Founder Saba Medical School on trial for tax evasion in US
POSTED: 10/9/13 12:26 PM
KRALENDIJK / FORT MYERS – Patricia Hough, according to her lawyers, is an altruistic psychiatrist who helped her husband build two Caribbean medical schools. To prosecutors, she is a tax cheat who used offshore accounts to avoid paying taxes on millions of dollars from the schools’ sale, David Voreacos and Susannah Nesmith report on Bloomberg.com
Jury selection began today in federal court in Fort Myers, Florida, where Hough, 67, is accused of using accounts at UBS AG (UBSN), the largest Swiss bank, and elsewhere to hide assets and income from the Internal Revenue Service, including almost $34 million she and her husband made when the schools were sold in 2007.
The case is the largest, in dollar value, of four that have reached trial since the U.S. started a crackdown on offshore tax evasion in 2008. Prosecutors have secured 61 guilty pleas, including several involving larger accounts.
Hough and her husband, David Fredrick, used the proceeds to buy an airplane, two houses in North Carolina, and a condominium in Sarasota, Florida, according to a May 15 indictment. Fredrick vanished after the indictment, leaving Hough to face trial alone. U.S. District Judge John Steele, who is overseeing the trial, has declared Fredrick a fugitive.
Hough’s lawyers say she helped Fredrick build Saba University School of Medicine, on the island of Saba in the Netherlands Antilles, and the Medical University of the Americas, or MUA, on Nevis in the West Indies.
“The evidence at trial will show that Dr. Hough is a very humble, bright, hard-working and charitable person,” Nathan Hochman, a lawyer for Hough, said in an interview. “The idea that she would try to steal over $30 million from the very medical school foundation that she worked tirelessly to support for over a decade, and not report it on her tax return, is absurd.”
Hough isn’t charged with stealing. Prosecutors accuse her of conspiring to defraud the IRS by using nominee entities to conceal assets and income. She’s also charged with filing false individual tax returns for 2005, 2006, 2007 and 2008 that understated income and didn’t disclose offshore accounts, according to the indictment.
Hochman, who represented Fredrick for two years before his indictment, said his whereabouts are unknown.
Prosecutors accuse Hough of scheming with her husband and two unindicted co-conspirators, Swiss financial adviser Beda Singenberger and UBS banker Dieter Luetolf.
Singenberger, who was separately charged with helping 60 U.S. clients hide $184 million in offshore accounts, hasn’t responded in federal court in New York. Singenberger is one of 30 bankers, lawyers or advisers charged in the offshore crackdown. Prosecutors also accused 70 taxpayers of crimes, including at least six Singenberger clients who pleaded guilty. Luetolf isn’t charged.
The Hough trial will focus on a web of accounts in Switzerland and Liechtenstein. At the heart of the case is whether she misused accounts associated with the Saba University School of Medicine Foundation.
Defense lawyers said in a Sept. 27 filing that there isn’t sufficient evidence of Hough’s involvement with the accounts or her willful failure to disclose them. “It appears likely that the government’s purpose in indicting Dr. Hough was to exert leverage to secure a plea from” Fredrick, they said.
Both Hough and Fredrick hold doctoral degrees and Hough earned a medical degree, according to Hochman and the indictment. Through the Saba foundation, which they first funded in 1988, according to a government trial brief filed Oct. 3, the couple opened the Saba University School of Medicine in 1993. Fredrick served as president and a foundation director. Hough was associate dean for clinical medicine.
In 1999, Fredrick and Hough began the Medical University of the Americas, a for-profit school on Nevis in the West Indies, according to the government filing.
Both the foundation and MUA failed to tell the IRS about accounts held at UBS, Liechtenstein Landesbank (LLB) and other banks, the U.S. charges.
Singenberger and Luetolf helped the foundation and MUA move money through British Virgin Islands or Hong Kong entities they controlled called Top Fast Finance Ltd., Ample Dynamic Trading Ltd., New Vanguard Holdings Ltd. and Apex Consultants Ltd., according to prosecutors.
“Hough and Fredrick were the beneficial owners of and had signatory authority over all over these accounts and owned and controlled each of them,” prosecutors said in their brief.
Equinox Capital, a private-equity firm based in Greenwich, Connecticut, bought the Saba school and MUA for $36 million in 2007. The transaction included $34 million for land held in the name of Fredrick’s daughter from an earlier marriage, according to prosecutors.
Hough and Fredrick didn’t tell the IRS about most of the proceeds of the sale and transferred money among various undeclared accounts to buy the plane and real estate, make gifts to family members and pay personal expenses, prosecutors said.
In July 2005, Fredrick and Hough caused UBS to transfer $1.14 million from the New Vanguard account to buy a house in Asheville, North Carolina, according to the indictment. They then caused Lynn, Leon & Lyon Group LLC, a Florida company they owned, to buy the house. They transferred the deed three years later to Top Fast for $1.5 million, prosecutors said.
Defense lawyers countered that Hough didn’t direct a single transaction from any offshore account. She “repeatedly told her accountants that she wanted to do whatever was required to be fully compliant with her tax obligations,” they said in the Sept. 27 filing.
If Fredrick used foundation funds for personal expenses, she understood they were authorized by that organization’s board and offset his “substantial deferred compensation,” according to the filing.
Government witnesses, according to the defense filing, also will testify “to her good-faith efforts” to comply with tax laws and her reliance on Fredrick and financial professionals “to properly manage the foundation’s offshore accounts and prepare her tax returns.”
Hough grew up in housing projects in Youngstown, Ohio, according to Hochman. She attended Phillips University in Enid, Oklahoma, on a scholarship, before earning a master’s degree of social work and a doctorate in sociology. She earned a medical degree at Ross University School of Medicine on the Island of Dominica, where she met Fredrick. They wed in 1984.
She became a board-certified psychiatrist and practiced in Georgia, Massachusetts and Florida. At the medical schools in Saba and Nevis, she focused on arranging clinical rotations for third- and fourth-year students, according to Hochman.
More than 1,500 physicians have earned medical degrees at Saba, and its program has approvals from licensing boards in New York, California and Florida, according to the Equinox website. MUA has awarded 500 medical degrees, according to Equinox, and its program has approval from the New York licensing board. Equinox also owns St. Matthew’s University in Grand Cayman.
Students at Saba University School of Medicine could begin receiving federal loans in August, according to the Education Department. Previously, students borrowing for school would have to rely on private debt.
Since 2009, Hough has worked for the Florida Department of Health in Sarasota. She makes $60 an hour working part-time seeing patients with behavioral health problems, according to Courtney Gager, a health department spokeswoman. Hough lives in Englewood, Florida, according to prosecutors.
If convicted, Hough faces five years in prison on the conspiracy count and three years on the false-returns counts.
The case is U.S. v. Fredrick, 13-cr-00072, U.S. District Court, Middle District of Florida (Fort Myers).