Text of Hubbell indictment

(First of three parts)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA
v.
WEBSTER L. HUBBELL,
SUZANNA W. HUBBELL,
MICHAEL C. SCHAUFELE, and
CHARLES C. OWEN,
DEFENDANTS
Criminal No. 9-0151
VIOLATIONS:
Count 1 -- Conspiracy
(18 U.S.C. § 371)
Count 2 -- Impede and Impair the IRS
(26 U.S.C. § 7212[a])
Count 3--Tax Evasion
(26 U.S.C. § 7201)
Counts 4-5 -- Aid in Preparing False Return
(26 U.S.C. § 7206[2])
Counts 6-10 -- Mail and Wire Fraud
(18 U.S.C. § 1341, 1343 and 2);
INDICTMENT
THE GRAND JURY CHARGES:

INTRODUCTION
1. WEBSTER L. HUBBELL was an attorney at the Rose Law Firm in Little Rock, Arkansas. In 1993, he became Associate Attorney General at the Department of Justice.
2. In 1994, WEBSTER L. HUBBELL resigned from the Department of Justice. In late 1994, WEBSTER L. HUBBELL pled guilty in connection with his fraudulent billing during 1989-1992 of almost $400,000 at the Rose Law Firm.
3. The fraudulent billing resulted in additional income that WEBSTER L. HUBBELL and his wife, SUZANNA W. HUBBELL, did not report on their state and federal tax returns. This additional unreported income, in turn, created additional tax due.
4. In addition to owing taxes, interest and penalties for 1989-1992, the HUBBELLs did not pay a substantial portion of their tax liabilities for 1994 and 1995.
5. Beginning in 1995, the Internal Revenue Service, the State of Arkansas, and the District of Columbia took steps to collect the HUBBELLs' delinquent taxes. By late 1997, the taxes, interest and penalties for 1989-1992, 1994, and 1995 exceeded $894,000.
6 a. During 1994 through 1997, WEBSTER L. HUBBELL, SUZANNA W. HUBBELL, MICHAEL C. SCHAUFELE (a certified public accountant and HUBBELL friend), and CHARLES C. OWEN (an attorney and HUBBELL friend), and others, took various steps to conceal the HUBBELLs' income, and to impede the ascertainment, assessment, and collection efforts of certain creditors, including the Internal Revenue Service (IRS), the State of Arkansas, the District of Columbia, and the Rose Law Firm. These steps included, but were not limited to, the following:
b. Between 1994 through 1997, WEBSTER L. and SUZANNA W. HUBBELL had income in excess of one million dollars, but made only modest tax payments to the Internal Revenue Service toward paying their 1989-1992, 1994 and 1995 tax liabilities.
c. During the same period, the HUBBELLs spent over $750,000 on personal items. The HUBBELLs liquidated assets and spent down their funds which reduced the amount of money available to the IRS and other government creditors.
d. MICHAEL C. SCHAUFELE prepared and filed false federal tax returns for the HUBBELLs for 1994, 1995, and 1996, which understated income and tax.
e. MICHAEL C. SCHAUFELE, assisted by CHARLES C. OWEN, created and used bank accounts which assisted the HUBBELLs in concealing funds from the Internal Revenue Service and other creditors.
f. SUZANNA W. HUBBELL and CHARLES C. OWEN provided false and incomplete financial information to the IRS to conceal the existence of a bank account and to conceal the existence of trusts of which the HUBBELLs were beneficiaries.
g. CHARLES C. OWEN created a company called Bridgeport Group, LLC (Bridgeport), and assisted MICHAEL C. SCHAUFELE in setting up a Bridgeport bank account to conceal funds from and impede the ascertainment, assessment, and collection efforts of the IRS, the State of Arkansas, the District of Columbia and the Rose Law Firm.
7. Through these and other efforts, the HUBBELLs attempted to impede and impair these creditors and pay substantially less money than they owed and were able to pay.

GENERAL ALLEGATIONS
8. From in or about 1973 through in or about 1992, WEBSTER L. HUBBELL was an attorney in the Rose Law Firm of Little Rock, Arkansas.
9. In or about January 1993, WEBSTER L. HUBBELL began his employment with the United States Department of Justice.
10. In or about May 1993, WEBSTER L. HUBBELL was confirmed as an Associate Attorney General at the Department of Justice.
11. In or about March 1994, WEBSTER L. HUBBELL announced his resignation from the Department of Justice, which took effect in April 1994.
12. In or about March 1994, there was a meeting at the White House, at which was discussed the issue of whether WEBSTER L. HUBBELL should resign due to allegations concerning HUBBELL's possible over billing of the Rose Law Firm and its clients while he worked there. Subsequently, one or more individuals suggested that efforts be taken to assist WEBSTER L. HUBBELL in obtaining work.
13. At the time WEBSTER L. HUBBELL resigned from the Department of Justice, the Rose Law Firm had already started examining HUBBELL's prior billing practices at the Firm. The Rose Law Firm started its inquiries in approximately Spring 1993, and continued to make inquiries of HUBBELL concerning possible fraudulent billing of personal expenses to clients and the Firm.
14. In or about May 1994, a Special Prosecutor served WEBSTER L. HUBBELL with a federal grand jury subpoena commanding HUBBELL to produce certain financial information, including tax return information and information relating to his billing practices.
15. Beginning in or about April 1994, WEBSTER L. HUBBELL commenced holding himself out as a consultant. From April 1994, through December 1994, HUBBELL received approximately $450,010 in connection with his "consulting" business. He only reported approximately $376,075 of these payments on his federal tax return. WEBSTER L. HUBBELL made zero estimated tax payments to the IRS concerning his 1994 consulting income and zero tax payments with his 1994 return.
16. Approximately 15 clients paid WEBSTER L. HUBBELL consulting income in 1994. The fees ranged between $5,000 and $100,000. WEBSTER L. HUBBELL performed little or no work for some of these payments. The payors of these fees included Hong Kong China Limited ($100,000), Revlon ($62,775), and others.
17. In or about September 1994, the Office of the Independent Counsel notified WEBSTER L. HUBBELL that it could prove HUBBELL had intentionally falsely billed in excess of $350,000 to the Rose Law Firm and/or certain of its clients. The Office of the Independent Counsel further advised WEBSTER L. HUBBELL that his anticipated additional tax liability for 1989-1992 would be substantial and in excess of $100,000.
18. On December 6, 1994, WEBSTER L. HUBBELL pled guilty to a two-count Criminal Information filed in the United States District Court for the Eastern District of Arkansas in Little Rock, Arkansas, charging him with one count of willful tax evasion for 1992 and one count of mail fraud concerning the fraudulent billing of approximately $394,000 between 1989-1992, and the failure to include that money as income. United States v. WEBSTER HUBBELL, No. LR-CR-94-241, United States District Court, Eastern District of Arkansas, Western Division.
19. In or about December 1994 through January 1995, WEBSTER L. HUBBELL and MICHAEL C. SCHAUFELE executed three trust agreements designating SCHAUFELE as trustee. MICHAEL C. SCHAUFELE was a resident of Little Rock, Arkansas, a Certified Public Accountant (CPA), and a partner at L. Cotton Thomas & Company. SCHAUFELE was a long-time friend of WEBSTER L. HUBBELL.
a. The first trust agreement, executed on or about December 30, 1994, was titled the Webster Hubbell Legal Expense Trust.
b. The second trust agreement, executed on or about January 19, 1995, was titled the Hubbell Children's Education Trust.
c. The third trust agreement, executed on or about January 19, 1995, was titled the Hubbell Family Support Trust.
20. On or about January 24, 1995, MICHAEL C. SCHAUFELE opened three non-interest bearing bank accounts at Metropolitan National Bank, Little Rock, Arkansas.
a. One account was styled, "WEBSTER HUBBELL Legal Expense Trust, MICHAEL C. SCHAUFELE, Trustee."
b. A second account was styled, "HUBBELL Children's Education Trust, MICHAEL C. SCHAUFELE Trustee."
c. A third account was styled "HUBBELL Family Support Trust ... MICHAEL C. SCHAUFELE Trustee."
21. The signatories on these accounts were SCHAUFELE and his secretary. In some instances, SCHAUFELE transferred funds into his interest-bearing account.
22. Under the terms of the Children's Education Trust agreement, money contributed to the trust was to be used for the HUBBELL children's education. In some instances, funds were transferred from the Education Trust account to another account SCHAUFELE opened in 1996, and were then spent on living expenses for WEBSTER L. and SUZANNA W. HUBBELL.
23. On June 28, 1995, HUBBELL was sentenced on his two-count Criminal Information by the Honorable George Howard, Jr., Senior Judge, United States District Court, Eastern District of Arkansas, to 21 months' incarceration.
24. Prior to reporting to federal prison, WEBSTER L. HUBBELL wrote a handwritten sheet which purported to list all of his consulting income by client when in fact it only listed some of his income. The sheet also listed purported business expenses. HUBBELL failed to include income received from five clients, which totaled approximately $74,000. WEBSTER L. HUBBELL provided this handwritten sheet to MICHAEL C. SCHAUFELE for SCHAUFELE's use in preparing WEBSTER L. and SUZANNA W. HUBBELL's 1994 joint individual income tax return, Form 1040. SCHAUFELE had prepared the HUBBELLs' tax returns for a number of years.
25. In or about August 1995, pursuant to the obligations of the Plea Agreement, WEBSTER L. HUBBELL filed, and caused to be filed, Amended U.S. Individual Income Tax Returns for the years 1989-1992.
26. As reported on the amended federal returns, the unreported income from HUBBELL's embezzlement resulted in additional tax, exclusive of interest and penalties of,

1989      $25,403.00;
1990      $37,552.00;
1991      $66,529.00; and,
1992      $48,476.00.
Total     $177,960.00.

27. The HUBBELLs made no tax payments with the amended federal tax returns, despite having substantial cash available.
28. On or about August 7, 1995, WEBSTER L. HUBBELL reported to the Federal Correctional Institution in Cumberland, Maryland to begin serving his sentence.
29. On or about October 2, 1995, WEBSTER L. HUBBELL caused SCHAUFELE to prepare and file Amended Arkansas tax returns for 1989, 1990, 1991, 1992, and a nonresident Arkansas tax return for 1994. The returns reported additional tax due of:

1989      $ 5,503,
1990      $ 8,322,
1991      $14,753,
1992      $10,510, and
1994      $ 1,742
Total     $40,830

The HUBBELLs did not make any payments on these additional tax liabilities.
30. On or about October 18, 1995, WEBSTER L. HUBBELL filed, and caused to be filed, a false and fraudulent joint U.S. Individual Income Tax Return, Form 1040, for the calendar year 1994. The return was signed by SUZANNA W. HUBBELL on behalf of WEBSTER L. HUBBELL and herself. This tax return reported Schedule C gross income from WEBSTER L. HUBBELL's "consulting" business of $376,075. This Schedule C and tax return failed to report "consulting" income from certain clients of approximately $74,000. This Schedule C and tax return also overstated certain business expenses by claiming as business expenses certain personal travel expenses for HUBBELL's wife and children to various locations including Greece and the Gulf Coast of Florida.
31. WEBSTER L. and SUZANNA W. HUBBELL reported total tax on the 1994 return of $141,432. The HUBBELLs made no tax payments with the tax return. The only tax applied to the 1994 return was $1,434 withheld from the W-2 wages of SUZANNA W. HUBBELL at the United States Department of the Interior, $7,111 withheld from the W-2 wages of WEBSTER L. HUBBELL at the Department of Justice prior to his April 1994 resignation, and $577 withheld from a gross distribution of the Thrift Savings Plan of WEBSTER L. HUBBELL, for a total of $9,122. WEBSTER L. and SUZANNA W. HUBBELL made no estimated or any other tax payments toward their joint 1994 additional tax due and owing of $136,345.
32. In order to extend the filing deadline for the 1994 federal tax return beyond April 15, 1995, SCHAUFELE's accounting firm filed an extension application, Form 4868. The extension application listed the estimated tax liability as $40,000. The HUBBELLs did not include the required payment with the extension application. The extension expired on August 15, 1995. The HUBBELLs filed their 1994 return on or about October 18, 1995.
33. The HUBBELLs made no estimated payments on their 1994 tax liability, did not make any payments when they applied for extensions, and did not include any payments when they actually filed the 1994 return. WEBSTER L. and SUZANNA W. HUBBELL received substantial income during 1994 and 1995 from which they could have made payments to the Internal Revenue Service to reduce their 1989-1992 and 1994 tax liabilities.

1994 INCOME
34. During 1994, the HUBBELLs received income from several sources.
a. WEBSTER L. HUBBELL received gross income (before expenses) in 1994 from "consulting" totaling approximately $450,010.00. The consulting income derived from 15 sources, including, but not limited to,
1. Hong Kong China Limited (Riady) -- $100,000.00,
2. Revlon -- $ 62,775.00.
WEBSTER L. HUBBELL's net consulting income was approximately $405,919.95.
b. WEBSTER L. HUBBELL also received income from the withdrawal of pension and annuity funds from the ROSE LAW FIRM of approximately $41,886.00 in 1994.
c. WEBSTER L. HUBBELL also received wages in 1994 from the Department of Justice prior to his resignation of $39,634.00.
d. WEBSTER L. HUBBELL also received 1994 interest income of $13,099.00, and dividend income of $20.00.
e. WEBSTER L. HUBBELL also received capital gains in 1994 of approximately $16,957.00.
f. SUZANNA W. HUBBELL received wages from the Department of the Interior in 1994 of $13,899.00.
The HUBBELLs' total 1994 income was approximately $531,414.95.

1995 INCOME 35. During 1995, the HUBBELLs received income from several sources.
a. WEBSTER L. HUBBELL received consulting and book income, after expenses, in 1995 of approximately $95,175.00.
b. WEBSTER L. HUBBELL received pension and annuity income in 1995 of $184,311.00.
c. WEBSTER L. HUBBELL received capital gain and interest income in 1995 from the payoff of an installment sale of a warehouse of approximately $83,128.26.
d. SUZANNA W. HUBBELL received wages in 1995 of $46,988.
The HUBBELLs' total 1995 income was $409,602.26.
36. During 1995, the HUBBELLs again made no estimated tax payments on their 1995 anticipated tax liability, and made no tax payment when they filed their return. The HUBBELLs also made no payments to reduce their 1989-1992 and 1994 federal tax liabilities.
37. Commencing in or about November 1995, the Internal Revenue Service began sending notices regarding the HUBBELLs' tax liabilities. For example:
a. On or about November 20, 1995, the Internal Revenue Service sent a notice regarding the 1994 return and the failure to make any payments on the tax liability (including interest and penalty) of $167,562.80.
b. On or about December 11, 1995, the Internal Revenue Service sent notices regarding the 1989, 1990, 1991, and 1992 tax liabilities.
c. In or about January 1996, notices of intent to levy were sent regarding 1989-1992 taxes, interest, and penalties: 1992 - $107,927.23; 1991 - $156,416.96; 1990 - $98,028.18; and 1989 - $74,415.90.
38. In or about February 1996, the HUBBELLs received a notice concerning the tax liability the HUBBELLs owed to the District of Columbia for the year 1994, in the amount of $40,033.60. The District of Columbia notice was also provided to SCHAUFELE who then provided a copy to CHARLES C. OWEN. OWEN was an attorney in Little Rock, Arkansas, and was a long-time friend of WEBSTER L. HUBBELL.
39. In or about early February 1996, the HUBBELLs, OWEN and SCHAUFELE executed a Power of Attorney to represent the HUBBELLs with respect to their outstanding tax liabilities.
40 a. Because the defendants were concerned about the HUBBELLs' bank accounts being frozen or SUZANNA W. HUBBELL's wages being garnished, on or about February 8, 1996 OWEN contacted the William Morris Agency and requested on behalf of the HUBBELLs that William Morris Agency establish an escrow account for an upcoming payment that was to be made to WEBSTER L. HUBBELL pursuant to a book contract he had entered into with Harper Collins Publishers dated September 28, 1995. OWEN and the HUBBELLs requested that William Morris Agency put the book advance money into an interest-bearing account and disburse the funds only at the direction of WEBSTER L. or SUZANNA W. HUBBELL. OWEN confirmed this request by a letter dated February 15, 1996. William Morris Agency did not agree to set up the requested escrow account.
40 b. On February 26, 1996, the IRS recorded a Notice of Federal Tax Lien in Washington, D.C. The Notice was for an unpaid balance of $105,664.94 for the HUBBELLs' 1992 tax liability.

CONTINUED, See Part II

This article was published on Sunday, May 17, 1998

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