From the FBI on 10/28/2014:
Father and Son Operators of a Third-Party Payroll Company Indicted for Defrauding Client Companies of More Than $11 Million
Son Embezzled at Least $3.7 Million to Pay for Strip Clubs, Alcohol, Jewelry, and Lavish Residence
The two operators of a third party payroll company have been indicted for stealing more than $11 million from at least 113 clients and using the money to support their personal lifestyles, announced Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina. The criminal indictment was returned by a federal grand jury on Thursday, October 23, 2014, and was unsealed today following the arrest of James William Staz, 43, of Iron Station, N.C. James Staz’s father, William James Staz, 72, of Huntersville, N.C., is the co-defendant named in the 10-count indictment.
U.S. Attorney Tompkins is joined in making today’s announcement by John A. Strong, Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division and Thomas J. Holloman III, Special Agent in Charge of the Internal Revenue Service, Criminal Investigation Division (IRS-CI).
According to the allegations contained in the indictment:
William and James Staz operated “Employee Services.Net, Inc.” (ESN), a third party payroll company the two men formed in 2004 in Cornelius, N.C. James Staz was the vice president and financial manager of ESN until August 2011, when he became the company’s president. His father, William Stanz, was a company shareholder and managed ESN’s day-today operations until 2008, when he was incarcerated for a federal bank fraud conviction. William Stanz returned to ESN following his release from prison and continued to be involved in company operations.
As a third party payroll company, ESN provided various personnel services to its client companies, including processing payroll, collecting and paying federal, state and local employment taxes, and preparing and filing the required employment tax forms. In order to provide these services and make payments on behalf of its clients, ESN had access to the clients companies’ bank accounts and directly drafted the funds needed to cover the expenses. At its height, ESN had approximately 500 client companies located throughout the United States.
From about 2008 to March 2014, the defendants defrauded at least 113 ESN clients of approximately $11 million dollars intended for payroll and employment tax payments and used it to support their personal lifestyles. The victim companies include, among others, a company dedicated to delivering services for children with developmental disabilities or chronic illness, families in poverty, and families caring for the elderly and a company involved in the production of racing engines for a number of NASCAR Sprint Cup teams.
During that time period, James Staz embezzled at least $3.7 million in client funds and directed the money to his personal bank account. In order to conceal his embezzlement, James Staz made false entries into ESN’s accounting system to make it appear as though the stolen funds were used for legitimate client expenses. In reality, James Staz used the money to pay for alcohol, strip club entertainment, jewelry, a Mercedes Benz and a luxury home with a lavish three-tiered pool, a cascading waterfall, wet bar and dining area. For example, on October 25, 2012, James Staz embezzled nearly $125,000 from ESN and in the next four days, he spent the stolen funds on nearly $40,000 in charges at strip clubs and night clubs and nearly $120,000 on a new Mercedes Benz. Over the course of the fraudulent scheme, William Staz drew a salary from ESN as high as $200,000, including for the 9-month period he was incarcerated in federal prison.
To conceal their theft and to cover the losses and tax penalties caused to ESN clients by the delinquent payments, the defendants comingled and used client funds ESN collected for a current payroll/tax period to cover the previous period’s payroll and taxes. To further cover their scheme, the defendants then sent regular e-mails to clients, falsely stating that all employment taxes had been paid, which was not true for some of ESN’s clients.
The indictment charges William and James Staz with one count of wire fraud. James Staz is also charged with nine counts of money laundering. James Staz had his initial appearance today before U.S. Magistrate Judge David Keesler and will remain in custody pending his arraignment and detention hearing, which have been scheduled for Friday, October 31, at 9:30 a.m. William Staz will be ordered to appear on a summons.
The maximum prison term for the wire fraud charge is 20 years and a $250,000 fine. The maximum prison term for each of the money laundering charges is 20 years in prison and a $500,000 fine or twice the amount of the criminally derived proceeds, whichever is greater.
Hat tip: Fraud Talk reader Craig
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