Former staffing agency owner on trial for tax evasion

A Greensboro staffing agency executive whose opulent lifestyle once included the adornments of luxurious homes, a yacht and the financing of movies and nightclubs has been reduced to answering charges of tax evasion in federal court with the assistance of a public defender.

The tax evasion trial of a Greensboro businessman who once owned a national temporary staffing agency before attempting to cross over to the movie industry and investing in local nightclubs got underway in Winston-Salem yesterday.

Prosecutor Frank Chut told a jury in his opening statement to expect former employees of Greg Harrison’s staffing companies and revenue officers of the Internal Revenue Service to testify that the businessman failed to pay federal payroll taxes for his companies for several years, and then lied to revenue officers and falsified documents to cover his tracks. Chut said the prosecution will also prove that Harrison stiffed the government on his personal income taxes.

Harrison is accused of willfully failing to file individual income tax returns for three years, despite earning $651,594 in one of those years, 2005, in compensation for his executive duties as owner of his staffing empire.

Harrison inherited a staffing business from his mother in the 1990s, and expanded it into a national chain. In the next decade he began investing in a nightclub complex in downtown Greensboro that passed from the control of Joey Medaloni to Rocco Scarfone. (Medaloni pleaded guilty to loan fraud in a separate federal case, and is scheduled to be sentenced in February.) Harrison also helped finance The National Lampoon's Pucked, a movie starring Jon Bon Jovi that was filmed in the Triad, and is named as one of the film's producers.

The government lays out the facts behind its charge that Harrison “corruptly endeavored to obstruct the due administration of the internal revenue laws” in the trial brief. The prosecution alleges that Harrison lied to an IRS revenue officer in 2006 by telling her that he had sold his staffing business and provided her with falsified forms claiming that his company no longer had to file tax returns. When the revenue officer requested a tax identification number for the company that purportedly acquired Harrison’s business, he allegedly provided her with the tax identification number of a staffing company owned by the defendant’s mother in North Carolina.

The trial brief states that Billie Baggett is expected to testify that she never purchased any company from her son.

The government promises to prove through bank records and witness testimony that “Harrison took millions of dollars withheld from his employees’ paychecks and, instead of paying that money to the IRS, used those funds to pay for (1) his palatial personal residence in Greensboro, North Carolina, (2) a luxury beach house near Myrtle Beach, South Carolina, (3) the purchase of a yacht, and (4) the funding of two commercial motion pictures, National Lampoon’s Pucked (2006) and Home of the Giants (2007).”

Lending credence to the assertion that Harrison converted withheld payroll taxes to his personal use, the government pledges to enter into evidence documents showing a movement of funds from corporate operating accounts to pay for mortgages on homes, the purchase and mortgage of the yacht Columbo, accounts for the two movies and a number of unrelated businesses. The direct transfer of the funds suggests that the spoils of the alleged unpaid taxes were not applied to compensation and shared with the other executives in the staffing companies.

Tom Cochran, the public defender assigned to represent Harrison, deflected blame to two of Harrison’s former employees in his opening statement yesterday. Noting that Mark Griffin and Ray McDaniel, respectively the general counsel and corporate operating officer of Harrison’s companies, started their own company and then bought their former boss’s business in 2006, Cochran promised, “You’ll hear testimony that they ran that company lavishly,” adding that Harrison loaned the two $1.5 million that they did not repay.

By the mid-2000s, Harrison’s staffing company employed thousands of workers in at least eight states, generally in labor-intensive industries, the prosecution states in the trial brief.

Harrison’s “companies failed to file IRS Forms 941 Employer’s Quarterly Federal Tax Returns and also failed to pay over millions of dollars in taxes withheld from employee paychecks, including federal income taxes, Medicare and Social Security taxes (often referred to as Federal Insurance Contribution Act or ‘FICA’ taxes, collectively, ‘payroll taxes,’)” the trial brief states.

Harrison looked attentive and composed during yesterday’s proceeding, frequently taking notes and conferring with his counsel. When McDaniel accidentally knocked the microphone while raising his hand to point Harrison out in court, the defendant briefly looked up but maintained an impassive gaze. When Judge James A. Baity called a recess for the day at about 5:30 p.m., Harrison retrieved a hand truck to transport the numerous binders assembled in preparation for his case.

“Mr. Harrison didn’t want to be in the staffing business anymore, didn’t want to have anything to do with it,” Cochran told the jury. “He wanted to be a lender.”

The defense counsel wound down his opening statement by challenging the government’s assertion that Harrison cheated on his personal income taxes.

“You will see documents where the IRS acknowledges that he paid taxes,” Cochran promised the jury.

McDaniel was the first witness called by the government. Originally hired to oversee branch offices in Tennessee, McDaniel soon transferred to the Greensboro office on South Swing Road that served as a corporate headquarters for Harrison’s staffing empire and assumed the role of chief operating officer.

Harrison’s staffing companies hired workers, many of them unskilled, for light-industrial jobs, McDaniel said. Executives typically marked up wages paid to the workers by 28 to 38 percent to establish billing rates to client companies, McDaniel said, adding that “the markup is the profit and the payroll burden associated with it.”

McDaniel testified that Harrison signed his paycheck, and when he received it, federal taxes, Social Security and Medicare had been withheld. When he received a letter from the Social Security Administration acknowledging how much he had earned and contributed to the fund over the years, it showed zeroes for three years he had been employed with Harrison.

“Yeah, it was surprising,” McDaniel said. “It was disturbing… because I had worked and received wages.”

McDaniel said he confronted Harrison with the discrepancy.

“I asked him why there were no wages reported,” McDaniel said. “He said it must have been a mistake, and that I could take my W2 forms to the Social Security office, and they would surely correct it.”

Chut asked McDaniel: “As to the funds withheld from your paycheck, did you give anyone authorization to do anything other than pay them over to the federal government?”

“No,” the witness replied.

McDaniel testified that he began working for one of Harrison’s companies doing business as USA Staffing in 2000. Harrison also incorporated another company as US Labor, which handled most of his day labor business. In about 2004, US Staff Holding Corp. was formed as an umbrella, and Harrison began incorporating subsidiaries in each of the states in which he operated.

Meanwhile, the corporate headquarters remained at South Swing Road in Greensboro, and the executive leadership team remained in place despite the various name changes.

“The lights flicked off one night as one company and came back on the next day as another,” McDaniel said.

So convoluted is the history and proliferation of Harrison’s various staffing companies that the government has sorted them into two categories for the purpose of making its case, referencing corporate entities operated during the period of 2004 through 2006 under which 48 counts of failure to pay payroll taxes were allegedly committed as “Harrison 1.0 companies.” Companies operated during the 2008-2009 period, under which 11 counts of failure to pay payroll tax was allegedly committed are referenced as “Harrison 2.0 companies.”

Using an overhead projector, the prosecutor displayed a weekly revenue report dated Dec. 26, 2004 that McDaniel reviewed as chief operating officer for one of Harrison’s companies. The document itemized gross payroll, gross revenue and a third figure, “GP%,” which McDaniel explained stood for “gross profit percentage.” The report itemized and totaled revenues for all of the temporary staffing offices across the nation that were under Harrison’s control. Underneath the list of branch offices, Chut zoomed in on “Del Monte Fresh Produce” — one of a number of clients.

"What was that?" Chut asked.

“In the case of Del Monte, we singled those out because they had such large volume,” McDaniel said.

McDaniel testified that he and Griffin started their own staffing company, StaffCo, in 2005, and ultimately purchased Harrison’s staffing businesses. At the time StaffCo purchased US Staff Holding Corp. in November 2006, the company was valued at $12 million, McDaniel said.

McDaniel acknowledged that StaffCo, which operated under the trade name American Staffing Resources, soon ran into trouble.

“The first major challenge was when the federal government, [Immigration and Customs Enforcement], raided one of our clients in Oregon,” McDaniel said, referring to Del Monte. “They detained about 108 employees.”

Del Monte pulled its business, depriving StaffCo of about $30 million in annual sales. The raid made national news and damaged the staffing company’s reputation, making it difficult to drum up new business.

“That was the beginning of the end of StaffCo,” McDaniel said. “We never recovered.”

With the company’s creditors filing notices of default, McDaniel said Harrison agreed to buy back 70 percent of the assets. McDaniel ended up with the Tennessee subsidiaries, 12 percent of the former company, and Griffin took the Georgia subsidiaries, making up the remaining 18 percent.

The government states that McDaniel and Griffin filed employment tax returns and paid payroll taxes to the IRS during the two-year period that they controlled the assets, but after Harrison regained control of the staffing companies, he “again stopped paying over millions of dollars of withheld payroll taxes to the IRS.”

From the trial brief:

During the summer of 2006, defendant Harrison told lies and gave false documents to two different IRS revenue officers who were trying to obtain unfilled payroll tax returns (IRS Forms 941) and collect unpaid payroll taxes for two different companies that he owned. These revenue officers will testify at trial.

In June of 2006, revenue officer (RO) Crystal Peoples contacted defendant Harrison to attempt to collect delinquent 2002-2005 payroll taxes, penalties, and Forms 941 for Hobbs Staffing Services d/b/a USA Staffing with tax identification number (TIN) 62-1236734. RO Peoples knew that Hobbs had been operating during that period because she had North Carolina state employment security records showing that the company had thousands of employees on its payroll in the 2002-2005 time period.

In fact, defendant Harrison had purchased Hobbs Staffing in December of 2000, and then merged it with another company in January of 2002 to create an entity called Hobbs Staffing Services d/b/a USA Staffing, which used the 62-1236734 tax identification number. The company had thousands of employees and paid millions of dollars in wages reported to the IRS by employees filing their tax returns.

On July 27, 2006, RO Peoples presented defendant Harrison with a $756,988 bill for penalties for unpaid 2002 payroll taxes. The next day, she spoke with defendant Harrison and requested 16 delinquent tax returns from him. During that conversation, defendant Harrison falsely told RO Peoples that Hobbs Staffing Services d/b/a USA Staffing company had not had a payroll since 2002. Moreover, on July 17, 2006, defendant Harrison falsely told
RO Peoples that he sold the business in August of 2002 and that it had no payroll after that. The RO asked defendant Harrison for the tax identification number of the new entity on July 31, 2006, and again on August 7, 2006. In the meantime, on July 24, 2006, defendant Harrison provided RO Peoples with IRS Forms 941 and 940 for Hobbs Staffing Services that falsely claimed the company did not have to file employment and unemployment insurance tax returns after September of 2002.

On August 21, 2006, defendant Harrison provided RO Peoples with the tax identification number for an entitity called IHT INC (57-1024567). RO Peoples examined electronic records for IHT INC and determined that it had filed payroll tax returns and paid taxes for the period at issue. After some further attempts to resolve the confused situation, the RO closed the case on defendant Harrison. In fact, the 57-1024567 tax identification number actually belonged to a staffing company called IHT Grand Strand operated in South Carolina by Billie Baggett, defendant Harrison’s mother. Ms. Baggett is expected to testify that she never purchased any company (i.e., Hobbs Staffing d/b/a USA Staffing) from defendant Harrison and will deny having any operations in North Carolina since the year 2000.

Thus, defendant Harrison made a series of false statements and provided false documents to RO People that caused her to close an investigation into the unpaid payroll taxes and unfilled Forms 941 for one of defendant Harrison’s main staffing businesses in the 2002-2005 time period. But for those falsities, the IRS would have taken action to collect the unpaid taxes and obtain the unfilled returns from defendant Harrison.

On August 22, 2006, another revenue officer, RO Gail Roberson contacted defendant Harrison about the payroll tax liabilities of another of his companies, USA Staffing of Virginia. On that day, RO Roberson presented defendant Harrison with a bill for $1,363,603 in unpaid payroll taxes for 1999 and 2001 and requested unfilled IRS Forms 941 for those years through 2005. In the course of being interviewed by that RO, defendant Harrison falsely claimed that he was current in filing Forms 1040 and paying his personal tax liabilities. In fact, as of that date, Harrison had not filed an individual income tax return since the 1999 tax year.

Besides his lies to the revenue officers, defendant Harrison corruptly endeavored to obstruct the IRS from receiving payroll taxes by converting the taxes to his own use. Bank records and witness testimony will show that defendant Harrison took millions of dollars withheld from his employees’ paychecks and, instead of paying that money over to the IRS, used those funds to pay for (1) his palatial personal residence in Greensboro, North Carolina, (2) a luxury beach house near Myrtle Beach, South Carolina, (3) the purchase of a yacht, and (4) the funding of two commercial motion pictures, National Lampoon’s Pucked (2006) and Home of the Giants (2007).

As recently as September of 2009, defendant Harrison obstructed the due administration of the internal revenue laws by writing a $135,693 bad check to be sent to the IRS for payment of payroll taxes. During that period, defendant Harrison had convinced one of his employees to serve as the nominee owner of IHT of SC Inc., one of the defendant’s staffing companies. Not knowing there was no money in defendant Harrison’s account to cover the check, the nominee owner sent it to the IRS to cover overdue payroll taxes. All of these acts are good evidence of a corrupt endeavor on the part of defendant Harrison to obstruct the due administration of the internal revenue laws.


Jack Smith said...
This comment has been removed by a blog administrator.
Ellilou Ilano said...
This comment has been removed by a blog administrator.
Reynaldo Rivas said...
This comment has been removed by a blog administrator.