Prosecutors said the defendants' claim of closing the digital divide masked illegal activities.
The mother and son who said they intended to provide low-income Minnesota families with free computers, Internet access and an online study guide were convicted Tuesday of defrauding the Minnesota Department of Revenue of $2.1 million by causing the filing of false tax returns.
A three-week jury trial in U.S. District Court in Minneapolis ended with convictions for Carolyn Louper-Morris and her son William J. Morris Jr., who had owned and operated a business called CyberStudy.
They were convicted on one count of conspiracy to commit mail and wire fraud. They also were each convicted of five counts of wire fraud; Louper-Morris, 63, was convicted of six counts of mail fraud; Morris was convicted of five counts of mail fraud, and of filing a false tax return by understating his 2001 income by more than $400,000.
District Judge John Tunheim allowed the pair to remain free on bail pending sentencing, which has not been scheduled. Prosecutor Timothy Rank said the conservative estimate of a sentence is 14 to 18 1/2 years.
In 2000, when most of the events occurred, Louper-Morris and Morris operated a business called CyberStudy 101, which sold an online student tutorial to customers for $1,000 and in return promised to give customers free Internet access and a computer.
The $1,000 would be paid to CyberStudy by way of a tax credit available to low-income Minnesotans. CyberStudy filed tax returns for its customers, directing the tax credit payments to itself. At the time, Minnesota law provided tax credit for supplemental educational expenses of $1,000 per child and as much as $2,000 per family.
During the trial, prosecutors said that CyberStudy didn't make good on its promises and that its business may have seemed altruistic for its promise of closing the digital divide, but the company simply was using the computers to get customers in the door so they could obtain their state tax credit.
It was a trial likened in its complexity to the Tom Petters case a few months ago.
Rank, the assistant U.S. attorney who prosecuted the case, also was co-counsel in the Petters trial. Prosecutors called 49 witnesses and had more than 300 exhibits in the CyberStudy case.
They argued that the online tutorial didn't live up to the claims CyberStudy made, and that CyberStudy owners had failed in selling the tutorial to college students for $29.99 before going the tax credit route. In the two years prior to using state tax credits, CyberStudy sold fewer than $200 worth of the tutorials.
Prosecutors further showed that in obtaining the tax credits CyberStudy violated state laws requiring citizens to pay for the tutorial services before they claim the tax credit on their returns. More than 2,500 Minnesotans turned over their tax credit to CyberStudy, prosecutors said.
Neither Louper-Morris nor Morris could be reached for comment Tuesday. Their conviction comes 10 years after the company's heyday, when it was lauded for using a tax innovation to help close the digital divide.
Gregory A. Patterson • 612-673-7287