Indianapolis man pleads guilty to federal charges in $9M ‘Ponzi scheme’
ST. LOUIS, Mo. – An Indianapolis man has pleaded guilty to federal charges stemming from a scheme to defraud, which caused losses of $9.4 million to clients of his payroll service business and the Internal Revenue Service (IRS).
David L. Downey ran a payroll services business in Indianapolis under the name Time Payroll from 2013 to 2017, with clients in Indiana, Illinois, Kentucky and Missouri. Friday, the Department of Justice (DOJ) says the 50-year-old admitted he deflected money from his clients’ accounts to his Charles Schwab brokerage accounts and failed to pay substantial amounts of those client funds to the IRS for the clients’ employment taxes.
Over the course of the scheme, the DOJ says Downey misapplied some $20 million into his day-trading accounts at Charles Schwab and returned only $11 million of those funds to the IRS for employment taxes. He admitted to a loss to the clients and to the IRS of $9,428,160.
After closing his business in late 2017, the DOJ says Downey cashed out his remaining brokerage and bank accounts and headed to California, where he attempted to get a U.S. passport using his brother’s name. Special Agents from the IRS Criminal Investigation unit in St. Louis tracked Downey to California and, on November 16, 2018, arrested him in Huntington Beach.
At the time of his arrest, the DOJ says Downey was in possession of $955,956 in cash. He had also used $53,990 in cash to purchase a 2018 Jeep Cherokee, which was seized and will be forfeited for the benefit of his clients as part of the plea agreement.
One of Downey’s clients was Health Facilities Rehab Services (HFRS) located in Sikeston, Missouri. He admitted he withdrew $127,418.48 from an HFRS business account and instead of paying that money over to the IRS for the HFRS employment taxes, he paid over virtually all of those funds to the IRS to cover shortages he had created for other clients.
“Downey in effect ran a Ponzi scheme using his clients’ money,” said the IRS.
Friday, Downey pleaded guilty to one count of wire fraud relating to the wire transfer of the HFRS funds and one count of federal employment tax evasion relating to the HFRS employment tax liability for the third quarter of 2015. He admitted that he attempted to evade $243,913.59 in HFRS employment taxes for that quarter.
Downey also pleaded guilty to a passport fraud charge relating to his efforts to obtain a passport in his brother’s name.
Downey is scheduled to be sentenced on Dec. 13. Based on papers filed with the court, he faces a possible prison sentence of 72 months plus fines up to $750,000. He will also be subject to an order of restitution in favor of his clients and the IRS.
“Today’s guilty plea shows that using employment taxes for personal and luxurious expenses will result in criminal consequences,” said Acting Special Agent in Charge Steven Slazinik, IRS Criminal Investigation. “IRS-CI Special Agents will continue to vigorously investigate those who commit employment tax fraud.”