Court Opinion

ID: 62579
Source: CourtListenerOpinion
Date Created: 2010-04-26 04:45:39+00
Date Added: 2024-06-11T17:20:06.497997
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT United States Court of Appeals
                                                   Fifth Circuit

                                                                            FILED
                                                                            July 2, 2008

                                       No. 07-30516                   Charles R. Fulbruge III
                                                                              Clerk

UNITED STATES OF AMERICA,

                                                  Plaintiff - Appellee,
v.

BERNITA LEGRO, RONALD WILKERSON; DONALD WILKERSON;
WILKERSON TAX SERVICES LLC,

                                                  Defendants - Appellants.

                   Appeal from the United States District Court
                       for the Middle District of Louisiana
                                   3:07-CV-247

Before JONES, Chief Judge, and DAVIS and GARZA, Circuit Judges.
PER CURIAM:*
       Bernita Legro, Ronald Wilkerson, Donald Wilkerson (the “individual
defendants”), and Wilkerson Tax Services, L.L.C. (“WTS”), appeal the district
court’s order granting a preliminary injunction under the Fraud Injunction
Statute, 18 U.S.C. § 1345. The order froze $520,000 in cashier’s checks, the
alleged proceeds of fraud, which the individual defendants withdrew from WTS

       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
                                   No. 07-30516

bank accounts on the same day that the IRS executed a search warrant at WTS
as part of a criminal fraud investigation. We AFFIRM.
      WTS is in the business of preparing tax returns.              The individual
defendants operate WTS. This case arises from a criminal fraud investigation
of WTS launched by the criminal investigation division of the Internal Revenue
Service (“IRS”).
      The IRS’s analysis of the tax returns prepared by WTS revealed what the
IRS characterized as a pervasive likelihood of fraud. Approximately two-thirds
of the 2006 returns prepared by WTS claimed an apparently excessive Telephone
Excise Tax Refund (“TETR”) based on evidently fictitious phone charges.1 These
returns claimed an average telephone excise tax refund credit of $2,172. To be
able to claim this credit, an individual taxpayer would need to have incurred
long-distance telephone charges of approximately $72,400 over a 41-month
period. The 2006 average reported wages for all of WTS’s clients was only about
$14,325.
      The WTS returns contained other information also suggestive of fraud,
including false information about filing status, exemptions, deductions, and
qualification for the earned income tax credit (“EITC”). In addition, eight out of
nine of the returns prepared by WTS contained false and misleading tax
preparer identification numbers. Half of the returns contained “123-45-6789” as
the individual tax preparer’s identification number. Furthermore, witness
complaints and evidence obtained from an undercover investigation
demonstrated that WTS routinely falsified taxpayer information to generate
inflated, undeserved refunds for its clients, unbeknownst to its clients.

      1
         The TETR was a one-time refund available only on the 2006 federal income tax
return. The refund was based on taxes previously paid on long-distance charges for a
particular 41-month period (February 2003 to August 2006).

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                                  No. 07-30516

      Armed with this evidence, the IRS obtained a search warrant for WTS’s
premises, located at two offices in Baton Rouge, Louisiana. The same day the
warrant was executed, indeed while the warrant was being executed, the
individual defendants collectively withdrew $520,000 from WTS accounts. Each
of the individual defendants took part in withdrawing these funds, obtained in
various denominations: Bernita Legro withdrew two $50,000 checks; Donald
Wilkerson withdrew a $60,000 check; and Ronald Wilkerson withdrew $360,000
in the form of forty $9,000 checks.
      The Government then brought this action pursuant to the Fraud
Injunction Statute, 18 U.S.C. § 1345, to freeze the allegedly fraudulent proceeds
of WTS and the individual defendants. Over a two-day preliminary injunction
hearing, the Government presented evidence that WTS was used as a vehicle to
defraud the United States and HSBC Bank, a federally insured financial
institution.
      The scheme, as presented by the Government, was as follows. WTS would
prepare false tax returns on behalf of its clients. Then, WTS would electronically
submit these false returns (using the wires) through an intermediary to the IRS
and HSBC. Based on the information in the returns, HSBC would decide
whether to grant a loan to the taxpayer, a loan secured by the anticipated refund
represented in the tax return. These loans are known as refund anticipation
loans. If HSBC approved the loan but the IRS did not pay the full refund
amount, HSBC lost its security. Once approved, HSBC would provide the refund
anticipation loan to WTS to be paid to WTS’s client.
      In addition, HSBC would pay WTS’s fees, including a loan processing fee,
an electronic filing fee, and a tax preparation fee. At one point, HSBC informed
WTS that its fees were excessive. Nonetheless, these fees were paid directly to
a Chase Bank account, which the Government identified at the preliminary
injunction hearing. In total, HSBC paid to WTS approximately $806,000 in fees

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                                   No. 07-30516

for the 2006 tax year. The $520,000 that the individual defendants withdrew
from the WTS accounts all originated from the account into which HSBC paid
these fees.
      According to the Government, the scheme harmed and affected both the
United States and HSBC. It harmed the United States because WTS clients
received undeserved refunds. The scheme harmed HSBC because its loan
decisions were based in part on the false information contained in the WTS-
prepared tax returns. Furthermore, once the IRS detected a pervasive likelihood
of fraud in the returns prepared by WTS and stopped paying the refunds on
those returns, HSBC essentially lost the security for the refund anticipation
loans paid to WTS clients; specifically, HSBC claimed that it suffered losses of
at least $700,000 because the IRS stopped paying the refunds. In addition, WTS
profited from the fees it obtained as a result of preparing the false tax returns,
fees financed by the inflated refunds.
      Presented with this evidence, the district court entered a preliminary
injunction pursuant to § 1345, freezing the $520,000, which was withdrawn by
the individual defendants on the same day the IRS executed its search warrant.
WTS and the individual defendants appealed.
      We review a district court’s decision to grant a preliminary injunction for
an abuse of discretion. Ridgely v. Fed. Emergency Mgmt. Agency, 512 F.3d 727,
734 (5th Cir. 2008) (citing Guy Carpenter & Co. v. Provenzale, 334 F.3d 459, 463
(5th Cir. 2003)). We review the district court’s factual findings for clear error
and its legal conclusions de novo. Id.
      The Fraud Injunction Statute provides in part:
      If a person is alienating or disposing of property, or intends to
      alienate or dispose of property, obtained as a result of a banking law
      violation (as defined in section 3322(d) of this title) . . . or property
      which is traceable to such violation, the Attorney General may
      commence a civil action in any Federal court . . . to enjoin such
      alienation or disposition of property . . . .

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                                       No. 07-30516

18 U.S.C. § 1345(a)(2)(A). A “banking law violation” includes the commission of,
or the conspiracy to commit, mail or wire fraud “affecting a financial institution.”
18 U.S.C. § 3322(d)(1)(B) (“the term ‘banking law violation’ means a violation of,
or a conspiracy to violate . . . section 1341 [mail fraud] or 1343 [wire fraud]
affecting a financial institution . . . .”).
      The parties disagree about the applicable standard of proof for obtaining
a § 1345 injunction. The appellants argue that the Government must establish
by a preponderance of the evidence that a § 1345 injunction is proper. See, e.g.,
United States v. Quadro Corp., 916 F. Supp. 613, 617 (E.D. Tex. 1996) (applying
the preponderance standard in granting a § 1345 preliminary injunction;
collecting cases). The Government argues that a lesser evidentiary burden is
appropriate, such as probable cause. Nevertheless, the Government also argues
that it satisfied either standard in this case. The district court applied the
preponderance standard. We do not decide which standard of proof applies to
a preliminary injunction pursuant to § 1345 because even assuming arguendo
that the more demanding preponderance standard applies, the Government
satisfied that standard in this case.
      The Government produced sufficient evidence at the preliminary
injunction hearing to show by a preponderance of the evidence that WTS was
engaged in a fraudulent scheme utilizing the wires that affected both the United
States and HSBC, a financial institution.               Furthermore, the Government
produced sufficient evidence to prove by a preponderance of the evidence that
the income generated from WTS’s fees, paid by HSBC, was obtained as a result
of the fraudulent scheme. Finally, the individual defendants’ activities on the
day that the IRS executed the search warrant—withdrawing $520,000 of the
fraudulent     proceeds     in   the    form       of   cashier’s   checks   of   various
denominations—was sufficient circumstantial evidence to prove by a

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                                 No. 07-30516

preponderance that the individual defendants intended to alienate or dispose of
the proceeds obtained as a result of the fraudulent scheme.
      Having carefully reviewed the record on appeal, the arguments of the
parties, and the applicable law, we are satisfied that the district court did not
abuse its discretion in granting the preliminary injunction pursuant to § 1345.
Therefore, we AFFIRM.

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