Getnick & Getnick LLP and co-counsel Labaton Sucharow LLP have secured a major settlement in the second stage of the largest ever tax whistleblower recovery in New York state history. New York Attorney General Barbara Underwood announced the $30 million settlement today. It follows a related $40 million settlement in April 2017, bringing the total recovery to $70 million.

The Relator, whose identity remains protected, will receive 22 percent of today’s settlement ($6.6 million).

In the matter announced today, Getnick and Labaton represent the Relator in a tax evasion case brought against Harbinger Capital Partners Offshore Manager LLC, the investment manager for New York-based hedge funds run by Philip Falcone from 2002 to 2009. The case alleges that the defendants evaded New York State and City taxes by shifting income derived from Harbinger from New York to Alabama to avoid New York’s higher tax rates. The previous settlement announced in April 2017 was with Harbert Management Corporation, an Alabama-based investment company that had an investment and business relationship with Harbinger Capital Partners Offshore Manager.

Today’s announcement includes a superseding complaint brought by the Attorney General’s office that reveals the details of the allegations. The complaint states, “Because it carried on its business in New York, Offshore Manager had a clear obligation under New York State Tax Law to apportion and allocate income as taxable in New York State, but instead apportioned 100 percent of its income to the state of Alabama, which had lower tax rates than New York.”

The complaint also states,”…Offshore Manager systematically camouflaged its New York presence…”

In addition, the complaint states, “Offshore Manager made profits remarkable even by Wall Street standards but failed to pay what should have been paid to the city and state where it made these profits and misled tax authorities to ensure that it would not have to pay its fair share.”

The Attorney General’s Office has announced that its investigation into the conduct at issue in this matter continues. 

“Today’s settlement adds substantially to the recovery for the state and reveals the extent of the potential liability for hedge funds with multi-state operations and the vigor of the state’s tax enforcement efforts,” said Neil Getnick, managing partner of Getnick & Getnick.

“The Attorney General’s Office did an extraordinary job working with us and our client to bring the second stage of this complex case to conclusion, again illustrating the value of the public-private partnership established by the New York False Claims Act and the New York AG’s particularly innovative approach to its implementation,” said Jordan Thomas, Chair of Labaton’s Whistleblower Representation practice.

The case was filed under the New York False Claims Act, which was amended to cover tax claims in 2010.

RELATED MATERIALS:

Press Release from the New York Attorney General, September 27, 2018.  (“The Attorney General expresses her appreciation to the whistleblower, without whose information the misconduct might have remained concealed from the authorities, and to the whistleblower’s attorneys.”)

Superseding Complaint, September 26, 2018.

Harbinger Hedge Fund Manager to Pay $30 Mln in New York Tax Accord, Reuters, September 27, 2018 (“‘The $70 million that has been recovered is real money by any measure,’ [Neil Getnick] said.  ‘Applying the lessons of today’s case more generally could lead to more liability for the hedge fund and financial services industries.'”)

NY, Hedge Fund Settle for $30M in Whistleblower Tax Law Suit, Law360, September 27, 2018 (“‘Today’s settlement adds substantially to the recovery for the state and reveals the extent of the potential liability for hedge funds with multi-state operations and the vigor of the state’s tax enforcement efforts,’ [Neil] Getnick said.”)

Getnick & Getnick and Labaton Sucharow Secure USD30m Settlement in Philip Falcone Hedge Fund Tax Case, Hedgeweek, September 28, 2018 (“The case alleges that the defendants evaded New York State and City taxes by shifting income derived from Harbinger from New York to Alabama to avoid New York’s higher tax rates.”)

Phil Falcone Is Really Bad At Paying Taxes, Dealbreaker, October 1, 2018 (“Tax bills have always presented a bit of an issue for Falcone . . . Turns out this is something of a trend.”)

Neil Getnick on Using False Claims Law to Combat Tax and Consumer Fraud, Corporate Crime Reporter, October 8, 2018 (“State and federal false claims laws have been used predominantly in recent years to combat health care fraud.  But now the laws are starting to catch tax frauds — and soon — consumer frauds.”)

Harbinger Capital Partners Offshore Manager Settles New York Tax Evasion Case for $30 Million, The Hedge Fund Law Report, November 8, 2018 (“‘This settlement is a warning to anyone in the hedge fund industry that is diverting state taxes from New York — a high tax rate jurisdiction — to a lower tax rate jurisdiction that there is now significant exposure to liability under New York’s False Claims Act,’ said Neil V. Getnick, managing partner of Getnick & Getnick who represented the whistleblower in this settlement.”)