U.S. Attorney James P. Kennedy, Jr. announced Kyle Haynes, Bryan Day, Jason Haynes and David Haynes of the Daytona, FL area, were sentenced by U.S. District Judge Elizabeth A. Wolford in Rochester, NY, for their involvement in a fraud scheme to defraud Xerox Corporation of more than $20 million worth of toner.
Kyle Haynes, Bryan Day and Jason Haynes were convicted of conspiracy to commit wire fraud and filing a false tax return, and were sentenced to serve 30 months, 27 months, and six months in prison respectively. David Haynes, who was convicted of filing a false tax return, was sentenced to a three-year term of probation.
In addition, Kyle Haynes, Day and Jason Haynes were ordered to pay $9,475,000 in restitution to Xerox. David Haynes was ordered to pay $884,000 in restitution to Xerox. All four defendants were also ordered also to pay approximately $25,000 in restitution to the Internal Revenue Service.
Assistant U.S. Attorney Richard A. Resnick, who handled the case, stated that Xerox is located in, among other places, Webster, NY, and sells and leases office equipment, including printers. The company sells or leases the office equipment directly to end-user customers or to authorized resellers, like Robert Fisher, a co-conspirator and owner of RBM Imaging, who then resell or lease the office equipment to end-user customers, like the four defendants. The office equipment requires toner and other products to operate. End-user customers order the toner for their printers from Xerox. Rather than pay Xerox upfront for the toner, however, the end-user customers pay Xerox based on the number of prints made with the toner. Until consumed by the end-user customers, the toner belongs to Xerox. At no time may the end-user customers sell the toner.
The Hayneses and Day set up a sham company, HDH Graphics, to obtain approximately 63 Xerox printers from Fisher. Although HDH Graphics made few, if any, prints with the printers, the defendants fraudulently represented to Xerox that HDH Graphics was making prints, using much more toner than the industry average. In executing the scheme, the defendants repeatedly misrepresented to Xerox that they were making millions of prints with the toner, even though they never took most of the printers out of their boxes. Their deception caused Xerox to ship approximately $25 million worth of toner to HDH Graphics. The defendants then sold the fraudulently obtained toner for approximately $11 million to an individual in Miami, FL. The Hayneses, Day and Fisher shared the profits from the fraudulent sale of the Xerox toner.
The Hayneses and Day also filed false personal income tax returns with the Internal Revenue Service for the years 2008 through 2013. Their personal tax returns failed to report net income HDH Graphics earned from the fraudulent sale of the Xerox toner. Because HDH Graphics was a partnership, all of its net income flowed through to the defendants’ personal tax returns. Therefore, the underreporting of the net income on HDH Graphics’ tax returns resulted in the underreporting of the income on the defendants’ personal tax returns.
The Hayneses and Day underreported the net income earned by HDH Graphics by falsely claiming that they had personally paid and incurred travel and shipping expenses on behalf of HDH Graphics. They then had HDH Graphics reimburse them for the falsely claimed expenses and falsely reported such expenses as deductions on HDH Graphics’ tax returns. The falsely reported deductions on HDH Graphics’ tax returns were approximately $265,154, resulting in approximately $265,154 less in net income being reported on the corporate returns. As a result, 25 percent of such income, that is, approximately $66,288.50, should have flowed through as income to the defendant’s personal tax returns.
The defendants agreed to forfeiture of over $600,000 in cash in lieu of the forfeiture of several real properties that were purchased and funded with fraud proceeds.
“Prosecutions such as this should send the message that fraudulent gains are never secure,” stated U.S. Attorney Kennedy. “This office, together with our federal law enforcement partners, will continue aggressively to investigate and prosecute those who seek to profit through dishonesty.”
“The truth about scams like this is that losses suffered by companies often get passed on to the consumer in the forms of higher prices, which is why we must hold the operators of these schemes accountable,” said Kevin Kelly, Special Agent-in-Charge for HSI Buffalo. “HSI special agents will continue to use their broad authorities to uncover financial schemes and ensure that those who seek to blatantly disregard the law for their own financial gain are brought to justice.”
The sentencings are the result of an investigation by Homeland Security Investigations, under the direction of Kelly, and the Internal Revenue Service, Criminal Investigation Division, under the direction of Jonathan D. Larsen, Special Agent-in-Charge.
Fisher pleaded guilty April 19 to conspiracy to commit wire fraud and is awaiting sentencing.