Criminal Case – Detailed Outline

Yesterday I posted my blog entry entitled Huge Filing in the Criminal Case - Synopsis of their Scam.  In that entry I focused on some of their past scams that involve their toxic chemical, but most of that information has already been reported on this blog.  Thus I wanted to share a portion of the Memorandum that deals directly with the tax fraud, and investor fraud:

Tax Fraud Case:

“The criminal tax fraud charges in this case arise out of defendants’ secret funneling of investor money to themselves through a bank account set up in the name of one of ESS’s outside vendors, as well as their receipt of other compensation from ESS that was not reported, or falsely reported, to the IRS.

Specifically, defendants opened a bank account in the name of “Ecologic,” a name misleadingly similar to one of ESS’s legitimate outside vendors, Eco-Logic Environmental Engineering, Inc. (the “real Eco-Logic”). That account is referred to herein (as well as in the indictment) as the “Bogus Ecologic Account.” Defendants then wrote checks drawn on ESS’s bank account (in which investors’ monies had been deposited) to “Ecologic”; but instead of giving the checks to the real Eco-Logic to pay for engineering equipment and services, defendants deposited the checks into the Bogus Ecologic Account and funneled the money to themselves -- by withdrawing cash, buying cashier’s checks, transferring money to their personal bank accounts, and writing checks drawn on the Bogus Ecologic Account. Defendants used this money for various personal expenses, including, for example, to purchase cars, motorcycles, and recreational vehicles, to pay for interior design and cabinetry work at their personal residences, and to purchase condominiums in Palm Desert, California. Defendants did not tell ESS’s accountant or other ESS employees about the existence of the Bogus Ecologic Account.

In addition to funneling money to themselves through the Bogus Ecologic Account, defendants also paid themselves large “management fees” for running ESS. These fees were typically $15,000 per month. After receiving tax forms (Form 1099s) from ESS characterizing such payments as compensation for their services, defendants instructed ESS’s accountant to falsely recharacterize such monies as “loans” from the company and issue new Form 1099s showing zero dollars of compensation, despite there being no loan documentation to support such a recharacterization, and despite the fact that other managers’ fees were not similarly recharacterized.

All told, defendants Jennings and Feuerborn received unreported income of at least approximately $1 million and $2 million, respectively. Defendant Jennings’ total tax due an[d] owing is approximately $236,000; defendant Feuerborn’s is approximately $604,000” (Case 2:10-cr-00346-SJO ; Page IDs 596-597).

Discussion:

Clearly David and Tom have as much contempt for the United States Government and its laws as they do for the investors of ESS.  We were told that they were building machines and using money for R&D while they were actually taking $15,000.00 a month in “management fees” and buying all kinds of toys and condominiums.  These management fees totaled THREE MILLION DOLLARS that went to pay for their extravagant lifestyles while investors were given false promises, and false hope of actually seeing their investment return to them one day.  This truly gets my blood boiling.  There are more than 600 ESS investors that were scammed by these criminals.  In my opinion, David and Tom deserve to spend the rest of their lives behind bars.   

12 more days until their trial begins.

-ESS Investor