CLEVELAND — Lorain tax consultant Richard Zakarian pleaded guilty Tuesday to federal mail and wire fraud charges for stealing more than $4.4 million from nearly 100 clients over the past decade.
Zakarian, 47, also entered a guilty plea to a charge that he filed fraudulent tax returns.
Under federal sentencing guidelines, Zakarian could get up to 20 years in prison when he is sentenced, U.S. District Judge Dan Aaron Polster said during Tuesday’s hearing.
Clad in the wrinkled Cleveland Indians polo shirt he was wearing when he was arrested on state charges last August, Zakarian was led into the courtroom and uncuffed before the hearing began. He left in handcuffs again after declining to contest remaining incarcerated until his Aug. 7 sentencing.
Charles Northcutt III, one of Zakarian’s attorneys, said although the plea works in his client’s favor — he could have received up to 20 years in prison for each of the four mail and wire fraud charges he pleaded out to — Zakarian also wanted to admit his mistakes.
“At the end of the day he feels bad that a lot of folks lost money; he lost money,” Northcutt said. “And he wants to take responsibility.”
Zakarian used two schemes to defraud those who had entrusted him with their money, according to charging documents filed in federal court last month. State charges against Zakarian are expected to be dropped now that he has pleaded out in federal court.
In the oldest scheme, which dated to 2002, Zakarian convinced investors, many of whom had hired him to prepare their taxes, to allow him to invest their money, typically promising returns of 12 percent.
At least 23 individual investors lost more than $1 million to Zakarian in that scheme, according to prosecutors.
Zakarian also was ripping off business and nonprofit groups such as churches and charities that had agreed to let his company, Benjamin Franklin Payroll Services, handle their payroll and forward taxes they owed to various taxing authorities.
Originally, Zakarian had focused on businesses, offering his services at cut-rate prices. But when that failed to generate enough business, according to prosecutors, he began offering “grants” to nonprofits through a sham charity he ran, telling them they had qualified for two years of free payroll and tax services.
Instead of sending the tax money to the appropriate government agencies, Zakarian kept the money for his own personal and business expenses and in an effort to cover the losses his investment scheme had incurred.
At least 72 businesses and nonprofit groups lost at least $3 million through that scheme, according to prosecutors and attorneys for the victims, many of whom have sued Zakarian in state court.
Zakarian lost most of the money he took making high-risk investments in the commodities market.
Northcutt said his client’s problem was that he was too confident in his ability to play the markets.
“The problem with high-risk investments is you have a high rate of loss,” Northcutt said. “He had a strong belief he could make a lot of money for his clients. He honestly believed he would be paying it back, plus interest.”
Northcutt also said that Zakarian never meant to steal from his clients, something he believes separates Zakarian from notorious white-collar criminals such as disgraced and incarcerated financier Bernie Madoff, who stole billions using a Ponzi scheme that spanned decades.
Although attorneys for Spitzer Management, which lost more than $500,000 to Zakarian’s schemes, have located roughly $50,000, the general consensus between prosecutors, Zakarian’s lawyers and victims is that virtually all the money Zakarian stole has been spent.
“He didn’t stash anything away,” Northcutt said. “He didn’t have an exit strategy.”
Part of Zakarian’s plea agreement calls for him to make efforts to make restitution to victims and to pay the U.S. Internal Revenue Service the $310,103 in back taxes that he owes.
Although Zakarian has pleaded guilty, one dispute is still left to be settled by his lawyers and prosecutors and will have an impact on just how long he serves in prison.
Assistant U.S. Attorney John Siegel said that prosecutors still contend Zakarian attempted to obstruct justice during the investigation, which began last summer when Spitzer attorney Anthony Giardini brought his concerns about Zakarian to Lorain County Prosecutor Dennis Will.
Northcutt said his client cooperated, and the obstruction allegation centers on two personal laptops that weren’t immediately turned over to investigators. He said that even without those laptops investigators found more than enough information on Zakarian’s business computers to prosecute him.
He said although there may have been a few business documents on the laptops, they mostly contained personal data.
Polster will determine whether Zakarian’s alleged obstruction will be held against him at the sentencing hearing.
Contact Brad Dicken at 329-7147 or firstname.lastname@example.org.