Two Promoters of Tax Fraud Scheme Who Sought Millions in Fraudulent Tax Refunds

SANTA ANA– Arturo Villarreal-Alba, of Whittier, was sentenced today to 96 months imprisonment and three years of supervised release following imprisonment for conspiracy to defraud the U.S. and mail fraud.  Restitution will be determined at a hearing on August 30, 2013 before U.S. District Judge Josephine Staton Tucker.

 

On October 2, 2012, Arturo Villarreal-Alba, 44, pleaded guilty to conspiracy to defraud the U.S. in a fraudulent federal income tax return filing scheme which claimed false federal income tax refunds and pleaded guilty to mail fraud in a vehicle registration “title washing” scheme.

 

According to court documents, beginning around March 2009, Arturo Villarreal-Alba, an undocumented alien, began to participate, acting as a promoter, with others in a fraudulent OID (Original Issue Discount) scheme that filed false federal income tax returns with the IRS claiming hundreds of thousands, sometimes millions, in false tax refunds.

 

The OID schemes conducted by Villarreal-Alba were conducted through two companies “Old Quest Foundation, Inc.” in Fontana and “De La Fuente Ramirez and Associates” (DLFRA) in Rancho Cucamonga, both of which became a subject of investigation conducted by Special Agents with IRS Criminal Investigation known as “Operation Stolen Treasures.”  The investigation led to 55 people being indicted by a federal grand jury in the fall of 2011.

 

According to his plea agreement, Villarreal-Alba admitted that he referred various customers to the OID scheme.  Villarreal-Alba also admitted he caused at least two false 2009 OID-based federal income tax returns to be prepared and filed.  On March 17, 2010, he caused the filing of a fraudulent tax return using fictitious federal income tax withholding in the amount of $668,000, which claimed a false tax refund of $452,572.   He also caused a 2009 OID-based tax return claiming a $535,898 refund in 2010.

 

Villarreal-Alba also admitted that between 2009 and 2011, he participated in a vehicle “title-washing” scheme in which he falsely told victims that there was a “special program” wherein vehicles could be paid off and victims would end up owning one or more of the vehicles free and clear.  Many victims purchased several vehicles by using their good credit to obtain loans from the car dealers.  Rather than having the car loans paid, the victim’s signatures on DMV documents were forged to obtain clear title from the DMV, and then he and his co-schemers would either re-sell the vehicles to unsuspecting victims or obtain title liens on the vehicles from vehicle title loan companies.

 

Villarreal-Alba used the U.S. mail system in the scheme by fraudulently receiving the “cleaned” pink slips from the DMV by mail.  He admitted that he failed to file tax returns and report to the IRS between thousands of dollars in income he made 2009 and 2010 from the tax and vehicle title washing scheme.

 

Earlier, on May 17, 2013, Osman Norales, 35, of Rancho Cucamonga, the owner and founder of DLFRA, was sentenced by U.S. District Judge Josephine Staton Tucker to 87 months imprisonment, three years of supervised release following imprisonment and ordered to pay restitution to the IRS in the amount of $512,471.

 

On February 22, 2013, after a two-week jury trial, Osman Norales and his fellow defendant, Genaro De La Fuente of De La Fuente and Associates (DLFRA), were convicted of orchestrating a tax fraud scheme that illegally sought millions of dollars in fraudulent tax refunds.  The case against Osman Norales and Genaro De La Fuente also stem from the Operation Stolen Treasures investigation.

The evidence at trial further showed that Norales fraudulently told clients they each could receive tax refunds of hundreds of thousands of dollars by accessing “secret government accounts” through a process that included the filing of IRS Forms 1099 OID.  In exchange for the payments, he prepared and filed false income tax returns, which routinely sought hundreds of thousands of dollars – and sometimes millions of dollars – in income tax refunds.

 

The evidence presented during trial established that Osman Norales was involved with every facet of the fraudulent scheme, including recruiting customers and transmitting millions of dollars by filing false Forms 1099 OID to the IRS, including one tax refund in the amount of $815,000 and one in the amount of $760,000.  Norales also charged clients up-front fees of approximately $2,500 and a portion of the false refund received by the client.

 

In addition to preparing and filing false tax returns for customers, Norales filed two false OID-based income tax returns for himself and his wife.  On March 11, 2009, he filed a false 2008 OID-based income tax return for himself, which falsely reported $597,631 in federal income tax withheld and fraudulently claimed a $403,648 refund.  Norales was notified by the IRS in a letter dated May 8, 2009 that his OID based tax return was frivolous.

 

In May 2009, Norales filed a false 2007 OID-based income tax return for himself, which falsely reported $109,984 in federal income tax withheld, fraudulently claiming a $100,916 refund.  The evidence at trial showed that Norales mailed the 2007 OID based income tax return after he received the IRS notification.

 

On September 30, 2009, IRS special agents executed a search warrant at his business at which time Norales was interviewed by IRS special agents.  While being interviewed, Norales lied when he told the agents that customers do not pay for his services and that he never gave or attended seminars.  Evidence at trial established that Norales and other members of the conspiracy made presentations across the Southland and promoted the secret account theory and other frivolous arguments. Norales also attempted to thwart the investigation by responding to the IRS for customers with arguments that had no basis in the law.   Norales also sent three threatening letters to the investigating special agents demanding payment of $20,000,000, then $25,000,000 and $35,000,000 to him in attempts to intimidate them.  To thwart the investigation, he also instructed witnesses to lie to the grand jury during the grand jury investigation.

 

Norales further obstructed justice by fleeing to Texas after indictment and attempted to mislead the U.S. Magistrate Court during a detention hearing in May 2012 by providing materially false information during testimony.

 

To date, the Operation Stolen Treasures investigation has resulted in 26 defendants pleading guilty to charges filed against them (seven defendants have been sentenced and the remaining 19 defendants are awaiting sentencing); 25 defendants are currently scheduled for trial beginning in June; and three defendants have been convicted at trial.

 

The investigation of Arturo Villarreal-Alba, Osman Norales and other defendants in Operation Stolen Treasures are being conducted by IRS Criminal Investigation in conjunction with the U.S. Attorney’s Office for the Central District of California. The California Highway Patrol-Task Force for Regional Auto Theft Prevention (CHP-TRAP) jointly investigated the vehicle title-washing scheme of Arturo Alba-Villarreal.

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