There are smart ways and dumb ways to do income-tax evasion and disgraced former Staten Island Congressman Michael Grimm took the stupid route.
Grimm is awaiting sentencing after pleading guilty to a single count of income-tax evasion and admitting to skimming cash from Healthalicious, the New York restaurant he co-owned before he was elected to Congress. (He was indicted on 20 counts that also included mail fraud, hiring undocumented immigrants and perjury.)
According to the indictment, he evaded sales tax on cash transactions and paid some of his employees in cash (off the books) thereby dodging paying payroll taxes, unemployment insurance, and disability insurance. And, while he only pleaded guilty to one count, he admitted other wrongdoing in a "statement of facts," including hiding over $900,000 in revenue and hiring the undocumented workers.
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I speak from experience: I was up to my eyeballs in my family's scheme to underreport cash revenues and evade income taxes at Crazy Eddie when we were a private company, starting at the age of 14 in 1971 until 1984. (I was counting and dividing the money as a teenager before going on to become an executive at the company after college.) Then, we found it more profitable to screw investors by switching to securities fraud and overstating profits as a public company from 1984 to 1987. We reaped huge financial rewards by selling stock to unsuspecting investors at inflated prices. (Eventually, we were busted for securities fraud. In an effort to save my own rear end, I showed the federal investigators where the bodies were buried: secret foreign bank accounts.)
My former bosses running Crazy Eddie would never have let an amateur like Grimm participate in our tax-evasion schemes! If you are to engage in any scheme to skim money and evade taxes, there is one golden rule: Never leave an audit trail.
Michael Grimm left behind a body of evidence in the most convenient places for the federal investigators to help bury him. According to the indictment, "GRIMM maintained electronic spreadsheets which detailed the restaurant's true payroll information, including the cash wages, while concealing such cash wages from the payroll processing companies retained by Healthalicious." Furthermore, the indictment stated that, "On numerous occasions from March 2010 through June 2010, GRIMM sent the Manager emails from the GRIMM AOL Email Account containing excerpts from the Second Set of Payroll Records, detailing how much cash each Healthalicious employee should receive for a particular week." His manager, Manuel Perez copped a plea and provided evidence to the FBI. (Grimm should have chosen his fellow co-conspirators more carefully.)
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Worst of all, Michael Grimm was an FBI agent before running for Congress! Didn't this moron learn anything about the mistakes of criminals he helped bust at the FBI?
Grimm is scheduled to be sentenced on June 8. The government and Grimm's lawyers will no doubt squabble over the suggested length of his sentence. The prosecutors will likely try to slam the high profile ex-congressman with a maximum sentence of five years in prison. His lawyers will predictably try to gain him a reduced prison sentence or no jail time at all.
Grimm's lawyers will probably argue that this three-year tax-evasion scheme was a "momentary lapse of judgment," bombarding the judge with letters from thousands of his family, friends, and constituents attesting to his "good character." Grimm delegated running his ongoing tax fraud to his manager so he could better serve his constituents in Congress. Many of those constituents, I'm sure, will come to his aid and ask the court to show him mercy.
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As a congressman, Michael Grimm sold hope to voters. Now Grimm is living on the hope that a federal judge will be moved by letters from old ladies reminiscing about how nice a Boy Scout he was while he engaged in tax evasion.
Unless, of course, he knows another song – and can sing to the Feds about a different case.
Commentary by Sam Antar, the former CFO of Crazy Eddie, former CPA and a convicted felon. He now teaches law-enforcement professionals how to catch the crooks. Follow him on Twitter @SamAntar.
Does all this crime talk have you in the mood for more? Tune in to CNBC tonight at 10pm for an all new episode of "American Greed." Tonight, a tale of a marriage, millions and murder. (Watch below or click here for a sneak peek.)
