COURTS: Muto in and out of prison

By Mark Scheer/scheerm@gnnewspaper.com
Niagara Gazette

February 29, 2008 09:33 pm

— Having finished his state prison sentence for defrauding more than 200 people of around $19 million, former Lewiston financial advisor Richard A. Muto appeared in federal court Friday to answer to charges of attempting to obstruct the administration of the internal revenue laws and filing a false federal income tax return for 1998.
Muto was sentenced in 2004 to a two- to six-year prison term in state Supreme Court after pleading guilty to charges of fourth-degree grand larceny and scheme to defraud. The plea was part of a deal with prosecutors from the New York Attorney General’s office.
On Friday, he was released from Collins Correctional Facility directly into the custody of federal law enforcement officials. He was transported to Buffalo where he appeared in court to answer to the tax charges before federal magistrate Hugh Scott.
Peggy McFarland, a spokesperson for the U.S. Attorney’s Office in Buffalo, said Muto was released after posting a $250,000 bond and is scheduled to return to court later this month for a suppression hearing.
Linda Foglia, a spokesperson for the state Department of Correctional Services, said Muto was discharged from state prison on a conditional release. By law, she said, inmates like Muto whose sentences do not have a definitive time period for incarceration are eligible for release once they have reached two-thirds of their maximum sentence, provided they have followed the rules of sentencing and the detention facility. Foglia said Muto’s conduct while incarcerated gave the corrections department no basis to hold him beyond March 2, the date in which he had reached two-thirds of his maximum sentence. Foglia said the department released Muto Friday because March 2 is a Sunday and inmates are not allowed to be released on weekends.
From 1996 to late 2001, approximately 200 Western New Yorkers lost more than $15 million through the purchase of promissory notes in a company called Sweetwater Development Corporation. Most of the victims are elderly, and invested their life savings. Muto was the Niagara Falls broker who sold the notes.
The state attorney general’s office reached an agreement with SunAmerica Securities, Inc., a Phoenix, Arizona securities broker-dealer, to voluntarily contribute $1.6 million to a restitution fund for investors who were duped by Muto while he was affiliated with SunAmerica.
In 2005, Muto was indicted by federal grand jury. The Department of Justice and the Internal Revenue Service accused him of being involved in a tax fraud scheme that cost the Treasury at least $1.9 million in taxes.
The federal indictment alleges that Muto promoted and sold schemes that fraudulently reduced or eliminated clients’ federal income tax liabilities. The indictment further alleges that Muto personally used the scheme to fraudulently reduce his own income tax liability. Initially, Muto promoted and sold tax fraud schemes marketed by American Asset Protection, an entity based in Palm Beach County, Florida. Later, he promoted and sold tax fraud schemes marketed by The Aegis Company, which is based in Palos Hills, Illinois.
The indictment alleges that Muto promoted and sold the tax fraud schemes through seminars, mailings, and personal meetings with clients. The Aegis scheme involved the use of multi-layered domestic and foreign trusts. As part of the scheme, Muto instructed clients how they could create the appearance that they transferred their income and assets from their businesses to a series of multi-layered trusts, while maintaining complete control over the income and assets. Muto told clients that by transferring the income and assets through a series of trusts, the clients could avoid paying taxes on that income, or could significantly reduce the amount of taxes they owed, when in fact the transfers did not affect their true income tax liabilities.
Each count of the indictment separately carries a maximum penalty of three years imprisonment and a $250,000 fine.