Anatomy of a shadowy national staffing conglomerate

Three days of testimony in the tax evasion trial of Greensboro businessman Greg Harrison have sketched a picture of a shadowy national staffing network operating at the height of what passed for a boom in the last decade. (Previous reporting: 1 and 2)

Involved in brokering the labor of people who often earned no more than minimum wage, Harrison’s staffing agencies provided a degree of removal for client companies seeking to minimize their commitment to their workforce. Through almost continual restructuring, the companies presented a kaleidoscopic front that threw off revenue officers with the Internal Revenue Service for years, while also lowering the business’ public profile to near invisibility while employing thousands of workers.

“In a grand business sense, you think of [temporary employees] as inventory,” testified Robert Patterson, who was formerly employed as a controller for Harrison.

The labor of temporary employees financed opulent lifestyles by those in control of the staffing companies, who — at least from the outside — appeared to have performed little work of their own.

At the top of the pyramid was Greg Harrison, who, former employees testified, was often not involved in day-to-day operations even while maintaining responsibility for payroll and controlling the movement of funds. Robert Patterson and Toni Johnson, who served as controllers for Harrison’s staffing network in the period of late 2004 through 2006, testified that McDaniel and Griffin ran the companies on a day-to-day basis. At the company headquarters in Greensboro, salaried permanent employees handled back-office functions and raked in profits from client companies.

Harrison's staffing enterprises were far from iconic, and branding was not part of his strategy. If anything, it was the opposite. From the late 1990s when Harrison took the small staffing company inherited from his mother and went on a national buying binge, the empire operated under two corporations, but did business under a completely different trade name, USA Staffing.

In 2004, the conglomerate restructured without interrupting operations. US Staff Holding Corp. was one of the new companies. Under its umbrella, state subsidiaries were incorporated in at least eight states. The names morphed again in 2005 and 2006, when ownership changed hands, and yet again in 2008 when Harrison bought back the assets. Despite having once employed thousands of employees across the country and billed clients millions of dollars, even acquaintances sometimes have difficulty naming the staffing companies. The dizzying proliferation and evolution of corporate names seems to promote confusion.

Ray McDaniel, who served as chief operating officer for Harrison’s staffing companies, testified on Monday that when staffing companies bill their clients, they typically mark up total wages paid to temporary workers by 28 to 38 percent.

“The markup is the profit and the payroll tax burden associated with it,” McDaniel said.

In the case of Harrison’s companies, the government alleges, the payroll taxes were often not paid and instead the proceeds were diverted into personal uses such as luxury homes, a yacht and movie production.

As early as December 2004, Harrison’s staffing companies provided workers to a Fresh Del Monte Produce packing plant in Portland, Ore., according to a weekly revenue report introduced into evidence by the government on Monday. The account was significant enough to receive its own line item under a list of branch offices. Fresh Del Monte Produce accounted for such a significant portion of the staffing company’s Portland business that it maintained an office on the premises of the packing plant. In the course of acquiring the assets of Harrison’s staffing businesses, McDaniel and Griffin would take over the Del Monte contract in 2006.

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

McDaniel and Griffin formed StaffCo Management Group in 2005. By November 2006, they had acquired the assets of Harrison’s staffing businesses. Harrison has confirmed to YES! Weekly that he served as a creditor to the company and as a member of its board.

“Mr. Harrison didn’t want to be in the staffing business anymore, didn’t want to have anything to do with it,” public defender Tom Cochran argued in his opening statement. “He wanted to be a lender.”

(Background on Harrison’s investments in nightclubs and movies)

Documents introduced into evidence on Tuesday establish that Harrison loaned McDaniel and Griffin $1.5 million over a six-month period that coincided with the launch of StaffCo. McDaniel testified that the two also obtained a $7.5 million loan from a New York company called BHC, adding that $3.7 million was handed over to Harrison to pay for the asset purchase of the staffing business.

A 2007 Triad Business Journal article by Michelle Cater Rash quotes staffing firm consultant Bruce Steinberg as saying that StaffCo was expected to be one of the largest privately held staffing companies in the country.

StaffCo operated under the trade name American Staffing Resources, which was the name of a Pennsylvania-based staffing company it had acquired.

Immigration and Customs Enforcement raided Fresh Del Monte Produce and American Staffing Resources in Portland, Ore. in June 2007. An affidavit filed by ICE Special Agent Maximillian L. Trimm citing an interview with Jose Ortega-Milian, a former maintenance manager and supervisor, sheds some light on labor conditions at Del Monte at the time the staffing companies controlled first by Harrison and then by McDaniel and Griffin handled payroll and hiring.

Ortega stated that there were between 25-30 juveniles employed at FDMP, and that anyone with common sense could tell they were minors. He also stated that the FDMP managers knew that they were minors by their appearance.

Ortega stated that during his time at FDMP, he heard various complaints from the other workers that were not being paid for the hours they worked. He stated that FDMP avoided paying overtime, and wouldn’t allow anyone to be paid for more than 40 hours in a work week, although they were required to work well over 40 hours in a given week. He further stated that they were reluctant to complain, because of their illegal immigration status.

Ortega stated that [there] were several factors that contributed to unsafe conditions at FDMP that included: forklift operators were not certified or trained properly; the electrical components were unsafe and exposed; unqualified people were running various dangerous machinery with no training and little instruction. Ortega also stated that during the course of a typical work shift, there was constant yelling by the supervisors to the production staff that included threats of being fired if they did not work as hard as expected….

Ortega stated that he estimated that between 80%-90% of the production workers were undocumented illegal aliens from countries other than the United States.

Ortega estimated that the staff was split between 50% Mexican nationals and 50% Guatemalan nationals, and of those workers, approximately 75% were female.

During several conversations with Zarazua, Freddy LNU and Sanchez during Ortega’s period of employment at FDMP, when the hypothetical scenario of immigration agents showing up at FDMP to execute an immigration raid was posed, everyone agreed that American Staffing Resources would “take the hit” due to the fact that they did the actual hiring, and that FDMP managers could just claim ignorance of their knowledge of the production workers’ illegal status. Ortega stated that he was present during these conversations and that they were sporadic and occurred several times while he was working at the FDMP facility. Ortega stated that all of the managers were aware that almost none of the employees spoke, and were reluctant to report pay discrepancy issues to management, because it was visually obvious, and often talked about.

Upwards of 100 of StaffCo’s employees were detained. Fresh Del Monte Produce withdrew its business, accounting for $30 million in annual revenue to the staffing company. National news about the raid had an adverse impact on the company’s reputation, McDaniel testified.

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

Two of StaffCo’s lenders declared default, McDaniel said. Harrison ended up buying back 70 percent of the company’s assets. McDaniel and Griffin broke up the remaining 30 percent among themselves, creating smaller staffing companies in Tennessee and Georgia.

Harrison incorporated Compensation Management Inc. and Compensation Management Inc. of Iowa, and later, IHT of SC to operate the staffing businesses acquired in the wake of StaffCo’s dissolution. Julie Akers, who was promoted to controller at StaffCo in the fall of 2006, followed the transfer of assets, helping wind down StaffCo’s business and then working for Harrison at Compensation Management Inc. and the other companies.

Akers testified that IHT of SC was formed in the spring of 2009 because two prospective clients were considering bringing new accounts with significant volume to the staffing companies, but wanted to avoid association with American Staffing Resources and its successor because of the negative publicity surrounding the 2007 immigration raid in Oregon.

Prosecutor Frank Chut asked Akers about the similarity between the name IHT of SC and the company owned by Billie Baggett, Harrison’s mother. That company is called Innovative Hiring Technologies and is located in South Carolina.

“It was our understanding that eventually she was going to retire, and the two companies could be rolled together,” Akers testified.

Harrison is accused by the government of lying to an IRS revenue officer after being presented with a $756,988 tax bill by telling her that he had sold the business in August 2002 and had no payroll after that. Harrison allegedly provided Revenue Officer Crystal Peoples with the tax identification number for a company called IHT Inc.

The government’s trial brief details the alleged attempt to throw off the IRS:

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 her 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.

Akers testified on Wednesday that Baggett had no involvement with Compensation Management Inc., Compensation Management Inc. of Iowa or IHT of SC, the three companies operated by Harrison in 2008 and 2009. Baggett is also expected to testify as a government witness.

Akers testified that the staffing companies after Harrison bought back the business operated first at an address on Muirs Chapel Road in Greensboro, then at an on South Swing Road, and finally at a third location in High Point. Akers said Harrison did not maintain an office at the High Point location and was not involved in the day-to-day operations of the business. Yet Harrison controlled funding to the companies, and Akers said she would have to call him to get him to release funds to make payroll.

Annual reports filed with the NC Secretary of State’s office for Compensation Management Inc. list Michael Brooks as the company’s president. Virginia Linke, who worked as payroll manager for StaffCo and then for Compensation Management Inc. testified on Wednesday that Brooks had no involvement with the company despite his title.

Describing Harrison’s role, Linke said, “He basically controlled the funds.”

The trial is expected to last two weeks. Among 34 potential witnesses the government has said it is considering calling to the stand is Joey Medaloni, a former Greensboro nightclub owner who has been convicted of loan fraud. Originally set for September, Medaloni’s sentence has been postponed to Feb. 12, 2012.

Another potential witness is Phil Smoot, a local filmmaker who served as unit production manager for National Lampoon’s Pucked, a 2006 movie financed in part by Harrison and that starred Jon Bon Jovi.

Harrison’s former business partner, Mark Griffin, might also testify, but US Attorney Ripley Rand has written in a letter that “Griffin suffers from stage four brain cancer and is undergoing debilitating treatment.”

Harrison has given notice that he might take the stand himself. Throughout the trial, the defendant has dressed impeccably, maintained good posture, taking notes, conferring frequently with his lawyer and listening closely to testimony. On Wednesday, after he passed through the gate from the gallery to the court, he clasped the two panels between his forefinger and thumb, taking care to align them perfectly, in contrast to prosecutors and other court personnel who left them ajar.

A motion filed by Rand attempting to limit the scope of the defendant’s questions to government witnesses provides a different picture of Greg Harrison:

During the Rule 15 deposition ordered by the court, the defendant conducted extensive improper cross-examination of the witness about irrelevant personal matters. Over the government’s repeated objections, the defendant tried to make the witness admit to supposedly improper relationships with various women, and questioned him at length about photographs of himself and others taken at nightclubs featuring nude female dancing.

By his determinedly salacious line of questioning, the defendant forced a witness, whose direct testimony dealt with his business dealings with the defendant, to confront irrelevant sexual innuendo in the form of cross-examination. Among other things, the defendant presented the witness with purported exhibits of e-mails between himself and various women and questioned the witness on the nature of his relationships with them. The defendant also presented the witness with photographs of the witness and others with “showgirls,” and demanded detail of the evenings the witness spent at various nightclubs. When pressed to justify such lines of questioning, the defendant claimed purpose of “impeachment.”

Lewis Brandon and Nelson Johnson speak to Greensboro College class

Veteran civil rights activists Lewis Brandon and Reverend Nelson Johnson spoke to a Greensboro College history class on Nov. 28 about their experiences in the civil rights and black liberation struggles in Greensboro during the late 60s.

Professor Mike Sisterom invited Brandon, who was an early participant in the Greensboro sit-ins, to address his class, and Brandon invited Johnson to come with him.

Students have been reading William Chafe's accounts of the movements in Greensboro, and Monday's lecture helped expand on what they've been learning. Johnson spoke about the Greensboro Association of Poor People, the Dudley-A&T revolt of 1969, the Malcolm X Liberation University, drew connections to Occupy Wall Street and talked about how his opinions have changed.

"The [Occupy Wall Street] movement as a whole was born out of necessity," Johnson said. "It really represents something bubbling under the soil. I think they've invited the nation to become a classroom."

Speaking about black power, Johnson said the movement grew out of a rejection of white paternalism and was a period of the black community looking inwards to determine its future, later growing to incorporate Pan-Africanism.

In Greensboro, the struggle included working with other black organizations, like the NAACP, and organizing workers, students and tenants in particular. Various groups Johnson was involved in led a successful strike of A&T cafeteria workers, brought together tenants to fight collectively in GAPP and created statewide black student group as well as the national Student Organizing for Black Unity.

"This kind of thing is dangerous to write about because people will look back and see what they're capable of doing," he said.

Johnson spoke for the majority of the class time, with some space for questions and a few remarks from Brandon at the opening and closing. The event was open to the public, and a few staff members were in the audience of 20.

Pictured: Reverend Nelson Johnson addresses the classroom, as Lewis Brandon looks on. Both work at the Beloved Community Center. Photo by Eric Ginsburg.

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Government: Harrison willfully violated tax law

The government put four witnesses on the stand today who have formerly worked as financial controllers for staffing companies owned or controlled by Greensboro businessman Greg Harrison over the past decade.

(Previously.)

Although they worked for Harrison at different times, they shared something in common: They prepared quarterly federal payroll tax returns — known as 941s — for the staffing companies during years when Harrison is accused of willfully failing to pay payroll taxes on thousands of temporary staffing employees across the country, along with taxes on a dozens of permanent employees in support functions at the conglomerate’s corporate headquarters in Greensboro.

Two of the controllers, along with a former chief operating officer for Harrison's conglomerate, have testified in the first two days of a trial that federal payroll taxes were withheld from their paychecks, but later discovered in letters from the Social Security Administration that there were no wages or Social Security contributions reported from their work for Harrison.

The testimony of Toni Johnson, who became interim controller in 2005 and prepared quarterly federal payroll tax returns for each of the staffing conglomerate’s state subsidiaries, was typical.

Prosecutor Frank Chut placed a federal tax form on the courtroom’s overhead projector.

“What is this?” he asked.

Johnson told him it was a 941 return for US Staffing of Florida for the second quarter of 2005.

Chut pointed to a field on the form and asked her to read the amount.

“$158,116.04.”

Then the prosecutor asked her what the number meant. She explained it was the amount of payroll tax liability for that quarter.

Then Chut pointed to a signature box, where Harrison’s name was handwritten.

“Who wrote that?” he asked.

“I did,” Johnson responded, explaining that she had prepared the form for Harrison’s signature, though it ultimately remained unsigned.

After preparing the returns, Johnson testified that she would take them upstairs to Harrison’s office and either hand them to him personally or leave them on his chair. Johnson testified repeatedly that Harrison assured her he would take care of the payments.

And so it went, one unpaid tax return after another in mind-numbing succession, with former employees describing in excruciating detail how they prepared them and what happened or didn’t with them afterward.

The indictment against Harrison includes a total of 59 counts related to failure to pay payroll taxes, each of which corresponds to a quarterly 941 report for any of a dozen-plus staffing companies that he owned and controlled. In increments ranging from $42,800 to $1 million, the amount of payroll taxes allegedly withheld from employees but not paid over to the Internal Revenue Service for the years 2004, 2005, 2006, 2008 and 2009 totals almost $16 million.

Julie Akers, a controller who worked for the staffing companies in 2008 and 2009, testified that she typically had to call Harrison to request funds to make payroll, but there was never enough money available to pay payroll taxes to the federal government.

“What happened when you asked Mr. Harrison for money to make payroll tax payments,” Chut asked.

“It was denied,” Akers said. She said she confronted Harrison about the fact that payroll taxes were not being paid.

“And his response?”

“That he would get them paid.”

“And were they?”

“Not to my knowledge.”

Akers testified that eventually she filed a return without Harrison’s authorization even though no money was available in the corporate account to make payments because “at this point it was the right thing to do.”

Another time, Akers said she became concerned about an outstanding tax liability, and asked Harrison to meet with her. Harrison authorized her to send a check to the IRS for $145,693, the amount due. The check did not clear the bank, Akers said, and the company’s president and vice president resigned.

The government has promised in its trial brief to prove that Harrison “knew he had an obligation to pay over employment taxes for his staffing companies in 2004-2006 and in 2008-2009, but willfully failed to do so.”

The government’s witnesses gave ample evidence to support that position.

To underscore the notion that Harrison clearly understood his tax obligations, the government introduced USA Staffing’s employee handbook bearing Harrison’s signature as president, and asked a witness, former controller Samantha Lee Hooker, to read aloud from a passage stating that the company matched employees’ contributions to Social Security and unemployment insurance.

Robert Patterson testified that he was brought in to break up the two companies, Hobbs Staffing and US Labor, into state subsidiaries, even as administrative functions remained consolidated at the longtime headquarters on South Swing Road in Greensboro.

Patterson said he became alarmed on one occasion when he observed in the company’s general ledger that tax liabilities had continued to grow with no payment offsets. He went to Harrison’s office to share his discovery.

“He told me those were the old companies, and the old companies weren’t my concern,” Patterson testified. “I was to be concerned with the new company roll-outs, and that if there were any problems with the old companies he would take care of it.”

Tom Cochran, the public defender assigned to Harrison, attempted in cross examination of the government’s witnesses to shift responsibility to Ray McDaniel and Mark Griffin, respectively the chief operating officer and general counsel of Harrison’s company through 2006.

Patterson testified that he was hired by McDaniel and Griffin, and that he reported to McDaniel. Under cross-examination, McDaniel said he did not recall whether he ever told Patterson that he was his supervisor.

“Who ran the company on a day-to-day basis?” Cochran asked.

“Ray McDaniel and Mark Griffin,” Patterson replied.

Notwithstanding the two men's central roles in the business, Patterson testified that he typically left the 941 returns on Harrison’s desk, and never gave them to McDaniel or Griffin.

“Is it fair to say that the tax issues were handled and handled well while you were there?” Cochran asked.

“Yes, that’s fair to say,” Patterson replied.

Patterson’s testimony about the circumstances of his departure raised questions about McDaniel and Griffin’s motives. Cochran asked him what reason the two had given him when they called him in to fire him in April 2005.

“Their reason was I had failed to win over the ladies in accounting,” Patterson responded tartly, “and this just wasn’t going to work.”

McDaniel testified that he didn’t recall whether he was involved with Patterson’s termination.

Johnson, who was trained by Patterson and succeeded him, testified under cross-examination that McDaniel and Griffin were running the company at the time of her employment, notwithstanding her work preparing 941 returns for Harrison.

Cochran asked Johnson if during the time she served as controller she ever observed any expenditures by the state subsidiaries that raised her suspicions.

“Yes,” she answered. “It occurred more than once.” She said she brought the matter to Mark Griffin’s attention, but never learned how it was resolved.

During Cochran’s cross-examination, McDaniel had testified that he traveled to the branches weekly or every other week to ensure they were performing efficiently, see to it that clients were happy and cultivate new clients. McDaniel testified that he didn’t recall Harrison ever taking part in any of the branch visits. Cochran asked McDaniel if he would ever entertain clients as part of the business of generating new revenue, but Judge James A. Baity sustained an objection from the government.

Cochran asked Johnson if she developed an opinion on McDaniel’s truthfulness, but again the judge sustained an objection.

On the first day of the trial, McDaniel had testified that was never responsible for making payroll tax payments for Harrison’s staffing companies, but today testified that, in fact, he had filed two 941 payroll tax returns to the IRS on behalf of Harrison’s companies.

Cochran also attempted to create an impression of Harrison’s former business partners as lavish spenders by asking McDaniel if he and Griffin purchased half an interest in an airplane together after they went into business for themselves and acquired Harrison’s assets. The judge blocked the question.

Johnson testified that she preferred working under Harrison to McDaniel and Griffin, opting to stay on and work for another of Harrison's enterprises after the former partners acquired the staffing businesses.

The government has asserted that McDaniel and Griffin paid over payroll taxes during the period when they controlled those assets from late 2006 to late 2008, in contrast to the defendant, demonstrating his willful violation of the law. Cochran attempted to poke holes in that portrayal by bringing up tax difficulties faced by StaffCo, the company founded by McDaniel and Griffin.

Cochran asked McDaniel if he remembered Julie Akers, who would later work for Harrison, telling him that StaffCo had gotten behind on its taxes.

“No, I don’t recall,” McDaniel answered.

Cochran introduced Defense Exhibit No. 14, a notice of a federal tax lien against StaffCo. McDaniel said the first time he had seen it had been three or four weeks ago.

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.