Beanie Baby Creator Pleads Guilty to Swiss Bank Tax Dodge
By Andrew Harris – Oct 2, 2013 4:34 PM ET
H. Ty Warner, the creator of Beanie Babies plush toys, pleaded guilty to failing to pay taxes on money he hid from the U.S. in a Swiss bank account.
Warner, who was charged with a single count of tax evasion last month, entered his plea today before U.S. District Judge Charles P. Kocoras in Chicago.
Beanie Babies at a store in Washington DC. Photographer: Joyce Naltchayan/AFP via Getty Images
“I am pleading guilty because I am guilty,” Warner, 69, told the judge, leaning close to a lectern microphone as his voice choked with emotion. He admitted to failing to report $3.2 million in income on a secret UBS AG (UBSN) account that held as much as $93.6 million.
Warner agreed to pay a civil penalty of almost $53.6 million and also faces a fine of as much as $250,000. Tax evasion is punishable by as long as five years in prison. Sentencing is scheduled for Jan. 15.
The U.S. since 2009 has prosecuted about 70 U.S. taxpayers and 30 bankers, lawyers and advisers in a crackdown on offshore tax evasion. The sole owner of TY Inc., Warner held the highest account balance of the taxpayers prosecuted in the crackdown.
In this Feb 16, 2003 file photo, Ty Warner, Beanie Baby creator arrives at the Toy Fair to sign “Decade,” the 10th anniversary baby bear in New York. Photographer: Louis Lanzano/AP Photo
The billionaire appeared in court today accompanied by his attorney, Gregory Scandaglia, wearing a suit, shirt and tie and tortoise-shell eyeglasses.
He stood at the podium flanked by Scandaglia and Assistant U.S. Attorney James Conway. Early in the proceeding, he asked Kocoras to speak more directly into his bench microphone.
“My hearing isn’t so good,” Warner told the judge.
Warner falsely reported his 2002 income as $49.1 million, omitting money he made from the Swiss account, and when he amended his 2002 return in 2007, he understated his tax by $885,300, according to court papers.
While today’s plea was tied to the 2002 taxes, the total amount not reported was about $25 million over 11 years, for which Warner owed about $5 million in taxes, according to a plea agreement cited by the judge.
By 2008, the balance of that undisclosed account exceeded $107 million, Conway said in court today. The plea deal isn’t binding on the U.S. Internal Revenue Service.
Warner founded Ty Inc. in 1985. The beanbag-like teddy bears made in limited editions by the Westmont, Illinois-based company inspired devotees and collectors while building a $4.5 billion business, according to a biography supplied by his legal team. Since 1995, Warner has donated almost $140 million in cash and plush toys to charities and organizations.
A plush purple bear with an embroidered white rose, issued in honor of the late Diana, Princess of Wales, in 1997 today carries a list price of $350,316 or best offer on EBay Inc. (EBAY)’s auction website. In a separate listing, a lot of 95 Beanie Babies plus a Diana bear are selling for $150,000.
In 1996, Warner opened a secret account at UBS, according to the U.S. From there, he transferred $93.6 million in December 2002 to another secret Swiss account at Zurcher Kantonalbank, according to a charging document.
Warner disguised his ownership of the ZKB account by holding it under an entity called the Molani Foundation, according to court papers. In 2002, he failed to report his UBS income of $3.2 million to his outside accountants, and failed to file a required Foreign Bank and Financial Accounts Report.
The tax return he filed with the IRS for 2002 also was false, according to the charging papers.
In 2009, Warner tried to avoid prosecution through the IRS Offshore Voluntary Disclosure Program, according to Scandaglia. He was denied entry.
Kocoras today reviewed with Warner the rights he was surrendering, including that of a grand jury indictment and a trial, in agreeing to plead guilty.
“Is it your decision to plead guilty?” the judge asked.
“Yes it is,” Warner replied.
The Beanie Baby magnate confessed that he hid the Swiss bank accounts from his corporate and personal accountants as well as the IRS, signing tax returns he knew were inaccurate.
Warner entered his plea unprompted by the judge. As he summarized his transgressions, he seemed to struggle with his emotions and bent close to the microphone to make himself heard. He acknowledged his success as a businessman and, fighting to maintain his composure, apologized for his conduct.
“I have so much to be thankful for,” he said.
Warner has paid more than $1 billion in taxes in his lifetime, Scandaglia said in a later phone interview.
“He’s had his CPAs prepare and file tax returns every year,” the attorney said. “This is a matter of record.”
The case is U.S. v. Warner, 13-cr-00731, U.S. District Court, Northern District of Illinois(Chicago).
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