Colorado man facing 30-year sentence after guilty plea in investment fraud scheme

A Colorado native has pleaded guilty to operating a multi-million-dollar investment fraud scheme. In addition, the man has also pleaded guilty to a years-long scheme to defraud the United States Internal Revenue Service (IRS) of taxes linked to the fraudulent investment scheme.

According to court documents, the suspect, Timothy McPhee of Estes Park, was accused of conspiring to defraud the United States and tax evasion linked to his promotion and use of an illegal tax shelter.

The court document mentioned that he carried out the act from 2018 through 2023, promoting the fraudulent tax shelters to taxpayers across the country. Authorities mentioned that the tax shelter was made up of a private family foundation and three trusts that he called a business trust, a family trust, and a charitable trust.

Colorado native pleads guilty to investment fraud scheme

According to the court documents, the Colorado native taught clients who bought the tax shelter how to use the trusts and foundation to evade paying federal income taxes on most of their income. Among other things, McPhee also instructed clients to assign nearly all their business income to the trusts and to falsify tax returns that made it look like the income belonged to the trusts and not the client.

He also told clients to spend money in the trust bank accounts on their expenses, urging them to fraudulently claim those expenses as deductions on the trust tax returns. As a result, clients who used his tax shelter only paid taxes on about 2% of their income.

But because the clients put money in these trusts, controlled the money in the trusts, and benefited from the trust funds, the income moved to the trusts was taxable to the clients themselves.

Pleading guilty to the charges, the Colorado native acknowledged that he knowingly gave clients directives that he knew directly contradicted IRS guidelines. McPhee also mentioned that he deliberately ignored warnings from accountants and attorneys that the tax shelter was fraudulent and illegal. In total, authorities estimate that the tax shelter cost the United States more than $45 million in unpaid federal income taxes.

In addition, McPhee also used the tax shelter to hide more than $5 million in income tax earned from 2016 to 2021. By doing this, he refused to pay more than $1.8 million in federal income taxes he owed in those years.

Authorities also revealed that the Colorado native operated and promoted a fraudulent investment scheme called the “ROI Cash Flow Fund.” He promoted the investment as an opportunity for investors to earn a 3% monthly ROI on their principal investment.

Authorities claimed that the Colorado native falsely told investors that the ROI Cash Flow Fund would generate monthly returns by sending their investments to a third-party borrower who trades foreign exchange. In total, based on McPhee’s false representations, investors sent more than $8 million to a bank account under his control. However, in reality, McPhee did not do what he promised with the funds he got from the investors.

According to authorities, McPhee took out money from the investors’ funds to make the monthly 3% payouts to them. He was also accused of spending investors’ funds on personal expenses and investments, including sending more than $2 million from the fund to a bank account that was held in the name of one of his trusts.

McPhee is expected to be sentenced on October 23, where he faces a maximum penalty of up to 30 years for conspiring to defraud the United States, tax evasion, and wire fraud.

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