People who invested $50,000 or more with defunct Fair Finance Co. are being solicited by a Columbus-area business that says it might be able to recoup some of their losses through a special provision of the income tax code.
About 25 holders of Fair Finance investment certificates attended a meeting Saturday in Fairlawn put on by Fraud Recovery Group Inc. of Worthington, which says it specializes in using the tax code to recover money lost through investment fraud such as Ponzi schemes. Some of the investors said they anticipated accepting Fraud Recovery Group's services.
The U.S. Department of Justice this year sued Fraud Recovery Group, its founder, Tobias Elsass, and related business Sensible Tax Services Inc. in U.S. District Court for the Southern District of Ohio, saying they are improperly using the tax code and should not be allowed to prepare income tax returns. The suit says Elsass' license to practice law was suspended more than 10 years ago and he has violated other parts of the IRS code.
While acknowledging that Elsass' law license was suspended indefinitely in 1999, the company said it denies the other allegations raised by the government. Fraud Recovery says it amends tax returns using ''Section 165 (c)(2)'' of the IRS code, which involves theft-loss claims.
Fraud Recovery says it has a better than
94 percent success rate. In its formal response to the federal lawsuit filed this year, the company said the IRS has disallowed ''only 39'' of 700 theft-loss claims it has prepared in the last four years.
Elsass, who was at the Saturday program at the Doubletree Hotel off West Market Street and invited the Beacon Journal to sit in, spoke about the lawsuit to the people in a small meeting room and acknowledged the lawsuit in handouts given to the participants.
The case is not expected to go to trial until 2012, he said.
Meanwhile, Fraud Recovery Group can continue to operate, a spokesman for the Department of Justice said.
''Until they are enjoined by the court, they can proceed,'' department spokesman Charles Miller said. ''It's a complaint. We have to prove it in court.''
Trustee posts notice
Brian Bash, the court-appointed trustee for Fair Finance, posted a notice on the official Fair Finance bankruptcy Web site urging people to proceed cautiously with Fraud Recovery Group. The trustee noted the federal lawsuit against Fraud Recovery and said he is not familiar with the business.
''We are the only company like this in the United States that I know of,'' Elsass said. Many federal officials, including those at the Department of Justice, do not understand the specific area of the IRS code that his firm specializes in, he said.
''They have no idea how successful we are,'' Elsass said. ''We will continue to do this because we know we're right.''
Elsass said he and his 30-plus employees are careful about their work and do significant research on fraud cases before deciding to solicit people. While they are based in Ohio, they work on fraud cases nationwide, he said.
''It takes thousands of dollars to fix a mistake. I don't like those calls,'' he said. ''We are very organized. We are like a factory. We have proprietary processes.''
Elsass said he estimates 10 to 15 of the people who attended Saturday's program will sign with his company. When those people succeed in getting some of their money back through an amended tax return, word of mouth will bring in more Fair Finance clients, he said.
While there were allegations a year ago in court documents that Fair Finance Co. was being operated as a Ponzi scheme and that its owners engaged in wire fraud, no one has been charged or arrested. The FBI raided Fair Finance's headquarters and those of a related company in Indianapolis on Nov. 24, 2009.
Holders of Fair Finance investment certificates in February forced the long-time Akron consumer loan and finance company into bankruptcy as a means to protect any remaining assets. More than 5,300 people and organizations had purchased more than $200 million in uninsured Fair Finance investment certificates.
Elsass said that because the Securities and Exchange Commission is looking into Fair Finance and its related businesses, investment certificate holders should be able to qualify under the Section 165 provisions.
A spokesman for the Internal Revenue Service said the agency could not comment about Fraud Recovery Group's work or the federal lawsuit. Instead, the spokesman referred to public comments made March 17, 2009, before a U.S. Senate panel by IRS Commissioner Doug Shulman.
Establishing theft loss
In those comments, Shulman said the law does not require a criminal conviction of a ''promoter'' to establish a theft loss.
Shulman said the IRS will deem the loss to be the result of theft if:
• The promoter was charged under state or federal law with the commission of fraud, embezzlement or a similar crime that would meet the definition of theft.
• Or the promoter was the subject of a state or federal criminal complaint alleging the commission of such a crime.
• And either there was some evidence of an admission of guilt by the promoter or a trustee was appointed to freeze the assets of the scheme.
The full text of Shulman's speech is available at http://www.irs.gov/newsroom/article/0,,id=205374,00.html.
Fraud Recovery Group says it charges people one of two ways: One is an up-front fee equal to 15 percent of the anticipated tax refund or, if people prefer to wait to see whether the IRS accepts the filing, a 30 percent charge of any refund actually received.
The amount of money that a person might get back depends on his or her tax bracket, Elsass said. As an example, Elsass said someone in the 25 percent tax bracket who lost $100,000 in Fair Finance certificates could get back $25,000, while someone in the 10 percent bracket would get back $10,000.
The amount of money returned would be separate from anything that Fair Finance investors would receive under the bankruptcy proceedings, Elsass said.
''We're not going to conflict with them [bankruptcy],'' Elsass said.
No beneficiary trusts
Not everyone who lost money in Fair Finance will be eligible for a tax refund under Section 165, Elsass said. He told one man at the meeting that because the certificates were held in a beneficiary trust for the man's grandchildren that Elsass could not work with him.
''If it's in Social Security numbers for the kids, I can't help you,'' Elsass said. ''We can't do beneficiary trusts.''
Robert Buterbaugh, a Coventry resident, said he expected to sign with Fraud Recovery Group.
''I don't see where I can lose anything,'' he said. ''These people have been very nice to me.''
Leon and Lois Glick of Massillon said they needed time to think over what they heard from Fraud Recovery Group.
''I'll be in touch with my CPA before I make a decision. I can't say that I'm going with them. It's a lot to think about,'' Leon Glick said.
Jim Mackinnon can be reached at 330-996-3544 or email@example.com.