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Federal prosecutors are asking U.S. District Judge Pamela K. Chen to sentence former Rep. Michael Grimm to 24 to 30 months in prison for tax fraud.

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  • U.S. Department of Justice

    United States Attorney Eastern District of New York

    DAS:JDG/NR 271 Cadman Plaza East F. #2014R00763 Brooklyn, New York 11201

    June 19, 2015 By ECF The Honorable Pamela K. Chen United States District Judge United States District Court Eastern District of New York 225 Cadman Plaza East Brooklyn, New York 11201 Re: United States v. Michael Grimm Criminal Docket No. 14-248 (PKC) Dear Judge Chen: The government respectfully submits this letter in connection with the sentencing of the defendant Michael Grimm. On December 23, 2014, the defendant pleaded guilty to Count Four of the Indictment in the above-referenced case, which charged him with aiding and assisting in the preparation of a false and fraudulent tax return for his restaurant, in violation of 26 U.S.C. 7206(2). The defendant is scheduled to be sentenced on July 17, 2015 at 10:00 a.m. For the reasons set forth below, the government respectfully submits that the defendant should be sentenced to a term of incarceration within the applicable advisory United States Sentencing Guidelines (the Sentencing Guidelines or the Guidelines) range of 24 to 30 months of imprisonment. I. Background

    A. Offense Conduct and the Indictment

    On April 28, 2014, a twenty-count Indictment was unsealed that charged the defendant with a series of crimes stemming from his ownership and operation of Granny Sayz LLC d/b/a Healthalicious (Healthalicious), a restaurant located in New York, New York. While operating the restaurant, the defendant engaged in schemes to under-report the true amount of the restaurants earnings and the wages paid to its workers, thereby fraudulently lowering the federal and state taxes and the amount of workers compensation insurance premiums the restaurant owed and paid. Specifically, Grimm fraudulently

    Case 1:14-cr-00248-PKC-RML Document 94 Filed 06/19/15 Page 1 of 14 PageID #: 514

  • The Honorable Pamela K. Chen June 19, 2015 Page 2 underreported the restaurants sales, concealing over $900,000 in gross receipts from the Internal Revenue Service (IRS) and the New York State Department of Taxation and Finance (the New York State Tax Department). (Pre-sentence Investigation Report (PSR) 5). Additionally, the defendant paid workers at the restaurant many of whom were not lawfully permitted to be employed within the country either wholly or partially off the books in cash, thereby fraudulently reducing restaurants federal and state payroll taxes. (PSR 6). The defendant also under-reported Healthalicious payroll to the New York State Insurance Fund (NYSIF), thereby defrauding NYSIF of workers compensation premiums. (PSR 7). To further and conceal his schemes, Grimm caused over 20 false corporate and personal tax filings to be made with the IRS and the New York State Tax Department from 2007 through June 2010. (See PSR 9). In connection with his scheme to cause false federal tax filings, the Indictment charged Grimm with impeding and obstructing the due administration of the Internal Revenue Law in violation of 26 U.S.C. 7212 (Count One), conspiring to defraud the United States of federal payroll taxes in violation of 18 U.S.C. 371 (Count Two) and aiding and assisting in the preparation of false Healthalicious tax returns in violation of 26 U.S.C. 7206(2) (Counts Three through Five). The defendant was also charged with five counts of wire fraud and three counts of mail fraud, in violation of 18 U.S.C. 1341 and 1343 (Counts Seven through Sixteen); all relating to his scheme to defraud New York State of sales tax revenue. The Indictment also charged the defendant with health care fraud in connection with his scheme to defraud NYSIF, in violation of 18 U.S.C. 1347 (Count Six). Additionally, Grimm was also charged with employing individuals who were not authorized to be employed in the United States in violation of 8 U.S.C. 1324a and 1324(a) (Count Twenty). Moreover, on January 30, 2013, Grimm testified falsely under oath during a deposition in Regino Perez and Carlos Perez v. Granny Sayz, Healthalicious, Bennett Orfaly and Michael Grimm, Docket No. 11 CIV 8736 (CM), a federal lawsuit in the United States District Court for the Southern District of New York (the Civil Action). (See PSR 11). The Civil Action had been brought by two of the defendants former employees at Healthalicious, alleging that he and others had violated federal and state labor laws while operating the restaurant. Specifically, and among other things, the defendant falsely testified that: (1) he had not paid Healthalicious employees in cash; (2) he had not generally used email in conducting Healthalicious business; and (3) that, to the extent he did use email, he had used a Yahoo email account which he could no longer access. (Id.). In fact, the defendant had accessed, and continued to access at the time of his testimony, an AOL email account which he did not identify during the deposition and which contained many emails regarding the restaurant. (Id.). The Indictment accordingly charged the defendant with two counts of perjury in violation of 18 U.S.C. 1623 (Counts Seventeen and Eighteen) and obstructing an official proceeding in violation of 18 U.S.C. 1512(c)(2) (Count Nineteen).

    Case 1:14-cr-00248-PKC-RML Document 94 Filed 06/19/15 Page 2 of 14 PageID #: 515

  • The Honorable Pamela K. Chen June 19, 2015 Page 3 B. The Defendants Guilty Plea and Stipulation of Facts On December 23, 2014, Grimm pleaded guilty to Count Four of the Indictment pursuant to a plea agreement with the government dated December 22, 2014 (the Plea Agreement). (PSR 1). That count charged the defendant with aiding and assisting the preparation of a false and fraudulent tax return filed with the IRS, specifically the United States Return of Partnership Income Form 1065 (Form 1065) for Healthalicious. In particular, Count Four alleged that the defendant willfully aided and assisted in the preparation of Healthalicious 2009 Form 1065 which substantially under-reported the restaurants gross receipts as well as the salaries and wages paid to the restaurants employees for that tax year. (Id.). As part of the Plea Agreement, Grimm stipulated and agreed to a Factual Basis for Guilty Plea, a stipulation of facts executed by the defendant on December 22, 2015 and incorporated in the Plea Agreement by reference (the Stipulation of Facts or Stip.). The Stipulation of Facts is attached to this letter as Exhibit A. In the Stipulation of Facts, the defendant admitted all of the conduct underlying the charges in the Indictment. Among other admissions, the defendant stipulated that he:

    Oversaw the day-to-day operations of Healthalicious while a member in the restaurant from 2007 through 2009 (Stip. 1);

    Concealed over $900,000 in Healthalicious gross receipts from the accountant

    who prepared and filed the restaurants tax returns, who then used the false information the defendant provided to prepare and file false federal and state tax returns (Stip. 3);

    Failed to report the off the books cash wages he was paying to

    Healthalicious workers, which resulted in the restaurant paying lower federal and state payroll taxes. The defendant caused the payroll processing companies to report to the IRS and the New York State Tax Department less than half of the wages Healthalicious actually paid its employees (Stip. 4);

    Caused false personal federal and New York State income tax returns to be

    filed with the IRS and the New York State Tax Department on his behalf (Stip. 5);

    Under-reported Healthalicious payroll to NYSIF, lowering the monthly

    workers compensation premium the restaurant paid to NYSIF (Stip. 6);

    Caused numerous false documents to be filed with federal and state tax authorities between 2007 and 2010, including: (1) Form 941 Employers

    Case 1:14-cr-00248-PKC-RML Document 94 Filed 06/19/15 Page 3 of 14 PageID #: 516

  • The Honorable Pamela K. Chen June 19, 2015 Page 4

    Quarterly Federal Tax Returns for Healthalicious; (2) Form 1065 U.S. Return of Partnership Income tax returns for Healthalicious; (3) Forms W-2 reported annual wages of Healthalicious employees; (4) his Form 1040 U.S. Individual Income Tax Returns and Form IT-201 Resident Income Tax Returns; and (5) New York State Form ST-100 Quarterly Sales and Use Tax Returns (Stip. 7);

    Caused, in total, federal and New York State tax and NYSIF premium losses

    between $80,000 and $200,000 (Stip. 8); and

    Testified during the deposition in the Civil Action to things that, at the time, he knew to be false. Specifically, the defendant admitted that he falsely testified about how the restaurants workers were paid, the extent to which he used email in operating his business, and what email account he used (Stip. 10).

    II. Argument For the reasons that follow, the Court should sentence the defendant to a term of incarceration within the advisory Sentencing Guidelines range of 24 to 30 months. A. Legal Standard

    Sentencing courts have the authority to fashion a reasonable and appropriate sentence in each case. In so doing, a sentencing court must consider the Guidelines in formulating such a sentence. United States v. Booker, 543 U.S. 220, 259-62 (2005). The Guidelines should be the starting point and the initial benchmark when fashioning a sentence. Gall v. United States, 552 U.S. 38, 49 (2007). Next, a sentencing judge should consider all of the factors in 18 U.S.C. 3553(a) to determine the appropriate sentence in each case. Id. at 49-50. Those factors include, among other things, the nature and circumstances of the offense; the history and characteristics of the defendant; and the need for the sentence im