his ownership and operation of the restaurant. Specifically, during the deposition, Grimm was questioned concerning his ownership of Healthalicious, what duties he performed there, how he paid and set the hours and rates of pay for his employees, and whether he maintained emails or other records pertaining to those issues, among other things. To conceal his illegal actions, Grimm allegedly lied about several material matters in connection with the lawsuit such as: (a) whether he paid his employees in cash; (b) whether he had interacted with the Payroll Processing Companies; (c) whether he corresponded regarding Healthalicious business through email; and (d) whether he still had access to such an email account.
If convicted, Grimm faces a term of imprisonment of up to 20 years for each mail and wire fraud charge and for the obstruction charge, up to 10 years of imprisonment for the health care fraud charge, and up to five years of imprisonment for the charge of conspiring to defraud the United States and for each perjury charge. Grimm further faces a term of imprisonment of up to three years for each charge of aiding and assisting in the preparation of a false and fraudulent tax return and for the charge of obstructing and impeding the due administration of the Internal Revenue Laws. Finally, Grimm faces up to six months of imprisonment for engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, as well as forfeiture, restitution, and fines.
Ms. Lynch expressed her appreciation to the Public Integrity Section of Department of Justice, the Northern Criminal Enforcement Section of the Tax Division of the Department of Justice, the New York State Department of Taxation and Finance, New York State Insurance Fund and the New York State Department of Labor, for their assistance in the investigation.
The government’s case is being prosecuted by Assistant United States Attorneys Anthony M. Capozzolo, Todd D. Kaminsky, and Nathan Reilly.
1 The charges contained in the indictment are merely allegations, and the defendant is presumed innocent unless and until proven guilty.