Nashville, TN - May 23, 2005 - Jim Vines, United States Attorney for the Middle District of Tennessee, Special Agent in Charge My Harrison, FBI Memphis Division, Special Agent in Charge Cleve Daniels, IRS-Criminal Investigation, and Director Mark Gwyn, Tennessee Bureau of Investigation announced that John Stamps pled guilty today to all charges contained in the indictment in each of two separate cases. In one case, Stamps pled guilty to four counts of tax evasion in violation of Title 26, United States Code, Section 7201. In the other case, Stamps pled guilty to false statements in violation of Title 18, United States Code, Section 1001(a)(3). Stamps pled guilty before United States District Judge Todd J. Campbell at the federal courthouse in Nashville.
The indictment in the tax evasion case was handed down on March 23 in Chattanooga by a grand jury of the United States District Court for the Eastern District of Tennessee. The indictment in the false statements case was handed down the same day in Nashville by a grand jury of the United States District Court for the Middle District of Tennessee. Earlier this month, upon agreement of the prosecutors and Stamps, the case from the Eastern District was transferred to the Middle District to enable Stamps to plead guilty to both cases simultaneously.
The tax indictment alleged that Stamps willfully evaded reporting his full income to the Internal Revenue Service for the tax years 1998, 1999, 2000 and 2001, and charged him with one count of tax evasion for each of these four years. This indictment additionally alleged that Stamps knew that he owed substantially more money to the United States than he paid in taxes for those years. In his plea agreement with the United States, Stamps admitted these allegations as well as additional details regarding the crimes.
Specifically, Stamps admitted to omitting income for calendar years 1998 through 2001. Much of this omitted income resulted from personal items and expenditures that Stamps caused to be paid through one of his companies, Trade Mark Inns, Inc. (also known as Trade Mark Properties) so that he would not have to report the income associated with them on his personal tax returns. These expenditures included furniture and landscaping for his Monteagle home and personal items purchased with a credit card for his company, Trade Mark Insurance.
Stamps also admitted to not reporting tens of thousands of dollars in income for 1999 and 2000 he received through his lobbying entity, Privatization Strategists, LLC. Stamps failed to provide much of this information to his accountant or the Internal Revenue Service by intentionally having the payments deposited into his brokerage account. Additionally, Stamps used Trade Mark Inns to pay a "salary" to a close relative, who was in fact attending college outside the state of Tennessee and not working for Trade Mark Inns. The payments were used by the close relative for college expenses and not for actual work performed, but were included as business deductions for Trade Mark Inns.
The plea agreement detailed the tax loss to the United States resulting from Stamps's intentional underreporting of income. For the years 1998 through 2001, Stamps's underreporting resulted in tax losses of $10,287, $49,160, $33,637, and $30,900, respectively. Although the year 1997 was not covered by the indictment, the plea agreement also noted that Stamps similarly intentionally underreported income on his 1997 tax return, resulting in a tax loss to the United States of $3483. The total tax loss to the United States for 1997 through 2001 was $127,467.
The false statements indictment alleged that on about July 25, 2002, Stamps made and used a document containing materially false, fictitious and fraudulent statements in a matter within the jurisdiction of the United States Department of Labor (USDOL), specifically, within USDOL's oversight and monitoring authority in connection with federal funds awarded to the Tennessee Department of Labor & Workforce Development (hereinafter "TDOL") pursuant to federal legislation known as the Workforce Investment Act. As alleged in the indictment, federal funds were provided to TDOL for specified programs and services related to labor and workforce development and training.
In his plea agreement, Stamps admitted to various details surrounding his false statements. In November 1999, the TDOL entered a sole-source (i.e., no-bid) contract with Workforce Strategists, LLC (WFS), under which WFS was to receive approximately $644,000 per year in federal funds, provided pursuant to the WIA, for specified mental health counseling and related services. Stamps was Managing Partner of WFS and a majority owner of WFS through his lobbying entity, Privatization Strategies, LLC. In about July 2002, as certain Tennessee state officials were considering whether to extend the WFS contract, a high-ranking state official asked Stamps for information about WFS. In response, Stamps drafted and initialed a memorandum dated July 25, 2002, in an effort to persuade state officials to continue to fund the WFS contract with funds from USDOL. In the memorandum, Stamps made false and fraudulent representations about WFS, including the following:
i. "With WIA in mind, beginning in 1998, a group of individuals, lead [sic] by John Stamps and Marc Burrows, a long-time mental health professional, searched to find a service delivery model that would address the career needs of long-term dislocated workers who may be experiencing psychosocially-based barriers that prevent their reintegration into the workforce";
ii. "After a lengthy search process, we could find no program in the nation who serviced the holistic needs of dislocated workers seeking re-employment"; and
iii. "After over a year of market analysis and program development, the Tennessee Department of Labor and Workforce Development was consulted to determine if there was interest in a pilot program."
Contrary to those statements, as Stamps admitted in his plea agreement, Stamps had initiated the creation of WFS in about Spring 1999 - only after a deal fell through in January 1999 whereby Stamps was to profit as a lobbyist in connection with a proposed $10 million contract between the TDOL and a company called Sylvan Learning Systems Inc (Sylvan), under which Sylvan was to provide comprehensive workforce training services in Chattanooga, Memphis, and Knoxville. In March 1999, Marcus Burrows interviewed for a position with Comprehensive Community Care ("CCC"), a Chattanooga-based behavioral health company that Stamps then owned with two other individuals. One of those individuals interviewed Burrows, then referred him over to Stamps as someone who could assist Stamps in the creation of WFS. Prior to that introduction, Stamps had never met Marcus Burrows.
In about April 1999, Stamps hired Burrows as the first-ever employee of WFS. In July 1999, Stamps and Burrows entered a letter agreement formalizing Burrows' role as Chief Manager of WFS and making Burrows a 10% partner in the company, with the other 90% being held in the name Privatization Strategies, Stamps' lobbying company. The following month, on about August 2, 1999, the State authorized the sole source contract award to WFS, which became effective in November 1999.
As Stamps admitted in his plea agreement, contrary to the representations in his July 25, 2002 memorandum, as Stamps knew, neither he, nor Burrows, nor any "group of individuals" associated with WFS had "searched to find a service delivery model that would address the career needs of long-term dislocated workers who may be experiencing psychosocially-based barriers that prevent their reintegration into the workforce." Similarly, there had been no "lengthy search process" to find a "program in the nation who serviced the holistic needs of dislocated workers seeking re-employment" and there had not been "a year of market analysis and program development" before consulting with the TDOL "to determine if there was interest in a pilot program."
U.S. Attorney Vines congratulated the joint state and federal team of investigators and prosecutors who handled this case. Said Vines: "People who abuse the public trust and treasury for private greed destroy the confidence the citizens must place in their government when they turn over their hard-earned tax dollars in support of crucial public works. The U.S. Attorney's Office and its state and federal law enforcement partners will spare no effort to uncover and prosecute such reprehensible practices."
Cleve Daniels of the IRS stated, "Our tax system is built on the premise that taxpayers file accurate, timely, and fully paid tax returns. An attempt to intentionally evade or defeat the payment of federal income tax is a serious crime. Taxpayers that engage in such conduct run the risk of being exposed to severe civil and criminal penalties."
Each count of tax evasion is punishable by up to 5 years imprisonment and a $250,000 fine. The offense of making false statements is punishable by up to 5 years imprisonment and a $250,000 fine. Judge Campbell scheduled Stamps's sentencing for August 22, 2005.
The convictions were the result of an investigation conducted by the Federal Bureau of Investigation, the Tennessee Bureau of Investigation and the Internal Revenue Service-Criminal Investigation Division. The United States is being represented in these cases by Assistant United States Attorneys Ellen Bowden McIntyre, Eli Richardson, and Zach Fardon.