June 7, 2007 — A St. Croix man accused of using Virgin Islands tax incentives as an illegal tax shelter for off-island businessmen has asked that the federal St. Louis case be transferred to V.I. courts, an official said.
J. David Jackson is accused of using his St. Croix-based company, Kapok Management, L.P., as a tool for mainland business owners to avoid taxes in their states.
Jackson and his Kapok coworkers — Peter G. Fagan of De Leon, Texas, and James W. Ferguson III of Amarillo, Texas — were indicted in March on 21 counts of conspiracy; income-tax evasion; filing, aiding and assisting in the filing of false individual and corporate income-tax returns; and wire fraud.
The men allegedly helped Illinois car dealer James A. Auffenberg Jr., 56, illegally avoid more than $74 million in taxes from 1999 to 2002 by joining Kapok as a partner and shipping money to Kapok.
Jackson has asked that the case be tried in the Virgin Islands, not in Illinois, said East St. Louis U.S. Attorney Randy Massey on Wednesday. Massey has until June 15 to respond to Jackson's request to change the trial venue. He declined to say whether he will agree.
The indictment claims Kapok, which receives tax incentives under the Economic Development Program, helped Auffenberg get 90-percent tax breaks on more than $300 million in revenue generated by Auffenberg's mainland companies.
In return, Kapok kept five percent of Auffenberg's money in exchange for bogus management fees, the indictment said. Auffenberg runs at least two car dealerships in Southern Illinois. He also serves on the board of directors of the United Way of Greater St. Louis.
If convicted, the defendants face the following maximum potential sentences: On the conspiracy charge, five years imprisonment followed by up to three years supervised release and a $250,000 fine. On each income-tax-evasion charge, five years imprisonment, followed by up to three years supervised release, a $250,000 fine and costs of prosecution. On each false income-tax-return charge, three years imprisonment, followed by up to three years supervised release, a $250,000 fine and costs of prosecution. And on the wire-fraud charge, five years imprisonment followed by up to three years supervised release and a fine of up to $32,475,285.
It was the second indictment against Kapok partners. Insurance salesman Gary J. Payne pleaded guilty to tax fraud in 2004 after claiming Economic Development tax credits on money generated in Massachusetts. He also never lived in the islands full time. Widespread media coverage of the Payne debacle prompted Congress to tighten the Economic Development Program, imposing strict rules. V.I. lawmakers — most notably Delegate Donna M. Christensen — still hope to loosen those new rules to dissuade misuse of the program without scaring off investors.
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