Boston Whistleblower Turns Howe and His Funds in to the IRS and SEC6879218
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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, Connecticut (US), and his hedge funds, are being investigated by the Internal Revenue Service and Securities and Exchange Commission for committing tax fraud and engaging in violations of United States securities laws.
The situation includes not only Mr. Howe, but also his hedge funds-Patriot Group LLC, Old Hill Partners Inc,-both located in Darien, CT, and several 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, alleging they committed tax fraud, and violations of securities laws. Although information as to the extent of the alleged frauds have not been made accessible to the general public, in accordance with IRS regulations, the tax shortfall must be a minimum two million USD to qualify for an IRS whistleblower filing status.
According to court transcripts and other documents obtained by WBI, the case started when 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 learned 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 court documents, Howe, in collaboration with two other creditors, tried to intimidate and retaliate against the debtor by forcing the debtor into bankruptcy. Subsequently, according to a letter created by the debtor's attorney to the creditors, the debtor ignored 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 ongoing 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 uptick 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 significant protections against retaliation by the perpetrators they reveal as well as significant rewards. In June 2014, the SEC brought and settled its first enforcement action against a business, 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 recently issued U.S. Dodd-Frank's anti-retaliation provision. The essential 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 could not be timelier as the U.S. Congress holds hearings into tax evasion by hedge funds. A post prepared by a Congressional Subcommittee led by Senators Carl Levin and John McCain documented 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 make it possible for taxable income to be taxed at reduced capital gain rates. There is also the question as to whether or not 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 attempts 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 banks 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 regarding what the impact of both the IRS and SEC investigations may have on the viability of Mr. Howe's private hedge funds. "The investors also have to take into consideration 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.
