A lawyer nominated for a judgeship by Gov. Dannel P. Malloy became a central figure Friday in the federal fraud trial of two women charged with operating a "gifting table club" pyramid scheme.
Internal Revenue Service agent Eric Wethje testified that one of the defendants informed him that Branford lawyer Shelley Marcus — among 15 individuals nominated this week to become Superior Court judges — had made changes to a handbook of guidelines by which the club operated. The IRS conducted the investigation.
Investigators say that Donna Bello, 56, and Jill Platt, 65, both of Guilford, recruited women from throughout the state from 2008 to 2011 to participate in a financial conspiracy that prosecutors have compared to a Ponzi scheme. The women are being tried on charges of wire fraud and filing false tax returns. Their attorneys have said the women believed that the club, a "sisterhood" as it was called in club literature, was legal and that they had consulted attorneys and accountants.
Other women are implicated in the scheme, but they have avoided trial by pleading guilty or surrendering voluntarily and negotiating immunity deals. Three of those who have avoided trial assert that they were assured that lawyers consulted by organizers of the gifting table operation had pronounced it legal. One of the three said through her lawyer that she had been told that Shelley Marcus had reviewed the gifting table handbook.
Attorney Edward Marcus, an influential Democrat who practices law with his daughter Shelley in Branford, said Friday that neither he nor his daughter would discuss the gifting table case, saying that it would be inappropriate to comment on an ongoing criminal trial, particularly because both have been subpoenaed by the defense and prosecution to appear as witnesses.
Other lawyers familiar with the trial said that Edward Marcus' potential appearance as a witness could be complicated by the fact that he previously represented Bello and Platt three years or so ago, when former state Attorney General Richard Blumenthal opened a fraud investigation of the gifting table operation. In October, current Attorney General George Jepsen disclosed that five former participants in the gifting scheme — which he characterized as an illegal pyramid scheme — agreed to forfeit $202,500 to the state. Edward Marcus represented some of those named at the time that the agreement was announced, Jepsen's office said Friday.
Earlier this year, The Courant obtained a copy of the 34-page handbook of club guidelines that gives a glimpse into how the club operated and shows how far organizers went to convince prospective participants that joining the club was legal. In the guide, participants are encouraged to ask family members for money, use their credit cards for cash advances and sell their cars and other valuables to get into the club.
The handbook became part of the discussion in court Friday when Wethje, under questioning by Platt's attorney, Jonathan Einhorn, said he was told of Shelley Marcus' alleged involvement in the gifting club when he visited Platt's home to question her.
"You know Ms. Marcus has denied this now, right?" Einhorn asked Wethje. The agent said he was aware of that.
Bello's lawyer, Norm Pattis, asked Wethje if Shelley Marcus and her father, a former state Democratic Party chairman, were once considered potential witnesses or "subjects" of the IRS investigation.
Wethje said that at the start of the probe, investigators "had to figure that out." He told Pattis that he had read a New Haven Register article in which Edward Marcus was quoted as saying that "gifting tables" were legal.
"Did Mr. Marcus almost get indicted?" Pattis asked Wethje. Prosecutor Douglas Morabito objected to the question and U.S. Judge Alvin W. Thompson sustained the objection.
Pattis asked Wethje if he had confronted Edward Marcus about his contention that gifting tables were legal.
"I can say I didn't," said Wethje.
Court records indicate that each of the gifting tables had a four-level pyramid, with eight participants at the bottom, four assigned to the third row, two participants at the second row and one member on top. New members paid $5,000 cash to the person at the top. That payment, "which is characterized as a gift," according to the indictment, gave the new person a spot on the bottom row.
To move higher up the pyramid, participants recruited additional women. When eight new women joined, the woman at the top left the gifting table and kept the $40,000 paid by the newest members. All levels moved up the pyramid, including one to the top spot of a second gifting table that was formed, and the search would begin for new recruits, according to the indictment.
The indictment alleges that the defendants tried to use the pretext of gifting tables as a way to avoid paying taxes on their proceeds.
Each wire fraud charge carries a prison sentence of up to 20 years. A conviction on a charge of filing a false tax return is punishable by a maximum prison sentence of three years.
A third defendant, Bettejane Hopkins, 67, of Essex, has pleaded guilty.
According to a grand jury indictment, Bello — identified by federal prosecutors as "the ringleader" of the scheme — wrote in a 2009 email to club participants that more than 70 women made it to the top levels of the club, most of them more than once and more than 20 of them six times or more. The email also said that more than $5 million had changed hands.
The indictment said new members who donated money were told that the funds were tax-free gifts under the Internal Revenue Service code.
In Thursday's first day of testimony, the government called IRS agents Paul Crowley and Barbara Shuster to testify. Crowley said tax records show that Bello reported to the government that she earned $8,650 in 2008 and $7,309 in 2009 — all rental income from a house on Hidden Lane in Guilford. She used H & R Block in Old Saybrook to file the returns.
Shuster, who said she did not examine Bello's or Platt's returns, testified that taxpayers have a responsibility to compute their taxes correctly.
She said that a gift is not taxable to the receiver only if certain conditions are met. She testified that an individual who had questions about whether money or property can be legally classified as a gift may seek guidance through seven IRS taxpayer assistance centers in Connecticut, by calling an 800 number or through the IRS website.
Under cross-examination by Pattis, Shuster agreed that tax evasion is illegal but that tax avoidance — the practice of finding legal ways to avoid paying taxes — is not illegal.
In his opening statement, Pattis said that Bello, a cosmetologist, should not have been expected to know federal tax law and that the government was overaggressive in its prosecution. At one point, he quoted lyrics from the Beatles song, "Taxman."
Einhorn reminded Shuster that she had testified that "nothing is easy with taxes."
"That's true," she said.
Einhorn said the women consulted accountants to be sure they were within the law.
"This was all done in good faith. They had a good-faith belief that everything they were doing was within the law," he said.Copyright © 2015, CT Now