Lose a Court Case, Commit Tax Fraud to Recoup the Loss

Gene Haas, of Camarillo, California, owns Haas Automation, Inc., one of the leading CNC (computer numerical control) machine tool companies. They even have a Nextel Cup racing team. Needless to say, Haas Automation is a successful company.

Back in 2000, Haas Automation settled a patent infringement case. Hurco Companies, Inc., of Indianapolis, accused Haas Automation of violating a patent on interactive CNC programming. Hurco convinced a jury that Haas Automation was in violation, and after the judge warned Gene Haas that he could be looking at a $150 million judgment, the companies settled for something in the tens of millions of dollars, according to this article. A senior executive at Haas told Metalworking Insiders Report that there would be no change in operations because of the judgment.

He was wrong.

The New York Times detailed the scheme in today’s paper. After Mr. Haas and his company lost the patent case, he was angry with the government and with the judge who presided over the case. Court papers indicate that he decided that some tax fraud was a good way to get back at the government.

So, enlisting the help of his then CFO, John Phillips, the business created a phony company in Nevada called “Supermill,” and then paid the phony company from phony invoices. Then Mr. Haas and Mr. Phillips got in a business dispute, Mr. Haas sued Mr. Phillips for $27 million (apparently related to the phony transactions), and Mr. Phillips went to the FBI and told them of the scheme. (Mr. Phillips was not indicted.) It’s not a good idea when you commit tax fraud to get a co-conspirator angry enough to go to the FBI.

The DOJ, in a press release announcing Haas’ indictment, claimed that the tax fraud was upwards of $20 million. Now, with a $5 million fine added in, penalties, and interest, the total judgment is somewhere around $70 million. And Mr. Haas will be receiving two years at ClubFed.

If you find yourself losing a court case, I strongly recommend that you do not follow Mr. Haas’ path, and decide that committing tax fraud is a way of getting back at the judge. Kenneth Barish, an attorney for Mr. Haas, in describing the plea deal, noted, “[u]nder the circumstances, it was a good result.” When paying $70 million and getting two years at ClubFed is a good result, you wonder what a bad result would be.

Hat Tip: TaxProf Blog

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