RETURN to Clinton Crisis / RETURN to Part I
Hubbell indictment -- Part II
41 a. In or about April 1994, John Phillips, a friend of WEBSTER L. HUBBELL's, recommended that the Consumer Support and Education Fund (CSEF) hire HUBBELL to write a series of articles on public service, for which HUBBELL was to be paid $45,000. HUBBELL received the $45,000, but did not write the articles. After HUBBELL pled guilty in December 1994, he continued to represent to CSEF that he would complete the articles. By December 1995, HUBBELL still had not written the articles. Phillips, the founder of CSEF, decided to reimburse CSEF the $45,000. HUBBELL then volunteered to repay Phillips, and made a $10,000 payment to Phillips in January 1996.41 b. In or about February 1996, WEBSTER L. HUBBELL provided Phillips a promissory note in the amount of $45,000 and a security agreement. CHARLES C. OWEN drafted the note and agreement and SUZANNA W. HUBBELL signed it as attorney-in-fact for WEBSTER L. HUBBELL. The security agreement provided that certain specified pieces of the HUBBELLs' art collection, valued at approximately $40,000, would secure the promissory note. The security agreement had the effect of encumbering the art collection and subordinating the interest that the IRS and other creditors, such as the State of Arkansas and the District of Columbia, had in the art collection, to the interest of Phillips. Even though the promissory note and agreement were dated December 14, 1995, they were not prepared, executed and filed until February 1996.
42. On or about March 26, 1996, WEBSTER L. and SUZANNA W. HUBBELL entered into a contract in the amount of $613,000.00 to sell their personal residence located at 3843 Macomb Street, Northwest, Washington, D.C.
43. On or about April 14, 1996, WEBSTER L. and SUZANNA W. HUBBELL filed their 1995 joint U.S. Individual Income Tax Return which was prepared by MICHAEL C. SCHAUFELE. The return was signed by SUZANNA W. HUBBELL on behalf of WEBSTER L. HUBBELL and herself. This return failed to report capital gains and interest income from the installment sale of a warehouse the HUBBELLs owned in Little Rock. WEBSTER L. and SUZANNA W. HUBBELL made no tax payment with the tax return, which reported a tax due and owing of $112,281.00. The unreported income from the warehouse sale would have caused the tax due and owing with the 1995 return to be substantially greater than $112,281.00.
44. After OWEN was unsuccessful in persuading the William Morris Agency to open an escrow account (as described above in Paragraph 40), on or about May 28, 1996, MICHAEL C. SCHAUFELE opened a non-interest bearing checking account at the Pulaski County Bank in Little Rock, Arkansas. This non-interest bearing account did not generate a Form 1099, a copy of which would be sent to the IRS. The account was opened in the name, "MIKE C. SCHAUFELE for the benefit of WEBB and SUZY HUBBELL," (hereinafter referred to as the FBO [For the Benefit Of] account), Post Office Box 1126, Little Rock, Arkansas 72203. The opening deposit into the account was an $18,000 book advance check from William Morris Agency, Inc. and Harper Collins Publishers, payable to WEBSTER L. HUBBELL. The only signatory on the account was MICHAEL C. SCHAUFELE. This account was opened and used to impede and impair various entities, including the Internal Revenue Service from collecting monies owed by concealing funds available to the HUBBELLs. In some instances, funds that had been deposited into the HUBBELL Children's Education Trust were transferred into the FBO account and spent by or made available by SCHAUFELE for the benefit of WEBSTER L. and SUZANNA W. HUBBELL.
45. In or about May 1996, OWEN contacted an Internal Revenue Service Officer in the Washington, D.C., office of the Internal Revenue Service to discuss the HUBBELLs' outstanding federal tax liabilities. OWEN agreed to provide the officer with a copy of the 1995 Federal tax return and work with SUZANNA W. HUBBELL to complete a Collection Information Statement Form 433-A.
46. In or about May 1996, the Internal Revenue Service (IRS) sent OWEN a summary of the federal taxes owed by the HUBBELLS for the years 1989, 1990, 1991, 1992, 1994, and 1995. As of May 1996, the amounts owed were as follows:
47.
Tax Tax and Tax, Penalty
Year Penalty and Interest
as of 5/20/96
1989 $ 43,878.48 $ 78,555.03
1990 $ 65,984.50 $103,898.16
1991 $115,972.75 $166,143.72
1992 $ 85,346.86 $112,428.83
1994 $154,206.85 $184,433.53
1995 $112,281.00 $115,663.88
TOTAL $577,670.44 $761,123.15
48. On or about August 7, 1996, the IRS recorded a lien against the HUBBELLs in Washington, D.C. for the years 1989, 1990, 1991, 1994, and 1995 in the amount of $607,629.73.49. On or about August 12, 1996, SUZANNA W. HUBBELL signed and filed a IRS Collection Information Statement (Form 433-A) which purported to list financial information including income, assets and liabilities. SUZANNA W. HUBBELL was assisted in preparing this form by CHARLES OWEN. This form reported equity in assets of $12,758 and liabilities of $1,696,869.
50. The Form 433-A failed to disclose the existence of certain bank accounts including:
a. Account No. 2009927 at Pulaski County Bank titled "MIKE C. SCHAUFELE For the Benefit of WEBB and SUZY HUBBELL." SCHAUFELE was the signature authority on the account.
b. Account No. 1542842 at Metropolitan National Bank. That account was styled "HUBBELL Children's Education Trust, MIKE C. SCHAUFELE Trustee." SCHAUFELE and his secretary were the signature authorities on the account.
c. Account No. 1542834 at Metropolitan National Bank. That account was titled "HUBBELL Family Support Trust. ... MIKE C. SCHAUFELE Trustee." SCHAUFELE and his secretary were the signature authorities on the account.
51. The Form 433-A also required SUZANNA W. HUBBELL to identify whether she or WEBSTER L. HUBBELL were a, "participant or beneficiary to trust, estate, profit sharing, etc ..." SUZANNA W. HUBBELL answered no to that question when, in fact, she and WEBSTER L. HUBBELL did participate in and benefit from certain accounts and trusts which she did not report on the Form 433-A.
52. In or about October through November 1996, the HUBBELLs caused a joint Amended U.S. Individual Income Tax Return, Form 1040X, for 1994, to be prepared and filed with the IRS. This return was prepared by Capital Accounting, a Washington, D.C. accounting firm.
53. The Schedule C attached to the amended return reported additional income from WEBSTER L. HUBBELL's "consulting" business of approximately $77,000 for a new total of $453,075. This additional income came from five clients which HUBBELL did not report on the original 1994 tax return. This unreported income was not reflected on Forms 1099 that were filed with the IRS. The new Schedule C continued to falsely and fraudulently claim approximately $10,000 in personal travel expenses for family members which the HUBBELLs claimed as business expenses.
54. This amended return was prepared and filed after WEBSTER L. HUBBELL was subpoenaed by the Office of Independent Counsel for certain records related to income from his "consulting" business, and after HUBBELL was questioned about his consulting clients by a United States Senate Committee.
55. In or about late October 1996, in settlement of a lawsuit that the Rose Law Firm brought against WEBSTER L. HUBBELL, HUBBELL entered into an agreement to pay the Firm restitution for funds he had stolen from the Firm and/or certain clients. WEBSTER L. HUBBELL agreed to make certain payments to the Firm. He also agreed that if he earned any gross income in excess of $100,000 minus certain tax payments, per year, to pay 50% of such income to the Rose Law Firm until he satisfied his restitution obligation. SUZANNA W. HUBBELL's income was excluded in the calculation of WEBSTER L. HUBBELL's gross income.
56 a. In or about November through December 1996, following his release from incarceration, WEBSTER L. HUBBELL renewed his efforts to obtain a book contract.
56 b. In or about November 1996, the District of Columbia notified the HUBBELLs that they owed taxes to the District in the following amounts:
Tax Tax, Interest Year Tax and Penalty 1994 $30,560.00 $44,617.60 1995 $20,836.00 $28,545.32 TOTAL $51,396.00 $73,162.9257. On or about March 13, 1997, CHARLES OWEN prepared and filed with the State of Arkansas, Articles of Organization for a company entitled Bridgeport Group, LLC. According to Bridgeport's Operating Agreement, WEBSTER L. HUBBELL had a 49% ownership interest, SUZANNA W. HUBBELL had a 49% ownership interest, and the Children's Trust had a 2% ownership interest. MICHAEL C. SCHAUFELE was listed as the "managing member."
58. On or about April 15, 1997, the HUBBELLs filed a U.S. Joint Individual Income Tax Return, Form 1040, for 1996. SCHAUFELE prepared the 1996 tax return. The HUBBELLs omitted $18,000 in income the William Morris Agency paid WEBSTER L. HUBBELL. The payment was an advance for a book contract WEBSTER L. HUBBELL entered into with Harper Collins. SCHAUFELE deposited the $18,000 into the FBO bank account SCHAUFELE set up for the benefit of the HUBBELLs.
59. In or about June 1997, WEBSTER L. HUBBELL, through Bridgeport, entered into a book contract with the William Morrow and Company, Inc., a book publisher. Though HUBBELL appeared to have only a 49% ownership interest in Bridgeport, in fact, HUBBELL acknowledged to William Morrow that he owned and controlled Bridgeport.
60. Under the terms of the agreement, Morrow agreed to pay a $400,000 advance, which WEBSTER L. HUBBELL agreed to split evenly with his ghostwriter. The agreement provided for three installment payments: $150,000 upon the signing the agreement; $150,000 upon completion of the manuscript; and $100,000 upon the book's publication.
61. On or about June 17, 1997, Bridgeport received a check for $49,500. This amount represented WEBSTER L. HUBBELL's share of the first installment of the advance after expenses and payments to prior publishers were deducted.
62. On or about June 19, 1997, a bank account was opened at Pulaski Bank, Account No. 3058662, in the name of Bridgeport Group, LLC. MICHAEL C. SCHAUFELE and his secretary had signature authority on this account. Also on June 19, 1997, the check for $49,500 was deposited into the account. The defendants used Bridgeport and its bank account in an attempt to conceal certain financial transactions to impede and impair the IRS and other creditors. Further, WEBSTER L. HUBBELL made no estimated tax payments with this money. The HUBBELLs were able to spend the book advance before the IRS could discover the location of the funds.
63. As of July 1997, the HUBBELLs owed taxes, interest and penalties to the District of Columbia in the following approximate amounts:
Tax Tax, Interest Year Tax and Penalty 1994 $30,560.00 $47,826.40 1995 $20,836.00 $31,045.64 TOTAL $51,396.00 $78,872.0464. In or about February 1997, the State of Arkansas notified the HUBBELLs that they owed state taxes with interest for the tax year 1994. In or about October 1997, the State of Arkansas notified the HUBBELLs that they owed state taxes with interest for the tax years 1989 through 1993.
The relevant amounts of taxes and interest are as follows:
Tax Tax With Year Tax Interest 1989 $ 4,762.30 $ 7,789.67 1990 $ 8,322.00 $12,067.99 1991 $14,753.00 $19,912.48 1992 $10,510.00 $13,138.90 1994 $ 1,759.00 $ 2,032.73 TOTAL $40,106.30 $54,941.7765. As of the Fall 1997, the HUBBELLs owed Federal, State and District taxes, interest and penalties of approximately the following:
Federal [1989, 1990, 1991, 1992, 1994, 1995] $761,123.15
State [1989, 1990, 1991, 1992, 1994] $ 54,941.77
District [1994, 1995] $ 78,872.04
Total: $894,936.96
66. From January 1994 through December 1997, the HUBBELLs received in excess of one million dollars in income. During this same time period, the HUBBELLs were credited with withholding and payments for the years 1989-1992, 1994, and 1995, totaling approximately $23,055.07 to the IRS, $2,516.71 to the State of Arkansas and $4,367.19 to the District of Columbia. Their outstanding tax liabilities for these same years, after credit for these payments, totaled in excess of $500,000. Their total liabilities, including taxes, interest and penalties for these same years totaled in excess of $894,000.
67. During 1994 through 1997, the HUBBELLs used approximately 20 credit cards to purchase goods and services. These cards included among others American Express Gold, Platinum, and Optima cards, Nordstrom, Ann Taylor, Bloomingdales, Dillards, Lord & Taylor, and Saks.
68. During the years 1994-1997 the HUBBELLs made personal (non-business) purchases by check and credit card of approximately $750,000. During this same period they also made substantial payments on their personal debt.
69 a. Payments for these purchases during 1994-1997 included, but were not limited to, clothing and accessory purchases of approximately $85,000; private school tuition payments of approximately $95,000 (some payments for which were made from funds provided by WEBSTER L. HUBBELL's sister and James Riady to the education trust); telephone charges of approximately $20,000; laundry and dry-cleaning payments of approximately $10,000; purchases from Ace Beverage of approximately $11,500 (in addition to grocery purchases); beauty salon payments of approximately $5,000; and domestic help payments of approximately $9,900.
69 b. During this same period, currency withdrawals were made from the HUBBELLs' accounts in excess of $60,000.
70. From in or about February 1994 continuing through October 1995, WEBSTER L. HUBBELL made numerous withdrawals from his Individual Retirement Account (IRA) at Worthen Bank. These withdrawals totaled approximately $223,310.58.
71. A person who makes a premature withdrawal from an IRA is subject to an early withdrawal penalty. All withdrawals, whenever made, are subject to having 20% of the withdrawal amount withheld to offset federal taxes. The 20% is automatically withheld unless the account holder signs a written statement requesting that there be no withholding. The written request HUBBELL signed at Worthen Bank notified him that, "[Y]ou are liable for payment of the same taxable portion of your distribution. You may also be subject to tax penalties under the estimated tax payment rules if your payments of estimated tax and withholding, if any, are not adequate."
72. In every instance of an IRA withdrawal, WEBSTER L. HUBBELL filled out and signed or caused MICHAEL C. SCHAUFELE to fill out and sign a document in which he expressly elected to withdraw all the funds without having taxes withheld to pay over to the IRS.
73. The withdrawals and elections included the following:
DATE of AMOUNT Withdrawal Request 1. 1/23/94 $19,000.00 2. 3/16/94 $20,000.00 3. 1/20/95 $30,000.00 4. 5/1/95 $50,000.00 5. 6/8/95 $65,000.00 6. 7/12/95 $ 2,414.32 7. 8/9/95 (date received) $ 7,829.91 8. 10/12/95 $29,066.35 TOTAL $223,310.58
75. As do many businesses, the Rose Law Firm (RLF) operated a pension plan for the benefit of its employees. WEBSTER L. HUBBELL contributed to the pension plan at RLF when he worked there.
76. Similar to the rules for an IRA, pension plan withdrawals were subject to a 20% withholding to offset federal income taxes. Unlike an IRA, however, withholding on premature pension plan withdrawals was mandatory. One could not elect to simply defer the taxes until the return was filed. An individual could, however, roll over pension funds into an IRA without any withholding.
77. During the time he worked at the RLF, WEBSTER L. HUBBELL borrowed against (from) his profit sharing/pension plan.
78. In or about August 1995, the RLF, notified WEBSTER L. HUBBELL that he was in default on three outstanding loans he had from the RLF's profit sharing plan. The outstanding balance owed, including interest, was approximately $29,066.35. If WEBSTER L. HUBBELL did not become current on the loans or did not pay off the loans, the RLF would declare the loan in default, which would result in a taxable distribution to WEBSTER L. HUBBELL. Because of the mandatory 20% withholding requirement, WEBSTER L. HUBBELL would not only have income of $29,066.35, he would also be required to pay the pension plan 20% of the amount which in turn would be paid to the IRS for withholding.
79. On or about August through October 1995, MICHAEL C. SCHAUFELE devised a plan, in which WEBSTER L. HUBBELL assisted, to cancel WEBSTER L. HUBBELL's debt owed to the RLF without paying any withholding to the IRS. SCHAUFELE was able to accomplish this transaction by "proposing that we swap checks." The check swap worked as follows.
80. On or about October 10, 1995, SCHAUFELE provided three checks to the RLF drawn on WEBSTER L. HUBBELL's checking account at Worthen Bank (now NationsBank) totaling $29,066.35 to pay off the past due debt. At the time SCHAUFELE provided the checks, there were insufficient funds in WEBSTER L. HUBBELL's Worthen account to cover the checks.
81. SCHAUFELE then persuaded an individual at the RLF that, in order for the RLF to receive payment, the RLF had to hold these checks and not immediately deposit them until SCHAUFELE could deposit funds to cover them, funds he would receive ultimately from the RLF profit sharing/pension plan account.
82. The RLF then, at SCHAUFELE's request, directed that a check be issued from the RLF's profit sharing plan clearing account for $29,066.35 to be paid to WEBSTER L. HUBBELL's IRA account at Worthen. Since the transfer was from the pension plan to HUBBELL's IRA, no withholding was required.
83. SCHAUFELE then immediately caused the IRA to transfer $29,066.35 to WEBSTER L. HUBBELL's personal account at Worthen. SCHAUFELE signed the election as WEBSTER L. HUBBELL's power of attorney to have no withholding from the IRA.
84. The $29,066.35 was used to cover the three checks drawn on WEBSTER L. HUBBELL's personal account that were given earlier in the day to the RLF. SCHAUFELE then notified the RLF to deposit the three checks into its clearing account to cover the check previously issued on that account. The purpose of SCHAUFELE and WEBSTER L. HUBBELL in structuring the transaction in this fashion was so that WEBSTER L. HUBBELL did not have to pay the IRS 20% withholding. The individual at the RLF was willing to accommodate this transaction in order to end the RLF's dealings with WEBSTER L. HUBBELL on this matter.
CONTINUED, See Part III
This article was published on Sunday, May 17, 1998
RETURN to Clinton CrisisCopyright 1998, Little Rock Newspapers, Inc. All rights reserved.
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