SALT LAKE CITY - Nathan Whitney Drage, age 56, a Salt Lake City attorney, was convicted of one count of conspiracy to impair and impede the IRS and three counts of willful failure to file a tax return, following a three-week trial in federal court in Salt Lake City. A jury returned the verdict late Tuesday night.
The case was investigated by special agents of IRS Investigation. The SEC and the Financial Industry Regulatory Authority (FINRA) also contributed to the case.
Evidence at trial showed that Drage and other business partners worked together to acquire vast amounts of stock and then exercise control of the stock through nominees to hide their control. Drage and others then caused thousands of shares of stock to be sold generating millions of dollars. Drage and other business partners took steps to hide and conceal from the IRS who owned the stock, who should report the stock sale, who got the money from the stock sale, and whether the stock sale resulted in a tax.
Evidence at trial showed Drage and others obtained control of public shell companies by acquiring stock in those shells through entities they controlled. Drage prepared and filed misleading and deceptive SEC filings for each of the public shells which hid and concealed his and others control of and beneficial ownership of the stock in those shells. Once control was obtained over the shell, Drage and others recruited nominees, primarily friends and acquaintances, to serve as officers or directors of those shells.
Evidence at trial showed Drage prepared corporate resolutions which facilitated the issuance of public shell stock to their controlled entities. Nominees knew nothing about the companies for which they were signing corporate resolutions. Nominees knew nothing about the financial and operational information contained in the SEC filings and simply signed the paperwork Drage prepared for them. The public shell was merged with a private company, often leaving Drage and others with free-trading shares post-merger.
Drage and others deposited more than $25 million in stock sale disbursements from brokerage accounts to 34 bank accounts in the names of controlled entities and individuals. They also made numerous transfers among the accounts. Drage and others agreed to set up these accounts, mix stock sales proceeds among them, pull from those accounts to pay for personal expenditures. They concealed from the IRS who got the money from the stock sale and whether the stock sale resulted in a tax.
Drage controlled two attorney trust accounts. For the eight years of the conspiracy, Drage commingled his stock sale proceeds with others’ stock sale proceeds. He also took money from client trust accounts, as well as other accounts, to pay for private school for his children, mortgage payments totaling $189,000, payments to his wife totaling $668,545, and payments to himself totaling $144,000 - among other expenses.
Drage also was convicted of failing to file corporate tax returns for three years. He failed to file a 2004 corporate return despite having $1,668,061 in gross reportable stock sales. He did not file a 2005 corporate return despite $2,748,633 in gross reportable stock sales. In 2006, Drage did not file a corporate return despite $26,691 in gross reportable stock sales.
U.S. District Judge David Sam set sentencing in the case for June 1, 2015, at 3 p.m. The felony count of conspiracy to impair and impede the IRS count carries a potential maximum penalty of five years in federal prison and a fine of $250,000. Willful failure to file a tax return is a misdemeanor punishable by up to a year in prison and a fine of $100,000, together with the cost of prosecution.
Source: U.S. Department of Justice, Office of the United States Attorneys
