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Three Florida Men Plead Guilty in Connection with Multi-Million Dollar Fraud Scheme Against Xerox

November 07, 2018, 07:25 AM
Filed Under: Fraud

U.S. Attorney James P. Kennedy, Jr. announced David Haynes, Kyle Haynes and Bryan Day, all of Florida, pleaded guilty before U.S. District Judge Elizabeth A. Wolford involving a scheme to defraud the Xerox Corporation of more than $20 million. Kyle Haynes and Bryan Day pleaded guilty to conspiracy to commit wire fraud and filing a false tax return. David Haynes pleaded guilty to filing a false tax return. The conspiracy charge carries a maximum penalty of 20 years in prison and a $250,000 fine, while the tax charge carries a maximum of penalty of three years in prison and a $250,000 fine.

Assistant U.S. Attorney Richard A. Resnick, who is handling the case, stated that the defendants reside near Daytona Beach, FL. Another co-conspirator Robert Fisher, owns RBM Imaging, an authorized reseller of Xerox office equipment. The three Florida defendants own Haynes Brother Furniture in Daytona, along with another co-defendant Jason Haynes.

Xerox, which has a location in Webster, NY, sells and leases office equipment, including printers. Xerox sells or leases the office equipment directly to end-user customers or to authorized resellers, like Fisher, who then resell or lease the office equipment to end-user customers, like the defendants. The office equipment requires toner and other products to operate. End-user customers order the toner for their printers from Xerox. Rather than pay Xerox upfront for the toner, the end-user customers pay Xerox based on the number of prints made with the toner. However, at all times, the toner belongs to Xerox until consumed by the end-user customers. At no time may the end-user customers sell the toner.

Kyle Haynes and Bryan Day set up a sham company, HDH Graphics, to obtain approximately 63 Xerox printers from Fisher. Although HDH Graphics made few, if any, prints with the printers, the defendants fraudulently represented to Xerox that HDH Graphics was making prints, using much more toner than the industry average, which deceived Xerox into shipping approximately $25 million worth of toner to HDH Graphics. The defendants then sold the fraudulently obtained toner for approximately $11 million to an individual in Miami. Kyle Haynes, Bryan Day and Fisher shared the profits from the fraudulent sale of the Xerox toner.

In executing the scheme, the defendants repeatedly misrepresented to Xerox that they were making millions of prints with the toner, even though they never took most of the printers out of their boxes. The defendants provided Xerox with false usage profiles from the printers and false print samples that made it appear that the defendants were making the millions of prints and using much more toner than the industry average for each print.

The defendants also filed false personal income tax returns with the Internal Revenue Service for the years 2008 through 2013. Their personal tax returns failed to report net income earned by HDH Graphics from the fraudulent sale of the Xerox toner. Because HDH Graphics was a partnership, all of its net income flowed through to the defendant’s personal tax returns. Therefore, the underreporting of the net income on HDH Graphics tax returns resulted in the underreporting of the income on the defendant’s personal tax returns.

The defendants underreported the net income earned by HDH Graphics by falsely claiming that they had personally paid and incurred travel and shipping expenses on behalf of HDH Graphics. The defendants then had HDH Graphics reimburse them for the falsely claimed expenses and falsely reported such expenses as deductions on HDH Graphics tax returns. The falsely reported deductions on HDH Graphics tax returns were approximately $265,154. As a result, approximately $66,288.50, should have flowed through as income to the defendant’s personal tax returns.

As part of their plea agreement, the defendants will forfeit millions of dollars in funds and assets that were previously seized by the government.

“It’s often said that money is the root of all evil, and in this case, it was certainly the root of the defendants’ criminal behavior,” said U.S. Attorney Kennedy. “These defendants worked, plotted and schemed to steal millions of dollars from a business that has been a solid corporate citizen in our community. When individuals like these seek to enrich themselves by stealing from a business, both the business and consumers end up paying the price—through lower profits and higher costs.”

“Financial fraud schemes like this not only rob the government of vital revenues, they also penalize businesses who typically pass on losses to the consumer in the forms of higher prices, which is why we must hold the operators of these schemes accountable,” said Kevin Kelly, Special Agent-in-Charge of HSI Buffalo. “HSI special agents dedicated to uncovering financial fraud will continue to aggressively investigate those who seek to blatantly disregard the law for their own financial gain.”

Charges remain pending against Robert Fisher and Jason Haynes. The fact that a defendant has been charged with a crime is merely an accusation and the defendant is presumed innocent until and unless proven guilty.

The pleas are the result of an investigation by Immigration and Customs Enforcement, Homeland Security Investigation, Buffalo Office, under the direction of Special Agent-in-Charge Kevin Kelly, and the Internal Revenue Service, Criminal Investigation Division, under the direction of James Robnett, Special Agent-in-Charge, New York Field Office.

Sentencing is scheduled for March 13, 2019, at 2 p.m. before Judge Wolford.

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