Rileys both sentenced to 42 months, fined $250,000
Two brothers from Morris were each sentenced to 42 months in prison and both received $250,000 fines for devising a tax-evasion scheme that involved concealing income they and many of their employees received from their road construction business, according to a spokesperson for the U.S. Attorney's Office in Minneapolis.
Joseph Edward Riley and John Thomas Riley were sentenced in U.S. District Court on Thursday by Judge Patrick Schiltz. The brothers pled guilty to one count of conspiracy to defraud the U.S. in November 2009.
The federal criminal justice system does not have parole, so defendants serve virtually their entire sentence in a federal facility. The Bureau of Prisons will work with the U.S. Marshal and the court to determine where the Rileys will serve their sentence, the spokesperson said.
According to the U.S. Attorney's Office, the Rileys also must repay all taxes and penalties they owe to the Internal Revenue Service. The conspiracy amounted to about $500,000 of improperly reported money, and Schiltz said that amount was greatly understated.
A release from the U.S. Attorney's Office stated that Schiltz said during the imposition of sentence that it was "as serious a tax offense as one can imagine."
Schiltz also stated that the defendants "sat in my courtroom under oath and lied" in December 2010.
Riley Bros. Construction also has been banned from contracting with Minnesota governmental agencies -- state or local -- for work. The company was "debarred" by the Minnesota Department of Administration in November 2009 and the ban in the state could extend to November 2012.
The defendants were indicted on April 15, 2009, and neither entered into a plea agreement with the government.
The indictment filed against them states that between 1984 and August 2003, the brothers conspired to defraud the U.S. by concealing income earned by Riley Bros. Companies, Inc., a holding company that owns 100 percent of Riley Bros. Construction as well as all or part of a number of other companies.
The conspiracy was intended to evade paying income taxes, Social Security taxes, Medicare taxes, and unemployment taxes to the federal government.
The indictment states the brothers also were attempting to defraud the State of Minnesota by evading the payment of state taxes and facilitating fraudulent claims for unemployment benefits.
To further their scheme, the indictment alleges the defendants converted to their own benefit income for work and materials provided by Riley Bros. This was done primarily by cashing checks made payable to Riley Bros. Construction and not reporting the income on the company's books. The cash was then spent primarily by the defendants.
Also, from 1999 to 2002, the defendants used converted funds to provide employees with more than $95,000 in cash. The cash paid to themselves or as bonuses to employees was never reported to the IRS or the Minnesota Department of Revenue.
The indictment alleged the defendants arranged for Riley Bros. to pay employees for work performed while those employees were collecting unemployment benefits. Those payments were disguised in order to facilitate the fraudulent unemployment claims as well as to evade taxes.
In addition, between 1996 and 2003, the defendants had Riley Bros. pay more than $79,000 in personal expenses while directing company bookkeepers to falsify records and disguise the payments as legitimate business expenses.
As a result of this conspiracy, more than $500,000 in improperly reported money was paid to Joseph Riley, John Riley, and Riley Bros. employees by Riley Bros. Companies, Inc.