Earlier this week, a federal grand jury sitting in Dayton, Ohio, handed down a 23 count indictment (downloads as a pdf) against Fesum Ogbazion and Kyle Wade for conspiracy and tax-related crimes. Ogbazion and Wade were each charged with one count of impeding the administration of the Internal Revenue Code, one count of conspiracy to commit wire fraud and five counts of wire fraud. Ogbazion is also charged with six counts of money laundering, one count of evasion of payment of employment taxes, eight counts of failure to collect and pay over employment taxes and one count of bank fraud.
If at least one of those names sounds really familiar, you're not imagining things: in 2013, a civil injunction was issued against Fesum Ogbazion, the CEO and sole owner of Instant Tax Service (ITS) Financial, and his three companies: ITS Financial, Tax Tree and TCA Financial. At the time, U.S. District Judge Timothy S. Black issued a scathing order against ITS, directing the company to shut down its operations, and further barring the defendants from "operating, or being involved with in any way, any work or business relating in any way to the preparation of tax returns." In his ruling, Judge Black wrote that he agreed with the federal government that "[t]his case presents an astonishing array of repeated fraudulent and deceptive conduct" by the defendants.
Despite the court order, Ogbazion was back at it, allegedly engaged in discussions to sell the company, an activity that appeared to be barred under the injunction. Todd Bryant, then General Counsel for ITS Financial, confirmed to me at the time via email that "[a]n asset sale is being considered."
Ogbazion also went back to court, seeking to appeal the injunction. In 2014, an appellate court upheld the injunction (downloads as a pdf) except with respect to Tax Tree; that singular matter was remanded to district court to determine whether there is any other basis on which to apply the injunction to Tax Tree since Tax Tree was a lender, not a tax preparer.
The story, however, seemed to end there. Readers sent me numerous emails advising that ITS was still in business for the 2014 tax season, despite the court order. Many other readers were angry that Ogbazion hadn't been criminally charged for his role in the scheme. Still, silence.
That changed last week. The indictment against Ogbazion and Wade, which alleges that crimes have been committed, has the potential to finally put an end to Ogbazion's activities in the tax preparation business.
According to the allegations in the indictment, Ogbazion owned and controlled ITS Financial LLC, the national franchisor of ITS, at one time considered the fourth-largest tax preparation business in the United States behind leaders
Ogbazion and Wade are also charged with conspiring to generate fees for ITS and its franchises by promising tax refund anticipation loans. The problem? ITS did not have an independent lender to fund the loans (the loans were to be financed by a company owned by Ogbazion which was not approved for full service lending). The indictment alleges that ITS collected approximately $15 million in application and tax preparation fees even though Ogbazion knew in advance that the large majority of the loan applications would be denied.
Finally, the indictment alleges that Ogbazion failed to turn over $1.26 million in payroll taxes during four tax quarters in 2009 and 2010. When the IRS attempted to collect those payroll taxes, Ogbazion reportedly moved money around and made false statements to an IRS revenue officer in an attempt to hide money.
The facts as alleged in the indictment largely mirror those in the injunction. And if it feels like there's a name missing in the indictment, you're right. The 2013 injunction specifically mentions Nirav Babu, described in those court documents as a close friend of Mr. Ogbazion and an ITS franchisee. Until 2009, Babu also acted as General Counsel for the company.
Despite the fact that Babu's name appeared extensively in the injunction, it is curiously missing from the indictment. According to the injunction, Babu served as the gatekeeper for a series of financial transactions initiated by Ogbazion. As part of those transactions, it was alleged that ITS transferred over $4.5 million of corporate funds into secret accounts with Babu as the signatory. The arrangement, it was alleged, allowed Ogbazion to continue to run the company and pay his own expenses. Who didn't get paid as part of the arrangement? ITS creditors and the IRS.
When Ogbazion appeared ready to sell ITS, a series of emails seemed to allege that Babu would buy the company in apparent defiance of the injunction. Todd Bryant, who served as General Counsel for ITS at the time, confirmed that "Mr. Babu has been one of the potential purchasers that the company has looked at" though the transaction never went through. Suggestions that those discussions were just that - discussions - appear to have been true.
Over the years, Babu has further attempted to distance himself from ITS. Once an owner of multiple ITS franchises, Babu's name now appears on just one: ITS East LLC, located in Maryland. The LLC is marked as Active but not in good standing with the State of Maryland. There doesn't appear to have been any activity in that company since 2013. In fact, Babu doesn't appear to have anything to do with tax preparation at all anymore: as an attorney barred in Maryland, Babu's recent activities have focused on real estate transactions.
As for Ogbazion, he can't seem to stay away from ITS. He's listed as one of 13 initial defendants in that civil action mentioned earlier which has petitioned for class action status; the other defendants in that action are ITS Financial, LLC ("ITS"); TCA Financial, LLC ("TCA Financial"); TCA Capital, LLC ("TCA Capital"); Tax Tree, LLC ("Tax Tree"); James B. Mowery; Pete Samborsky; Kyle Wade; Joseph Roda; Brook Wise; Gregory J. Woryk; Bill San Giacomo; and Kevin L. Harwood. The plaintiffs in that matter are seeking more than $5,000,000 in damages. Ogbazion and his related companies, along with Wade, are represented in that lawsuit by Todd Bryant of Ozion Brands, LLC; yes, that's the same Todd Bryant who was formerly General Counsel for ITS. Mr. Bryant did not reply to my latest request for comment.
That lawsuit is likely the least of Ogbazion's worries: if convicted of impeding the administration of the Internal Revenue Code, together with Wade, he faces a statutory maximum sentence of three years in prison and a fine of up to $250,000. If convicted of conspiracy to commit wire fraud and wire fraud, the pair face a statutory maximum sentence of 30 years in prison and a fine of up to $1 million for each count. If Ogbazion is convicted of money laundering, he faces a statutory maximum sentence of 20 years in prison and a fine of up to $500,000. If convicted of tax evasion and failure to pay over employment taxes, Ogbazion faces a statutory maximum sentence of five years in prison and up to a $250,000 fine for each count. Finally, Ogbazion faces a statutory maximum sentence of 30 years in prison and up to a $1 million fine on the bank fraud charges.
