Boston Whistleblower Turns Howe and His Funds in to the IRS and SEC4033931
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John C. Howe, Westport, Ct. Hedge Fund Executive Investigated for Tax Fraud and SEC Violations Boston Whistleblower Turns Howe and His Funds in to the IRS and SEC Whistleblowers International (WBI) has learned that John C. Howe, a private hedge fund manager, in Westport, Ct (USA), and his private hedge funds, are being investigated by the (IRS) and Securities and Exchange Commission for committing tax fraud and engaging in violations of US securities laws.
The case includes not only Mr. Howe, but also his hedge funds-Patriot Group LLC, Old Hill Partners Inc,-both located in Darien, CT, and various off-shore funds that include Washington Special Opportunity Fund, Inc. (an off-shore Grand Cayman fund), OHP Opportunity Limited Trust (Bermuda), and possibly others.
The genesis of the case is a Boston whistleblower, who turned Howe and his hedge funds in to the IRS and SEC, maintaining they committed tax fraud, and violations of securities laws. While details as to the extent of the alleged frauds have not been made available to the general public, in accordance with IRS regulations, the tax shortfall must be a minimum two million dollars to qualify for an IRS whistleblower filing.
According to court transcripts and other information obtained by WBI, the case started once Howe's Patriot Group, obtained a $20 million judgment against a debtor who defaulted on a loan during the U.S.'s 2008 economic downfall.
The debtor discovered that Howe and his funds were tax cheats and informed Mr. Howe that he was planning report Howe and his funds to the IRS and SEC. According to courtroom documents, Howe, in collaboration with two other creditors, tried to intimidate and retaliate against the debtor by forcing the debtor into personal bankruptcy. Subsequently, according to a letter created by the debtor's lawyer to the creditors, the debtor disregarded Howe's threats and actually submitted a claim with both the IRS and SEC, offering evidence of Howe's tax fraud scheme and securities laws violations. In that letter, the debtor notified Howe that he was a whistleblower and warned Howe that any further retaliation would be met with the debtor suing Howe for violating the whistleblower anti-retaliation laws found in the U.S. Dodd-Frank Act and other statutes.
This case remains in U.S. Bankruptcy Court and under continual IRS and SEC investigations.
The John Christopher Howe fraud is certainly not the first whistleblower case of its kind submitted in the United States. Since 2003, the US has seen an increase in whistleblowers coming forward as part of whistleblower programs initiated by the Sarbanes-Oxley Act and the Internal Revenue Service, both offering whistleblowers a reward for successful prosecutions of whistleblower claims.
Most recently, whistleblower protections have expanded with the 2010 passage of the Dodd-Frank Act, which grants whistleblowers substantial protections against retaliation by the perpetrators they expose as well as significant rewards. In June 2014, the SEC brought and settled its first enforcement action against a company, Paradigm Capital Management, for violation of the prohibition on retaliation against a whistleblower under Dodd-Frank.
Erik Nordenberg, a legal correspondent for WBI notes: "The John Howe case offers a refreshing look at the newly issued U.S. Dodd-Frank's anti-retaliation provision. The primary question is whether an alleged tax cheat, Mr. Howe, can attack and intimidate a whistleblower by using the U.S. Bankruptcy Court as his weapon of choice."
John Howe's alleged tax fraud and securities fraud case couldn't be timelier as the U.S. Congress holds hearings into tax evasion by hedge funds. A short article published by a Congressional Subcommittee led by Senators Carl Levin and John McCain noted that only one percent of hedge funds are audited and that hedge funds, such as John Howe's funds, are engaging in shady strategies including the use of "basket options" and "carried interest" to enable taxable income to be taxed at lower capital gain rates. There is also the question as to whether Mr. Howe's offshore hedge funds are engaged in tax fraud. The IRS and Department of Justice continue their investigations into U.S. taxpayers who make investments in offshore bank accounts and investments such as those marketed by John C. Howe's Grand Cayman Island Washington Special Opportunity Fund, and its Bermuda-based OHP Opportunity Limited Trust. The IRS's initiatives have resulted in thousands of U.S. citizens voluntarily complying under the Foreign Bank Account Rules (FBAR). Since July 2014, the Foreign Account Tax Compliance Act (FATCA) became effective and now requires most overseas investment firms and banking institutions to inform the IRS of those accounts held by U.S. citizens. With the continued IRS pressure on private hedge funds in general, and Mr. Howe's alleged tax fraud, investors will have to be concerned about what the impact of both the IRS and SEC investigations could have on the viability of Mr. Howe's private hedge funds. "The investors also have to consider whether any IRS modifications to Howe's funds could directly spill over to the investors by triggering IRS audits of each individual investor.” adds WBI's Erik Nordenberg. Now, the case continues in U.S. Bankruptcy Court while the IRS and SEC continue their investigation against Mr. Howe and his funds.
