A federal judge rejected calls from prosecutors for a prison sentence of at least a year and Tuesday sentenced billionaire Beanie Babies founder Ty Warner to two years of probation for failing to pay income taxes on millions of dollars he hid for years in Swiss bank accounts.
Warner’s sentence also includes a $100,000 fine and 500 hours of community service.
U.S. District Judge Charles Kocoras said he was swayed by the 70 letters he received in support of Warner. The judge read aloud from several that detailed Warner’s charitable works, including one from the Andre Agassi Foundation for Education. A mention was also made of $2 million he gave to tsunami relief efforts in Japan.
“Society will be best served to allow him to continue his good works,” Kocoras said, adding that Warner has shown more concern for humanity than any other defendant he has ever seen.
In a court filing last month, Warner’s lawyers said that of the more than 100 individuals who have been prosecuted for tax evasion as a part of a crackdown on offshore accounts, 47 have been sentenced and the majority of those defendants (63 percent) received probation. The lawyers provided three pages of specific cases. One California man was sentenced to two years’ probation after hiding assets in undisclosed foreign accounts resulting in tax liabilities totaling $52 million; his offshore accounts contained about $200 million, according to Warner’s lawyers.
In court Tuesday, prosecutors told the judge that Warner should get at least one year in prison, partly to deter others from committing the same crime. In an earlier filing, prosecutors asked the judge to “give serious consideration” to sentencing guidelines that called for a prison sentence of 46 to 57 months.
Prosecutors told the judge that others who received probation in tax-evasion cases were more cooperative than Warner and caused little, if any, financial loss to the government. They said Warner spent years hiding Swiss bank accounts and lying on his federal tax returns. In some cases, the accused tax evaders were older or sicker than Warner, 69, whose health problems they consider minor, prosecutors said in their recent filing.
In court, prosecutors cited the case of Peter Troost, 79, owner of a Skokie cemetery monument company who pleaded guilty in March to using a Swiss bank account to evade taxes. (Troost is not affiliated with longtime monument company Peter Troost Monument Co. of Hillside.)
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Troost paid more than $1 million in back taxes, as well as $3.75 million in penalties, and in July a federal judge, John Tharp, sentenced Troost to one year and one day in prison, in addition to 200 hours of community service and $32,500 in additional fines.
Troost is serving his sentence in Wisconsin.
Troost’s Chicago lawyer, Ted Sinars, said he was surprised Warner got only probation.
“His dollar amount was so much higher than my client’s,” Sinars said.
After the hearing, U.S. Attorney Zachary Fardon told reporters that although Warner avoided jail time, prosecutors “held Mr. Warner accountable by bringing this case.” In addition to the record fine Warner has paid, he is a convicted felon and has had to endure the shame and hardship of a public prosecution, Fardon said.
“It’s not what we asked for,” Fardon said in his first public comments about a case since he took office in October. “But we have taken a position we think is fair and right under the circumstances, and that is the best that we can do.”
Warner’s lawyer, Gregory Scandaglia, said in a statement his client was humbled by the ruling.
“The judge heard from many people who have benefited from Ty’s quiet generosity over the years, and he crafted a sentence that allows Ty to continue to make amends in a way that most benefits society,” Scandaglia said.
Warner, who in a court filing detailed a troubled childhood, has agreed to pay a $53 million civil penalty and at least $27 million in back taxes. He also said he has paid more than $1 billion in federal taxes during his life.
Warner listened to Tuesday’s proceedings through headphones because he is hard of hearing. He scribbled notes as the judge spoke but showed no outward reaction.
Before sentencing, the Oak Brook resident stood in court and apologized for his conduct, saying the outpouring of support he has received has only augmented his “shame and embarrassment.”
“Unfortunately, I never realized that the biggest mistake ever made in my life would cost me the respect that was most important to me,” Warner said, reading from written remarks in a low voice. “For all of this, your honor, I am truly sorry.”
Warner, a Chicago-area businessman made rich by his line of collectible stuffed toys, pleaded guilty in October to one count of tax evasion. He had sought probation for what he said was a “terrible mistake.”
Warner, a college dropout who founded Westmont-based Ty Inc., maintained undeclared Swiss bank accounts from 1996 to 2008, the government said. He failed to report $24 million in income in those accounts, as well as the existence of the accounts. In one instance, he opened an account in the name of Molani Foundation, which the government has called a sham. He also failed to pay taxes of about $5.6 million, prosecutors said.
During Tuesday’s hearing, the judge said Warner has already paid more financially than he would have if he had filed his taxes properly.
One letter that particularly moved the judge was from a Santa Barbara, Calif., woman who recounted a moment when Warner stopped to ask her directions in a parking lot one day in 2012.
She handed him a fundraising flier, and he wound up giving her $20,000 to pay for a lifesaving kidney procedure.
“I did not recognize this man, as he rolled down the window, smiled, and reached out his hand,” wrote the woman, Jennifer Vasilakos. “He introduced himself as Ty Warner, and asked how much money I needed to raise.”
The judge was impressed by that and other charitable acts by Warner.
“Warner’s private acts of kindness, benevolence and generosity are overwhelming,” Kocoras said, noting that Warner has experienced public humiliation for his crime. The judge said that written testimonials he receives in criminal cases typically seem pro forma, but many of the letters written on behalf of Warner were several pages long and seemed sincere.
Warner’s court filings mentioned at least three schools where he might perform community service: Richards Career Academy high school in Chicago’s Back of the Yards neighborhood; the Tilden Career Community Academy High School on South Union Avenue in Chicago; and Leo High School, a Roman Catholic school that educates students mostly from Chicago’s South Side.
Warner has offered to teach students how to produce a retail product, such as a school mascot, that could be used as a fundraiser for the school.
Warner declined to comment as he left Dirksen U.S. Courthouse and ducked into a black Lincoln Town Car with his lawyer.
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