Former Xpress Flex Inc. and Payroll America Inc. Owner Pleads Guilty to Fraud and Filing a False Tax Return
Admits Misappropriating Over $2.9 Million
|U.S. Attorney’s Office September 10, 2012|
BOISE—Michael Wayne Davis, II, 46, of Raleigh, North Carolina, formerly of Eagle, Idaho, pleaded guilty today in United States District Court in Boise to wire fraud and filing a false tax return, U.S. Attorney Wendy J. Olson and Assistant Attorney General for the Justice Department’s Tax Division Kathryn Keneally announced.
According to the plea agreement, in 2009 and 2010, Davis owned and operated Xpress Flex Inc., a Boise, Idaho, company that administered, on behalf of employer-clients, flexible benefits plans for tax-free, qualified benefits, such as health care and dependent care. Pursuant to those plans, Xpress Flex received monetary contributions from its employer-clients of pre-tax withholdings from their employees’ paychecks. These funds were deposited into Xpress Flex bank accounts and set aside to pay the claims of employee-participants when they came due. According to the plea agreement, Davis misappropriated $954,640.90 of Xpress Flex client funds and used them to pay personal credit card charges and the business expenses of his other company, Payroll America Inc. He did so without the knowledge or authorization of the employer-clients and their employees and contrary to representations in plan documents and contracts that he would safeguard the deposits and use them only to pay employee claims. As a result of this conduct, Davis pled guilty to one count of wire fraud.
The plea agreement also provides that, from 1994 through 2009, Davis owned and operated Payroll America, a Boise, Idaho, company that provided payroll administration and payroll tax filing services to its employer-clients. Pursuant to contract documents, employer-clients would deposit sufficient funds with Payroll America to meet their payroll and payroll tax obligations, which Payroll America would pay when they came due. According to the plea agreement, in March and April 2007, Davis misappropriated $2 million of Payroll America client funds, wired them into his E*Trade brokerage account, and invested them in the stock market. Davis did so without the knowledge or authorization of the employer-clients of Payroll America and contrary to representations in contract documents that he would safeguard the funds and use them only to pay payroll and payroll taxes.
Davis’ E*Trade investments generated approximately $192,436 in capital gains income. According to the plea agreement, Davis wired this money into his and his wife’s personal checking account and annotated the wire transfer “E-Trade Gains.” However, Davis did not report any capital gains income from E*Trade investments on his 2007 or 2008 tax returns. This created a tax loss of $45,290. As a result of this conduct, Davis pled guilty to one count of filing a false tax return.
According to the plea agreement, Davis agreed to pay restitution of $999,930.90; $954,640.90 to Xpress Flex victims; and $45,290 to the IRS for the tax loss. Davis admitted he misappropriated a total of $2,954,640.90, which consists of the Xpress Flex loss and the $2 million he took from Payroll America but then returned after he made his money in the stock market.
Wire fraud is punishable by up to 20 years in prison, a maximum fine of $250,000, and up to three years of supervised release. Filing a false tax return is punishable by up to three years in prison, a maximum fine of $100,000, and up to one year of supervised release.
Sentencing is set for December 3, 2012, before Chief U.S. District Judge B. Lynn Winmill at the federal courthouse in Boise.
“Those who are entrusted to manage others’ money have a solemn obligation to ensure that it is safe and available for its intended purpose, not diverted for personal gain,” said Olson. “Wayne Davis breached the trust that so many employers and employees placed in him to manage their benefits accounts. By filing a false tax return, he also breached his obligation as a United States citizen. Today’s guilty plea ensures that Mr. Davis will receive justice and that he will be ordered to repay the victims of his fraud.”
The case was investigated by the Federal Bureau of Investigation; the U.S. Department of Labor, Employee Benefits Security Administration; and Internal Revenue Service-Criminal Investigation.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.