Federal prosecutors made the case to a jury in Winston-Salem yesterday that Greg Harrison, a Greensboro businessman who controlled an extensive network of staffing agencies, stole upwards of $16 million from the people of the United States to pay for a lavish lifestyle that included luxury homes, yachts and movie productions.Story here.
The US Justice Department brags about the conviction here.
Coverage of the trial on Monday, including testimony from Harrison, that didn't make our print edition follows:
Greg Harrison took the witness stand in his federal trial on multiple counts of tax evasion in Winston-Salem on Monday.
The Greensboro businessman, who spun out movie production companies, a real estate enterprise and a gym from revenues generated by an extensive network of staffing companies over the past decade, looked mildly nervous under questioning by his lawyer and the prosecution, but remained poised and gracious throughout.
The defendant attempted to deflect blame onto a former business partner, Mark Griffin. He testified that when IRS Revenue Officer Crystal Peoples confronted him in 2006 about a series of payroll tax deposits that were not accompanied by returns, he told her that the company had been sold. Peoples asked Harrison for the tax identification number for the business.
Harrison told the court that he called Griffin and explained that there was potentially a large deposit that would be credited back.
“Mr. Griffin gave me the ID number,” Harrison testified.
The US government has accused Harrison of deliberately misleading Peoples by giving her a tax ID number that turned out to be associated with his mother’s staffing company in South Carolina, IHT Staffing/Grand Strand. Harrison testified that at the time he gave the tax ID number to Peoples, he believed it was associated with IHT, a company he formed with his grandfather in 1993.
In later years, a company called IHT of SC was formed that acted as a licensee to Global Labor, for which Harrison serves as president. Harrison said IHT of SC handled staffing for the Charleston ports.
Prosecutor Frank Chut appeared to relish calling Harrison on the striking similarities in the names of the businesses.
“That could be confusing,” he said.
“To whom?” Harrison parried.
“To the IRS, for one.”
“They got confused by quite a bit,” Harrison retorted. “That’s why I’ve had to hire an attorney to straighten this out before I was arrested on 63 counts.”
The government accuses Harrison’s staffing companies of failing to pay millions of dollars in federal payroll taxes from 2004 through 2006, when the assets were sold to Griffin and another partner, Ray McDaniel, and then in 2008 and 2009, when Harrison brought the businesses back under his control.
After June 2004, Griffin was responsible for ensuring that payroll taxes were paid as part of an “Interim Management Agreement,” Harrison testified on Monday.
The prosecution relentlessly poked holes in that representation, starting with a Hobbs Staffing Services memo introduced as evidence. Dated Oct. 31, 2004, the document declared, “At present, Greg pays all payroll taxes.”
The prosecution drew Harrison’s attention to a 941 Employer Quarterly Tax Return in which a box indicating that no future returns were required to be filed was checked off. Harrison testified that he received the form from Griffin, and gave it to Peoples, with the IRS. After 2002 he said that Hobbs, the company in question, was only used as an entity to handle financing and insurance.
Chut brandished a copy of a 2005 W2 form indicating Harrison earned $249,000 in wages from Hobbs that year.
“The document is in dispute,” Harrison said.
“Hobbs Staffing had a large payroll after 2004 and hundreds of temporary workers,” Chut suggested.
“That’s not my understanding,” Harrison responded.
The defense also attempted to blunt the government’s argument that Harrison has transferred millions of dollars from operating accounts of the staffing agencies to entities for his personal benefit. Public defender Tom Cochran introduced graphs showing millions of dollars in transfers from one of Harrison’s personal accounts to the staffing agencies.
IRS Revenue Officer Edward Coakley has previously testified, in contrast, that transfers from the personal accounts to the staffing businesses were “insignificant.”
Chut attempted to undermine Harrison’s evidence, charging, “Your exhibits don’t account for where the money came from that was in your personal account, do they?”
Then he proceeded to introduce a boredom-inducing series of bank statements from May 2005 through August 2006 showing that, with few exceptions, deposits to the personal account came from US Labor and Hobbs Staffing Services. Pointing to a deposit of $165,012 from Hobbs in August 2006, Chut said, “That’s a lot of money for a company that doesn’t have a payroll, isn’t it?”
“Yes,” Harrison replied. “That’s basically a company that handed financing and carried the insurance policy.”
Chut also questioned Harrison on transfers of millions of dollars documented by Coakley from the staffing agencies to companies set up to finance movies, a Jamestown gym called Extreme Fitness and a company called Shining Properties.
Harrison testified that money transferred from the staffing companies to business accounts for the two movies — National Lampoon’s Pucked and Home of the Giants — and for Extreme Fitness originated in loans from GrandSouth Bank. The funds were raised, he said, by borrowing against money the staffing companies expected to receive from clients.
“Mr. Griffin and I talked about a way we could generate additional billing,” Harrison said.
The testimony appeared to confuse Judge James A. Beaty, who interjected, “Sir, are you saying that the gym and movie companies were clients of the staffing companies?”
Harrison responded, “The staffing companies had always worked with the gym. To the movies, it was simple administrative services and payroll services.”
Chut attempted to goad Harrison into a confession.
“The $1,087,000 that went to Home of the Giants was not paid to the IRS, was it?”
“There were no wages associated with that transfer,” Harrison responded.
Also deflecting from the government’s argument that Harrison socked away funds that should have been paid over to the IRS, the defendant introduced a summary of transactions from US Labor to StaffCo Management Group, the company started by his former business partners, Griffin and McDaniel, totaling $2 million. “I took the government exhibits,” Harrison testified over the government’s objection, “… and noticed, frankly, that a lot of money had gone over to StaffCo Management.”
Harrison also introduced an exhibit representing that money had been wired from one of the staffing companies to Michael Brooks, a former employee from England who Harrison said he had befriended during a soccer game.
Cochran also asked Harrison about an ex-wife with whom Harrison has two children.
“Have you given her permission to use your bank account?” Cochran asked.
The judge sustained an objection from the prosecution, but not before Harrison could answer: “Completely.”
Harrison also addressed previous testimony by Julie Akers, a former controller, to the effect that Harrison had refused to provide money to cover payroll taxes even though he controlled finances for IHT of SC.
Harrison confirmed Akers testimony that she and company president Elizabeth Byrd had approached him in 2009 about funding to pay an overdue tax bill of $135,000.
“I said, ‘You should pay your taxes, one.’ I said, ‘I’ll see what I can do to pull together some money.’ I came up with $85,000. Unfortunately, it was not enough to cover the check that they had written.”
Harrison said Polo Ralph Lauren in High Point was IHT of SC’s biggest customer, and it was their neighbor because they were literally two or three doors apart.”
Harrison testified that he had no responsibility for paying taxes for IHT of SC, but acknowledged controlling funding. He said IHT of SC typically sent GrandSouth Bank its receivables — an itemized list of expected payments from clients — and the bank would determine how much money to advance based on a percentage of receivables and unpaid debts. The bank would forward the money to Global Labor, and Harrison in turn would send the money to IHT of SC. On a couple of occasions, the amount of funds provided by the bank was short of what the staffing company needed to operate, Harrison said.
Under cross-examination, Harrison testified, “Every penny was remitted to IHT of SC, in addition to $85,000 that we came up with.”
Chut referenced testimony by Akers that Harrison had at one time told her not to file tax returns for Consolidated Management, an earlier incarnation of IHT of SC.
“I never instructed anyone not to file tax returns,” Harrison testified. “That’s inaccurate.”
Last week, the defense put Doug Corriher, a vice president of GrandSouth Bank on the stand. Harrison said in trial that he has had a relationship with the bank since its founding in 1998 and that President Ron Earnest “is my main contact.”
Corriher testified on Dec. 15 that GrandSouth Bank ran into difficulties in its relationship with Harrison because it could not loan out as much money as the staffing companies needed to operate. To do so would have drawn scrutiny from government regulators and jeopardized the deposits of the bank’s other customers.
Chut asked Corriher if it was true that at one time Harrison or his companies accounted for 50 percent of GrandSouth Bank’s portfolio. Corriher allowed that staffing companies licensed by Harrison licensed comprised a significant portion of the bank’s business.
Written comments by Corriher in a 2008 factoring agreement with one of the Global Labor licensees, Brooks Labor, give some sense of the risk-and-reward proposition represented by the staffing businesses from GrandSouth Bank’s perspective:
“The factoring facilities related to the licensees of Mr. Harrison operated as expected with the exception of the failure of the licensor to obtain a renewal of the workman’s compensation insurance in a timely manner…. Additional work will be performed by the factoring division to verify documentation submitted by the client accounts including a higher number of field visits to licensees and branch offices. Also, the factoring division will become more active in the collection of delinquent accounts than in the past to ensure that credit issues do not become a higher risk than is acceptable. Overall, the relationship we had in the past was very profitable and worked as expected with the exception of the insurance issue.”
Corriher testified that Harrison approached him with a proposal that the staffing companies be reorganized through a licensor-licensee arrangement to overcome the difficulty posed by the bank’s lending limits.
“It’s fair to say that Mr. Harrison did the vast bulk of negotiating on the terms of these agreements,” Chut prodded Corriher.
“Yes,” Corriher testified.
Corriher also testified that Harrison has visited GrandSouth Bank in Greenville “probably close” to once a month this year, flying down in a jet piloted by Joey Medaloni. Once celebrated as the king of downtown Greensboro nightlife, Medaloni developed the N Club, along with Much and Heaven, some of the strongest brands among the boom-boom dance clubs that throng South Elm Street. Medaloni has pleaded guilty to loan fraud and faces sentencing in February.
Corriher told the court that upon receiving funding requests from the licensee staffing agencies, GrandSouth Bank would wire money to Global Labor. After that, he did not know what happened to the funds.
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