A federal grand jury has indicted a Twin Cities business consultant on charges including conspiracy to defraud the government for allegedly evading more than $13 million in income taxes by hiding millions of shares of stock he obtained under other people’s names.
Scott Phillip Flynn, 54, of Minneapolis is accused in a 13-count indictment returned last week of concealing roughly $50 million in income and capital gains from the Internal Revenue Service as part of a conspiracy alleged to have spanned between 2005 and 2011.
Flynn is described in the indictment as a consultant who twice helped private businesses merge with publicly traded companies through “reverse mergers” in 2006 and 2008, respectively. In exchange, Flynn received millions of shares of corporate stock but allegedly did not report them as required when filing individual income tax returns for those years.
The indictment alleges a scheme in which Flynn caused a portion of the stock to be transferred to “nominees,” or people who agreed to hold the stock in their name while Flynn controlled it. Flynn obtained millions of new shares in the public shell companies by transferring those shares into the names of other people and pretending those “nominees” were legacy shareholders who once held stock in the shell company.
Flynn is also accused of causing the nominees to sell shares and transfer the proceeds to sham entities he controlled, which would then make payments to him or on his behalf. According to the indictment, Flynn’s late father, Phillip J. Flynn, also participated in the conspiracy by pretending to own and control certain companies used by Scott Flynn to carry out his alleged scheme.
A message was left for comment at a number listed for Flynn. Flynn, meanwhile, does not yet have an attorney listed on the federal court docket. Charges include conspiracy to defraud the United States, tax evasion and filing false tax returns.
In the indictment, Assistant U.S. Attorney David MacLaughlin said Flynn concealed roughly $50 million in income and capital gains from the IRS between 2005 and 2011 and still owes more than $13 million in income taxes.
Using his father’s name, Flynn used seven entities — with names ranging from Apex Distributors to Desert Inn Holdings — to conceal his income by receiving proceeds of the sale of his stock held by nominees.
Several other unnamed co-conspirators are mentioned in the indictment, including attorneys in Australia, Costa Rica and California who helped recruit nominees to “own” shares and receive proceeds of stock sales to conceal Flynn’s ownership of the stocks. The unnamed Costa Rican attorney allegedly received millions of dollars from proceeds of stock sales from the Australian nominees that he wired to individuals or entities under Flynn’s direction.
Accounts ‘carefully tracked’
Flynn’s Integritas Consulting Inc., a company he operated but was nominally owned by his father, was paid in stocks for helping private companies become publicly traded through reverse mergers — a process in which a private company typically seeks to join with a public company with little to no past business activity. Shareholders of the privately held company exchange their stock for majority stakes in the new public company after such mergers.
Under certain circumstances, the Securities and Exchange Commission mandates that the publicly traded company disclose the owners of more than 5 and 10 percent of its stock.
The earliest act alleged in the conspiracy was a June 2005 deal by Integritas to help a Wisconsin manufacturer of wind turbine extension towers merge into a public shell company.
Integritas received 2.5 million shares in the new public company as a fee for its services while Flynn also allegedly illegally acquired more than 5.8 million shares of free-trading stock in the public shell company that he later transferred to various nominees before the merger.
Flynn entered into a similar agreement with Wisconsin-based Advanced Fiberglass Technologies in 2007, earning 4.5 million shares as a fee for services while surreptitiously taking another 7.4 million shares.
Flynn “carefully tracked, and always controlled” the brokerage and bank accounts of his Australian nominees, the indictment said. Flynn used their usernames and passwords to sell shares at various prices between 2006 and 2013 and transferred roughly $14.8 million in proceeds that were later largely spent for his personal benefit.
Flynn is also accused of buying a $2.7 million Orono home by using one company, Watertown Properties, in 2007 and filing a sham mortgage with another, Desert Inn Holdings, with the Hennepin County Recorder’s Office as purported evidence of Watertown Properties’ indebtedness to Desert Inn Holdings for the funds used to buy the home. He allegedly caused the transfer from various entities of more than $620,000 to a Wells Fargo Bank account used to improve and maintain the Orono home.
He listed his father’s address on tax returns to conceal his ownership of the Orono home from 2007 to 2011.
In 1999, Flynn was previously sentenced to two years in federal prison after a jury found him guilty of charges including wire fraud and securities fraud, according to court records.