A federal grand jury last week indicted a Houston attorney on charges that he and other unnamed Houston lawyers helped a client in a scheme to transfer a total of $18 million in offshore funds to fraudulent U.S. investment accounts in an effort to evade federal income taxes.
For his part in concocting the elaborate scheme, the 31-page indictment says the client paid Jack Stephen Pursley more than $4.8 million – or 26 percent – of the offshore funds and gave him an interest in his ongoing business.
Pursley, a personal injury attorney, is accused of four counts of tax evasion and one count of conspiracy to defraud the U.S. government. According to court records, he pleaded not guilty before a federal magistrate at his arraignment late last week and was released on a $100,000 cash bond posted Friday.
Criminal tax defense lawyer Michael Louis Minns, who is representing Pursley, did not return calls seeking comment. Prosecutors with the Department of Justice would not comment.
The indictment, filed last Thursday, says Pursley and his client, identified only as “Co-Conspirator 1,” executed the transfers from offshore bank accounts in the Isle of Man to the U.S. by forming shelf companies in Texas and then creating a fake paper trail that made it look like the money represented stock investments in the newly-formed companies.
The indictment described Pursley and Co-Conspirator 1 as friends from college. Pursley received his undergraduate degree from Texas Christian University and his law degree from the University of Tulsa.
The indictment also describes the participation of other Houston attorneys. Identified only as Attorney 1, Attorney 2 and Attorney 3, the indictment says the attorneys were given false information that Pursley and Co-Conspirator 1 provided to them.
The Money Web
In the indictment issued last week by a federal grand jury in the Southern District of Texas, prosecutors provide in-depth details alleging a multi-year scheme that involved multiple lawyers — some of them apparently unwittingly. Here’s how the indictment says the scheme worked:
According to the indictment, the funds originated in Southeastern Shipping Company Limited, which until 2009 provided workers to clients who owned offshore oil rigs, primarily in the Middle East. In 2009, actual operations of Southeastern Shipping were transferred to Recruitment Partners LP, making Southeastern, in effect, a shelf corporation. Although he retained continuous ownership of both companies, Co-Conspirator 1 began presenting a Brazilian citizen as their nominal owner.
Beginning in 2007, according to the indictment, Co-Conspirator 1 sought help from his college friend Pursley in repatriating funds from the foreign accounts of Southeastern Shipping.
An unidentified financial company in the Isle of Man was hired to manage Southeastern’s accounts. Meanwhile, Co-Conspirator 1 created yet another company, Pelhambridge Limited, described in the indictment as having “no legitimate purpose” other than to facilitate the transfer of funds.
Pursley demanded compensation and received it from the funds he helped transfer, according to the indictment. In March 2007, the two executed a sham stock agreement, in which Co-Conspirator 1 agreed to pay $900,000 for 7.5 percent of Gulf States Management Corporation, a company owned by Pursley. Co-Conspirator 1 created a Texas company, Diversified Land Holdings Inc., to which funds were transferred by the Isle of Man financial company through Pelhambridge Limited.
That transaction was already part of a pattern. Between 2007 and 2009, the two transferred $2.735 million in funds from Southeastern labeled as interest-free “loans” to Pelhambridge, then disbursed as three separate payments for investments in Diversified. The $900,000 payment to Pursley’s Gulf States company was made from those “investments,” the government said. Co-Conspirator 1 kept the remaining $1.835 million. Neither reported the income or the foreign accounts they controlled, as required by the IRS, and neither paid taxes, according to the indictment.
In 2009, after their trust services company (the Isle of Man financial company) expressed concerns about tax compliance issues, Pursley and Co-Conspirator 1 moved to transfer the remaining $15 million. The indictment says the two consulted with several Houston attorneys concerning ways to repatriate the funds, but in doing so provided false or misleading information, while rejecting any proposals that would require them to declare the funds as income or pay U.S. taxes.
Still, with the help of Attorney 1, they formed Australian Partners Holding Corp., an Australian investment entity nominally owned by the Brazilian. That holding company then proceeded to make sham investments to three new companies – one owned by Pursley and two owned by Co-Conspirator 1 – allegedly for the purchase of real estate.
The $15 million from Southeastern accounts, however, were made to an IOLTA trust account controlled by Attorney 1. Documents were created, apparently by several Houston lawyers, to make the payments look like legitimate investments.
By the time all payments were made, Co-Conspirator 1 had repatriated nearly $11.4 million to accounts he controlled, and Pursley earned another $3.925 million for his part in the scheme.
Both Pursley and Co-Conspirator 1 withdrew the funds from the U.S. corporations for their own personal use, recording them as non-taxable “loans” or “returns of capital” from the corporations, the indictment says.
Aside from creating savings and investments accounts, Pursley used the purported investment funds to buy properties in Houston as well as a vacation home in Vail, Colorado, the indictment says.
A tentative trial date has been set for Nov. 27. Prosecuting the case for the government are senior litigation counsel Nanette L. Davis and trial attorneys Grace Albinson and Sean Beaty of the DOJ’s Tax Division in Washington, D.C.
The case has been assigned to U.S. District Judge Lynn Hughes of the Southern District of Texas, but preliminary matters including arraignment and bail have been handled by U.S. Magistrate Judge Peter Bray.