April 15, 2002

TAX FRAUD PROMOTERS ASSOCIATED WITH 'WE THE PEOPLE'
ARRESTED BY IRS AGENTS FOR SELLING BOGUS 'TRUSTS'
THAT FALSELY PROMISED TO PROTECT INCOME FROM TAXES

 Seven individuals associated with a tax fraud group known as "We the People" and “Sovereignty Pure Trusts” were arrested this morning on various federal charges related to the promotion of bogus tax shelters that falsely promised to limit exposure to federal income taxes.
 A federal grand jury in Los Angeles on Thursday returned a 35-count indictment that includes charges of conspiring to defraud the Internal Revenue Service and fraudulently using Social Security Numbers and passports.
 The California residents arrested this morning are:
 ? Lynne Meredith, 52, of Sunset Beach, the owner and operator of We the People and Sovereignty Pure Trusts;
 ? Gayle Bybee, 54, of Sunset Beach;
 ? Gregory Paul Karl, 52, of Solana Beach;
 ? Teresa Manharth Giordano, 39, of Murrieta;
 ? Willie Watts, 43, of Murrieta;
 ? Betty Erickson, 57, of Windsor; and
 ? Nora Moore, 53, of Huntington Beach.
These defendants are expected to make their initial court appearances this afternoon in various federal courthouses in California.
 According to the indictment, from October 1994 to November 2001, Meredith sold books and bogus trusts to people with the purpose of leading them to believe they could legally protect income and assets from taxation. The defendants allegedly encouraged and assisted taxpayers by forming phony trusts, opening bank accounts with phony Taxpayer Identification Numbers, filing fraudulent income tax returns and encouraging taxpayers not to file income tax returns.
 We the People sold the “trusts" for approximately $500 at seminars that were held throughout the United States and internationally. To entice potential trust purchasers at seminars, Meredith represented that the trusts were "professional and affordable” and that each trust was customized with the “combined efforts of attorneys, paralegals, CPAs and other professional staff for its execution."
 When purchasers complained about the trusts, We the People – which was also known as Free the People, Sovereignty Pure Trusts and Liberty International – refused to issue refunds.
 Meredith also encouraged taxpayers to file frivolous tax returns that, for example, accurately reported income but fraudulently requested a refund of all income taxes paid. The defendants also encouraged taxpayers to send protest correspondence to the IRS with the purpose of impeding and obstructing the IRS.
 Meredith wrote books, including How To Cook A Vulture and Vultures In Eagle’s Clothing, in which she falsely claimed that individuals could lawfully stop paying income taxes, stop their employer from withholding income taxes, and refuse to produce books and records to the IRS. The books contained examples of frivolous tax returns and protest letters.
 From 1994 to 1997, according to the indictment, Meredith caused taxpayers to file fraudulent income tax returns with the IRS. Those fraudulent tax returns sought refunds for as much as $21,855, but the IRS did not issue any refund checks.
 The indictment also alleges that Meredith earned more than $6.2 million from 1994 through 1999 as a result of the scheme. Meredith did not file a Federal income tax return during these years, and she did not pay any federal income taxes.
 The indictment further alleges that six of the other defendants did not file nor pay any income taxes on income they earned in the scheme.
 An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt.
 Eileen J. O'Connor, Assistant Attorney General in charge of the Justice Department's Tax Division, said: "The Department of Justice and the IRS are committed to stopping promoters of illegal tax schemes from selling false promises, obstructing lawful IRS functions and cheating honest taxpayers."
 Michael S. Kochmanski, Special Agent in Charge of the Los Angeles Field Office of IRS-Criminal Investigation, stated: “Meredith misled numerous people into believing that the tax shelters she was selling would legally keep them from having to pay income taxes. Instead many of these people now find themselves owing back taxes, penalties and interest. The public should be wary of anyone who says that they have a way to keep you from having to pay income taxes.”
 All seven defendants are charged with conspiracy and 11 counts of mail fraud (both charges carry potential five-year prison sentences). Meredith is additionally charged with two counts of false representation of a social security number (five-year maximum sentence), one count of passport fraud (potential 10-year sentence), and five counts of failing to file a tax return (each count carries a maximum penalty of one year in prison). Bybee is accused in three counts of failing to file; Giordano is named in two counts of failing to file; Watts faces three counts of failing to file; Erickson allegedly failed to file for three years; and Moore is named in three counts of failing to file.
 The indictment names an eighth defendant in the case, Toni Smith Silva, 49, of Cypress, who is charged with one misdemeanor count of failing to file a tax return. Smith will be summoned to appear in court for an arraignment.
 Today’s arrests come two days after the Department of Justice and IRS filed a civil lawsuit against individuals in San Diego, Boston and Cincinnati for selling bogus trusts to hundreds of taxpayers. The IRS has been cracking down on promoters of abusive trusts by filing civil lawsuits and launching criminal investigations. On Thursday, IRS Commissioner Charles O. Rossotti testified before the Senate Finance Committee that “identifying and combating actively promoted tax schemes was the IRS’ highest compliance priority.”
 The case against the promoters of We the People and Sovereignty Pure Trusts is the result of a continuing investigation by IRS-Criminal Investigation. Victims who purchased trusts or books issued by this group are encouraged to contact IRS-Criminal Investigation at (949) 389-4466.
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Release No. 02-067

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