Alfred Teo Sr., the 74-year-old majority shareholder of Alpha Industries Management, a multibillion-dollar plastics manufacturing holding company, has been charged with evading more than $61 million in income taxes from 2016 through 2018.
The Boca Raton, Fla., resident, who founded Lyndhurst, N.J.-based Sigma Plastics Group in 1978, was charged with one count of tax evasion and his bond was set at $20 million during a June 17 video conference before U.S. Magistrate Judge Edward Kiel.
If convicted, Teo faces a maximum penalty of five years in prison and a $250,000 fine.
According to documents filed in the case and statements made in court, Teo diverted $600 million from Alpha's line of credit directly to his brokerage accounts to trade and pay off margin calls for his heavy trading in the securities markets. Teo returned only a portion of the $600 million to Alpha and didn't report the remaining amount as income on his personal tax returns.
Instead, $167 million was recorded as income to AAST Holding Corp., which is another Teo-owned entity unrelated to his plastics businesses that he used to hide personal income, according to a news release from the U.S. attorney's office in Newark, N.J.
Alpha didn't provide AAST with the $167 million that AAST claimed as income in 2016, 2017 and 2018. Federal investigators say the money Alpha recorded as salary to AAST was instead provided for the benefit of Teo with some of it sent directly to his trading accounts.
"Instead of reporting the $167 million of income from Alpha on Teo's personal tax returns in 2016, 2017 and 2018, and paying taxes on that income, the income was reported on AAST's corporate tax returns," the news release says. "Teo then provided false deduction information to his tax preparer in the form of fictitious 'cost of goods sold' to artificially reduce his income and evade the income taxes owed."
According to court documents, AAST's bank account records don't show purchases of material, equipment, inventory or anything consistent with the sale of goods or products, according to the release, nor do the bank account records include deposits for the millions of dollars that AAST reported on its tax returns for those three years.
Also, AAST's principal place of business and mailing address was a Florida residence that Teo owned.
The U.S. attorney's office also says that in 2016, 2017 and 2018, Teo's tax preparer provided him draft AAST corporate tax forms to review and that Teo returned them with handwritten notes indicating AAST had tens of millions of dollars of cost of goods sold. Teo did not provide any support to his tax preparer for these claims.
The tax preparer used the information that Teo provided to report AAST's cost of goods sold on AAST's corporate tax returns in the amounts of approximately $26 million in 2016, $51 million in 2017, and $87 million in 2018.
Teo submitted fraudulent cost of goods sold expenses to his tax preparer to use AAST to avoid paying tens of millions of dollars of income taxes, according to the U.S. attorney's office. Teo reduced AAST's net business income by about $165 million for the three tax years.
Teo's personal IRS Forms 1040 for 2016, 2017 and 2018 included AAST's net business income to him, but because of the false cost of goods sold, his personal income was understated by about $165 million, the U.S. attorney's office says. This resulted in a tax loss of about $10 million in 2016, $20 million in 2017, and $31 in 2018, for a total tax loss of about $61 million, the federal attorney's office adds.
If convicted, Teo could be sentenced to prison again. In June 2006, Teo pleaded guilty to five counts of securities fraud for insider trading in two companies, in a case dating originally from 2004. He served 11 months in a minimum-security facility in West Virginia.
Three fraud counts were connected to the former Musicland Stores Corp., which operated Sam Goody stores throughout the country. Teo was the largest shareholder and he admitted to buying 45,000 shares of Musicland before electronics retailer Best Buy Co. Inc. publicly announced it would buy the music store company.
The two other fraud counts involved insider trading when Teo was a director of Cirrus Logic Inc.
At the time, the U.S. Department of Justice said Teo's stock trades, and those of people he tipped off about the inside information, generated $1.8 million in profit.