Billionaire Robert Smith to pay $140M over tax probe

Brockman 79 used a family charitable trust based in Bermuda and other offshore entities to hide assets from the Internal Revenue Service while failing to pay taxes according to a 39-count indictment unsealed on Thursday in federal court in San Francisc

Smith, 57, who is worth more than $5 billion according to Forbes magazine, drew tears of joy past year when he promised the 400-member graduating class of historically Black Morehouse College in Atlanta that he would pay off all of their student loans.

To keep up the scheme, Brockman used secret, encrypted email systems to coordinate with offshore money handlers, according to the indictment.

Brockman, who is referred to as "Individual A", became an investor in Smith's private equity fund in 2000, first with a US$300 million commitment, and later increasing it to US$1 billion. Brockman is the CEO of Reynolds & Reynolds, one of the largest vendors of auto dealership software in the United States. Though these people had been employed by Brockman, in keeping with the grand jury indictment, Brockman "fully managed these entities and made all substantive choices of their regard".

The same prosecutors who have pursued Smith turned their attention to Brockman, who has been the subject of a grand jury investigation in San Francisco into whether he committed tax and money-laundering crimes, according to the people familiar with the Brockman matter.

He will pay US$139 million in taxes and penalties, and will abandon a US$182 protective refund claim and pay interest as part of the deal.

Smith, 57, is cooperating with related tax investigations as part of a deal in which he will admit misconduct but won't be prosecuted, they said.

During the virtual hearing on Thursday, Brockman pleaded not guilty on all counts and was released on $1 million bond.

"We look forward to defending him against these charges", said Brockman attorney Kathryn Keneally.

In a news conference, Anderson, the US attorney in San Francisco, said that Smith signed a non-prosecution agreement, where he admitted to his part in the scheme and agreed to cooperate with investigators.

On Thursday, the US attorney in San Francisco, David Anderson, and the IRS chief of criminal investigation, Jim Lee, will hold a news conference about a "new significant law enforcement action", according to an advisory.

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A lawyer for Smith did not immediately respond to a request for comment.

Mr. Brockman set up a complex network of offshore companies and trusts created to hide $2 billion in gains earned from investments in Vista's private-equity funds, according to the indictment.

According to the indictment, Brockman gave an unnamed individual detailed instructions regarding the proposed gift to the college, including talking points, and directed the person to threaten to pull out if his demands were not met.

Brockman and Smith have a business relationship dating back to the late 1990s, according to documents filed in connection with Smith's non-prosecution agreement.

Robert Smith, the billionaire who pledged a year ago to pay off the student debt for an entire class of college graduates, will pay $140 million to settle a four-year tax investigation involving assets held in offshore tax havens, Bloomberg reported Wednesday. This amounted to an estimated $40 million. "Although Smith willfully and knowingly violated the law, Smith has accepted responsibility and agreed to provide complete and truthful cooperation", Anderson said.

"It is never too late to do the right thing", Anderson said about Smith during Thursday's news conference.

Anderson applauded Smith for stepping up, despite the serious nature of his crimes, which occurred from 2000 to mid-2015.

While some of the money in the offshore entity ultimately went into Fund II Foundation, a charity Mr. Smith created in 2014, he withdrew untaxed funds for his personal benefit from 2005 to 2013, according to a statement he signed with prosecutors on October 9. Smith used untaxed income to buy a vacation home in Sonoma County, California, and ski properties in the French Alps, and to make charitable contributions, Anderson said.

-Laura Saunders contributed to this article.

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