Tax-Fraud Wrist-Slap for Beanie Babies Creator


     CHICAGO (CN) – Beanie Babies creator H. Ty Warner will not go to prison for tax evasion, the Seventh Circuit ruled, citing his “overwhelming” record of charity.
     The government had appealed after a federal judge sentenced Warner to just two years’ probation for failing to report $24 million in Swiss bank account income.
     That sentence also ordered Warner to pay $80 million in back taxes and fines, but prosecutors noted that sentencing guidelines called for between 46 months and 57 months in prison for a crime of that magnitude.
     A three-judge panel of he Seventh Circuit affirmed the sentence Friday, citing Warner’s “overwhelming” record of charity and benevolence.
     Disputing claims that the trial judge had let Warner use wealth as a “get-out-of-jail-free card,” the panel noted that U.S. District Judge Charles Kocoras had “looked behind the numbers to Warner’s character and found him to be a genuinely benevolent person.”
     “A non-wealthy defendant who showed similar qualities would be entitled to similar treatment (all else being equal),” Judge Michael Kanne wrote for the court. “And a rich defendant who gave large gifts without real concern for others, or who did so cynically to give himself an argument at sentencing, would not deserve the same leniency.”
     Kanne, appointed to the federal bench by President Ronald Reagan, noted that Warner paid full restitution, plus a $53.6 million penalty, which was nearly 10 times the tax loss.
     Even the government had sought a well-below-guidelines sentence, only charging Warner with one count despite years of willful tax evasion, the court found.
     “While incarcerating Warner undoubtedly would have sent a stronger message,” for deterrence purposes, “the message sent by his existing sentence is, in our view, strong enough to satisfy § 3553(a)(2)(B),” Kanne said (emphasis in original).
     Emphasizing that Warner’s case is unique, Kanne said other tax evaders will not be granted similar leniency.
     Judge Joel Flaum, a fellow Reagan appointee, concurred in the judgment.
     Admitting that the ruling made him uneasy about “the signal that it may send about how the criminal justice system treats wealthy tax evaders,” Flaum said the deference afforded to a sentencing judge, plus the government’s lenient prosecution of the case, persuaded him that the sentence falls within the trial court’s discretion.
     Judge Ilana Rovner, appointed by President George H.W. Bush, rounded out the panel.
     Warner, 70, of Oak Brook, Ill., is the sole owner of TY Inc., which designs and sells Beanie Babies and other plush toys.
     Warner’s secret account with UBS dated back to January 1996, three years after the first nine Beanie Babies were introduced.
     By 2002, the account held a balance of $93.6 million.
     When UBS agreed to begin reporting certain tax information to the Internal Revenue Service, Warner’s banker Hansredi Schumacher left UBS, and advised Warner to move his money to Zuercher Kantonalbank, which did not have an agreement with the IRS, prosecutors said.
     Schumacher managed Warner’s new account at Zuercher Kantonalbank. Schumacher was indicted in Florida in 2008, accused of conspiring to defraud the United States.
     Prosecutors estimate that Warner earned more than $24.4 million through investments in foreign accounts between 1999 and 2007, which he willfully failed to disclose, checking “no” next to the box on his tax forms asking if he held a foreign bank account.
     Warner’s trial ended with the court finding the crime out of place in his long record of charity.
     “Never have I had a defendant in any case – white collar crime or otherwise – demonstrate the level of humanity and concern for the welfare of others as has Mr. Warner,” Kocoras had said.
     The judge received numerous letters from charitable directors, employees, business associates, and even a stranger whose stem cell treatment Warner fully funded, testifying to his generosity, which was often “quiet and private.”

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