Mohanbhai “Mohan” Ramchandani is a celebrity tailor who has worked with the likes of Mayor Giuliani and Patrick Ewing, and he is the owner of the company Mohan’s Custom Tailors, which was highly successful. Over the course of about a decade, Mohan’s company was able to earn more than $28 million. However, he only reported $5.6 million on tax returns in that time.
The Case Against Mohan
On March 5, 2013, Seeger Weiss LLP announced that a settlement had been reached between the New York Attorney General Eric Schneiderman and Mohan. Under the terms of the settlement, he agreed to plead guilty and to pay $5.5 million in back taxes for his company. In addition to pleading guilty to filing false tax returns, he also agreed to plead guilty to falsifying business records. As an added punishment to paying the damages and penalties, Mohan will also receive a prison sentence of between one and three years. Mohan also has to face federal charges, and all indications are that he will plead guilty to these as well.
The case began when one of his former employees spoke with the attorneys at Seeger Weiss LLP and filed a whistleblower case against Mohan. This also happens to be the first settlement from the 2010 tax whistleblower amendment to the False Claims Act in New York. The whistleblower told of Mohan’s underreported taxes, which turned out to be both sales taxes and income taxes. The complaint against Mohan stated that he falsified his sales tax returns over the period of many years – all the way back to 2002. According to the law in New York, the whistleblower will receive a reward of $1.1 million. Mohan, once discovered, did not try to hide his actions. He admitted guilt as soon as the authorities confronted him.
The subsequent investigation that looked deeper into the case discovered that Mohan actually changed the numbers so they would be “consistent with his belief in numerology”. According to what he believed, he needed to have the numbers add up to a multiple of ten. Since this type of accounting would not occur naturally, it started to raise the suspicion of many, including those within the business.
Regardless of his own beliefs or superstitions regarding numerology, it is clear that Mohan was trying to defraud the government out of millions of dollars in taxes. It was only through the actions of a former employee that this fraudulent behavior was uncovered.
The First of Its Kind
As mentioned, this was the first settlement for a case with a whistleblower providing information about taxes. This new addition to the False Claims Act, amended to include taxes in 2010, is called a qui tam action. It allows private parties to bring complaints against companies or individuals that are violating state or local tax laws. After filing the complaint, the Attorney General can take over the lawsuit to recover damages. The large financial rewards are certainly an incentive for people to come forward and blow the whistle when they have information regarding a company’s illegal activities.
Stephen A. Weiss, a Managing Partner of Seeger Weiss, represented the whistleblower in this case, and was very pleased with the results and the way the process worked. Weiss said that the settlement showed just what a great idea the whistleblower program was. Over the years, Mohan had cost taxpayers in the state millions of dollars, and the settlement shows the commitment of the state to ensuring justice and to making sure that the taxpayers of New York are not funding tax freeloaders.
Many Types of Businesses, Large and Small, May Commit Fraud
Most of the time, people think of large businesses committing tax fraud. However, this case shows that companies of all sizes can commit fraud. Weiss says that the new whistleblower laws are essential – and effective – when it comes to uncovering this sort of small business fraud. Often, these types of crimes are relatively well hidden, and the only people who could possibly know about them are those who are actually a part of the business.
More Cases on the Horizon
The False Claims Act is starting to pave the way for other types of cases, including more cases involving tax fraud, to come forth in the coming years, and this could be very good news for taxpayers as well as general consumers. The whistleblowers who stand up and help shine a light on these practices committed by companies and individuals interested only in their bottom line are helping to make real changes.