December 19, 2011
Case # 03HF1207
MARRIED COUPLE CONVICTED OF FAILING TO PAY TAXES ON OVER $180 MILLION IN UNREPORTED INCOME FROM POWER PLANT REFURBISHING BUSINESS
SANTA ANA - A formerly married couple was convicted Friday of failing to pay taxes on over $180 million in unreported income from their power plant refurbishing business. Richard Engel pleaded guilty Dec. 16, 2011, to four felony counts of failing to file tax returns for his corporation, three felony counts of filing false personal tax returns, and one felony count of failing to file a personal return. The defendant also admitted sentencing enhancements for fraud in excess of $500,000 causing a loss in excess of $1 million. Richard Engel faces a sentence up to 12 years and eight months in state prison at his sentencing Aug. 3, 2012, in Department C-40, Central Justice Center, Santa Ana.
Richard Engel's then-wife Jolene Engel pleaded guilty Dec. 16, 2011, to one felony count of failure to file tax returns for her corporation and one felony count of failing to provide material information in a tax return. She faces a sentence up to five years and eight months at her sentencing Aug. 3, 2012 , in Department C-40.
Both defendants are required to pay the California Franchise Tax Board (FTB) approximately $1.2 million prior to sentencing. They will also be required to pay over an additional $2 million in restitution as a term of their sentences.
Facts of the Case
Beginning in 1998, the defendants operated Powerplant Maintenance Specialists, Inc. (PMSI), a business that specialized in contracting for the refurbishment of power facilities. Jolene Engel acted as president of PMSI until June 30, 2001, when Richard Engel took over that role. Richard Engel was also Chief Financial Officer (CFO) of the company, negotiated all contracts, handled company operations, and directed PMSI's financial affairs.
Between 1998 and 2001, the company had a gross revenue of over $180 million.
In October 2000, Richard and Jolene Engel entered PMSI into a contract with AES Corporation (formerly Southern California Edison) to refurbish its Huntington Beach power plant for approximately $108 million. The contract called for AES to make bi-weekly $6.13 million payments to PMSI to obtain a discount on the contract price. The project was estimated to take 90 days from the date the project received the required permits, and the contract called for completion of the project by June 1, 2001.
Oct. 4, 2000, and Dec. 31, 2000, the defendants received over $36 million to PMSI from AES for the power plant refurbishment, for which PMSI did virtually no work. Richard and Jolene Engel diverted over $24 million in 2000 for their own purposes without fulfilling their end of the PMSI contract. The fraudulently diverted money was spent on luxury items for both defendants including jewelry and cars, a down payment on a Lear jet for Richard Engel, over $1 million to Richard Engel's other companies, and more than $8.5 million to Jolene Engel for her stock in the company when the couple divorced.
Prior to June 2001, PMSI received nearly $100 million from AES as full payment on the balance owed on the contract. Despite this payment, PMSI failed to perform the work for which they were paid due to problems obtaining the required construction permits by June 1, 2001, the date the project was to be completed. Richard and Jolene Engel continued to divert funds for their personal expenses.
Due to Richard and Jolene Engel's diversion of funds, PMSI had insufficient funds to pay for required labor and materials when the company was required to complete the project. As a result, AES had to pay an additional $35 million for the project in order to pay for workers and materials directly so that the project could be completed. PMSI never completed the project, and left workers, subcontractors, and creditors unpaid.
In addition to this project, Richard and Jolene Engel received more than $72 million on behalf of PMSI for work performed in other states outside of California between 1998 and 2001. The result was that the company had little or no taxable income for state income tax purposes during those years. Despite this, California law requires that timely tax returns are filed for companies and a minimum $800 in tax is paid.
Richard Engel filed false tax returns in 1998 through 2000, and failed to file a return for 2001. In late 2000, Richard Engel filed forms claiming no income for 1998 and 1999, and in March 2001 reported only $144,231 in income. During this time, Richard Engel received millions of dollars from PMSI, which he spent on personal luxuries including stays at Four Seasons Hotels, a 1999 Bentley, jewelry and other expenses.
Jolene Engel failed to file personal income tax returns for 1998 through 2000, despite receiving a salary from PMSI and unreported income including the $8.5 million she received in 2000 for her stock in the company and approximately $3.7 million in 2001.
The Orange County District Attorney's Office began investigating this case in late 2001 after receiving a call from a labor union regarding possible fraud related to the unpaid workers on the AES project. FTB assisted in the investigation.
Senior Deputy District Attorney Bill Overtoom of the Major Fraud Unit prosecuted this case.
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