The federal case against Frank Parlato may end on July 6th, after 12 years of malingering. It began when Clare Bronfman filed a criminal complaint against him in 2011.
Parlato is currently scheduled to be sentenced at 11:00 AM on Thursday.
Indictment
After a four-year federal investigation, the US Attorney for the Western District of New York charged Parlato and codefendant Chitra Selvaraj with a 19-count indictment on November 20, 2015.
The US Attorney alleged that Parlato and Selveraj engaged in a conspiracy from 2006-2014 that included wire fraud, and money laundering of millions of dollars. The alleged victims were Seagram’s heiresses Clare and Sara Bronfman, who alleged Parlato had defrauded them out of one million dollars, a posthumous victim, Lawrence Reger (who never claimed to be a victim), and the IRS.
Parlato and Selvaraj appeared in court – and spent an hour in custody while US Marshals booked them.
They denied all charges and pleaded not guilty.
Assistant US Attorney Anthony Bruce, who was the lead prosecutor on the case, told US Magistrate Jeremiah McCarthy that because the case was “complex”, he would need more time to prepare for trial.
Former Assistant US Attorney Anthony M. Bruce
The court granted a nine-month adjournment and released Parlato and Selvaraj on their own recognizance.
Superseding Indictment
Three and a half years passed, with numerous motions made by the government and the defense.
Among the motions the government made was to ask the judge to prevent Parlato from bringing up at trial jury nullification, prosecutorial misconduct, and introducing the sworn testimony of the alleged victim, the late Lawrence Reger, where he clearly stated in a civil trial that he was not a victim of Parlato.
Parlato replied this was not a case where jury nullification was appropriate, because he was factually innocent of the charges – and that despite evidence of prosecutorial misconduct, the case was so false that it could be tried on its merits.
Parlato also argued that, since Reger was deceased, his sworn testimony, given 13 days before he died, should be admitted into evidence if Reger was alleged to be a victim, since anyone who heard it would realize that Reger was not a victim, but actually benefited financially by his association with Parlato.
On May 23, 2018, the US Attorney dropped the Bronfmans as victims and extended the conspiracy period from 2014 to 2017, filing an 18-count superseding indictment.
Sara and Clare Bronfman
By removing the Bronfmans, and without a living victim, the government’s focus shifted primarily to the defendants’ alleged concealment of money from the IRS.
Twenty of the 25-page superseding indictment referenced steps Parlato and Selvaraj allegedly took to “conceal and disguise the nature, the location, the source, the ownership, and the control” of millions of dollars.
While every step the Superseding Indictment described was a legally permissible action the US permits business operators to undertake, the government alleged that the defendants’ intent was not legal, but rather a conspiracy to cheat on taxes “by impeding, impairing, obstructing, and defeating the lawful functions of the Internal Revenue Service… in the ascertainment, computation, assessment, and collection of… taxes.”
The US Attorney did not charge Parlato or Selvaraj with tax evasion – thereby creating a curious inconsistency in the charges that a jury might have difficulty comprehending.
How could someone conceal millions from the IRS and not commit tax evasion? Why did Parlato take these otherwise legal steps with the intent to hide money from the IRS – and then file tax returns and pay taxes reporting 100 percent of his income?
The government later acknowledged that the tax returns were 100 percent accurate. The prosecutors posited that Parlato only filed his accurate tax returns because he was aware of an IRS and FBI investigation. Parlato submitted evidence in a motion to dismiss that he had provided all income and expense records to his outside accountant– the same exact data used to prepare the filed tax returns – more than a year before the investigation began.
Additional discovery and additional motions caused more delays, and then COVID struck, thereby delaying the trial another year.
Finally, the Court scheduled a jury trial for September 13, 2022, with an expected duration of six to eight weeks.
Plea Negotiations
On August 3, 2022, the US Attorney presented a proposed Plea Agreement offering to dismiss the 18-count Superseding Indictment, provided that Parlato would plead guilty to a single count of Failure to File Returns Involving Cash Transactions of More Than $10,000.
After 11.5 years of investigation and prosecution, with an indictment alleging millions of dollars in fraud and concealment, the government offered a Plea Agreement to a single failure to file IRS Form 8300 pertaining to $19,700 that had been collected in cash as rent from a food stand 13 years ago.
The government conceded in the Plea Agreement that Parlato declared the $19,700 as income on his 2010 tax returns and paid taxes on it. His sole offense was not filing an additional form — Form 8300.
Changes in Plea Agreement
Parlato rejected the proposed Plea Agreement just minutes before a status conference on August 5. The purpose of the status conference was to notify the judge whether the defendants had come to an agreement with the prosecution or whether they would proceed with a trial.
In the courtroom, the government agreed to amend the Plea Agreement.
The amendments included striking a paragraph that controlled how the Sentencing Guidelines were calculated and adding two handwritten amendments. This all took place inside the courtroom before the Court took the bench.
Paragraph 6 was struck and initialed by the Government and Parlato:
Striking paragraph 6 eliminated the predicate facts necessary for the Government to establish a felony crime under 26 U.S.C. § 2703.
Debunking the $400,000 Tax Loss
Paragraph 4(e), of the Plea Agreement stated that Parlato had not paid nearly $400,000 in taxes. It read:
“As part of relevant conduct, the defendant admits that, from 2006 to 2017, he failed to report income he earned from managing One Niagara. The tax loss from the defendant’s unreported income was approximately $390,346.”
Parlato protested this allegation as false. He negotiated to modify paragraph 4e by adding a handwritten amendment, 44a, which stated that Parlato paid “approximately $260,614 out of the $390,346 tax amount mentioned in paragraph 4(e).”
To clarify that Parlato was only pleading to one offense, he negotiated adding a final paragraph, which read:
“The parties agree that the only crime the defendant is pleading guilty to is a violation of 26 USC section 7203 and Section 6050(i). The parties agree that the only charge to which the defendant is pleading guilty is a failure to file an IRS Form 8300 in 2010 as set forth in the Superseding Indictment and factual basis.”
Colloquy
After the Government added the amendments, both parties signed the Plea Agreement. Moments later, Parlato appeared before the Court and pleaded guilty to one count of Failure to File Returns Involving Cash Transactions of More Than $10,000.
During the plea colloquy, Parlato asked the Court if it was clear he was pleading to only one crime:
The Defendant: It’s my understanding that this is the one and only charge I’m pleading guilty to, which was a failure to file an 8300 form in 2010.
The Court: Mr. Kruly, this is the only charge he’s pleading guilty to?
Mr. Kruly: Correct. The count is contained in the superseding information.
The Court: And the Indictment that’s pending right now will be ultimately dismissed?
Mr. Kruly: At the time of sentencing.
The Court: So, there will be no charges pending after this plea?
Mr. Kruly: That’s correct.
Subsequently, during the Colloquy, Parlato asked:
The Defendant: Yes, I do, with just one question, Your Honor. It is my understanding that there was – the only charge here is just the – as written in item D, that there is not numerous – I’m not admitting to numerous failure to file, just this one instance.
Parlato attorney, Herbert Greenman: Judge, we believe that Section 4, Subdivision D, reflects the allegation in the Superseding Information that he is pleading guilty on one occasion for not having filed an 8300 form because the aggregate of numerous multiple payments exceeded $10,000 in cash. That is the only thing he is pleading guilty to, and I think the Government would agree.
The Court: You agree with that, Mr. Kruly?
Mr. Kruly: Yes, Judge.
The Court: Okay. It’s on the record. Okay.
During the colloquy, Judge Richard Arcara commented that there were “a lot of numbers floating around” in the Plea Agreement.
The government admitted it inflated a tax loss to sentence Parlato for conduct he did not commit.
Assistant US Attorney Charles Kruly: Yes. And that difference, Judge, is the basis for one of the handwritten changes on page 15, which I’ll read now. I think it fits in here.
Mr. Kruly read Paragraph 44A, then added:
Mr. Kruly: So, essentially, Judge, the tax loss for purposes of the guidelines calculation is 390,000, but the defendant paid approximately 260,000 of that tax amount, which is why the restitution is lower.
Parlato co-defendant Chitra Selvaraj
Codefendant Accepts Misdemeanor
Following Parlato’s plea agreement, his codefendant, Chitra Selvaraj, accepted a misdemeanor charge of failing to file an income tax return in 2009.
In May 2023, Judge Arcara sentenced Selvaraj to “time served” and a $25 fine (In this context, the term “time served” refers to the hour that Selvaraj was in custody on the day that she and Parlato were arraigned). r
Parlato Sentencing Memorandum
On March 14, Parlato filed a sentencing memorandum, along with some 75 letters of support from people who know him.
Government Sentencing Memorandum
On June 23, the US Attorney for the Western District filed a sentencing memorandum recommending the Court imprison Parlato for 24 months.
In the memorandum, the US Attorney alleged Parlato admitted to owing $400,000 in unpaid taxes. Although the government did not charge tax evasion in the original Indictment or the Superseding Indictment, and agreed there was no tax evasion in the Plea Agreement, the memorandum paints a caricature of Parlato as a man who engaged in an uncharged “pattern of tax evasion,” a “pattern of defying tax authorities” with a “dangerous and lawless attitude,” and a “dangerously-flippant attitude” as he secretly “evaded the IRS for years” yet “openly flaunted his disdain for the IRS,” and though he engaged in “classic tax evasion” he added a novel element where he “defied his obligation to pay taxes” and “encouraged others to do the same” and possessed a streak of moral righteousness. He was a man, the government alleged, “who views tax evasion as one’s civic duty.”
Parlato Reply: Not $400,000
On June 30, Parlato responded to the US Attorney’s sentencing memorandum, providing evidence that the US Attorney invented the $400,000 tax loss.
Parlato wrote:
The government’s … “nearly $400,000” in taxes is based on a false number created to inflate the sentencing guidelines rather than reflecting actual conduct…
Parlato cited paragraph 44b in the plea agreement which proved he paid more than 2/3 of the government’s purported loss before he was indicted back in 2015.
Actual Tax Loss Zero
Parlato added:
The Plea Agreement covers the years 2006-2017. The Government admits that I fully paid the taxes [amounting to $260,614] for tax years 2006-2013.
The Government estimates $129,732 in unpaid taxes for 2014-2017. This estimate needs to be corrected. It is not surprising that during that period, while under Indictment or facing the threat of Indictment, I experienced reduced income and increased expenses.
Following the execution of the Plea Agreement, I filed tax returns for 2014-2017, which showed I owed zero taxes. The above facts establish that the actual $390,146 tax loss is incorrect. The true tax loss is zero.
No Tax Evasion
Parlato also addressed the Government’s “injecting into these proceedings at the 11th-hour brand new and contrived accusations” of tax evasion. Parlato wrote in his reply to the Court:
The Government’s unsubstantiated portrayal of me in its Sentencing Memorandum runs the gamut from the patently false to the absurd…
The Government never charged me with tax evasion despite a four-year investigation, followed by Indictments spanning more than seven and half years.
The Government has possessed my 2006-2013 tax returns for over a decade and did not charge me with filing a false return. In the Plea Agreement, the Government has not argued that my filed tax returns are not 100 percent accurate.
Stay tuned for Part 2 of this series on the case of the USA v Frank Parlato.
