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Prosecutors report that a New York insurance broker has admitted his role in a $38 million employment tax fraud scheme involving nursing homes he owned across the country,

U.S. Attorney Philip R. Sellinger announced that Joseph Schwartz, of Suffern, New York, pleaded guilty in Newark federal court to charges of willfully failing to pay over employment taxes withheld from employees of his company, and willfully failing to file an annual financial report with the Department of Labor for the employee 401K benefit plan.

“Schwartz ran a vast, multistate nursing home empire, but cheated taxpayers out of more than $38 million so he could line his own pockets. Having admitted his crime, he will now be held accountable,” said Sellinger.

Schwartz, an insurance broker and operator of Skyline Management Group LLC, with headquarters in New Jersey, failed to pay employment taxes relating to numerous health care and rehabilitation facilities that Skyline operated in 11 states.

According to court documents, in order to finance the expansion of Skyline, Schwartz sold his insurance business for approximately $22 million. As part of that transaction, Schwartz entered into an employment contract with the buyer of his insurance business wherein he received an annual salary of $300,000 and the right to collect commissions from the buyer for selling insurance policies to Skyline-owned facilities and their employees. As Skyline acquired more health care and rehabilitation facilities, he sold more insurance policies for the buyer of his business, and received larger commissions.

Schwartz, based on promises of a significant return for his investment, persuaded a Skyline associate to invest at least $6 million in Skyline to assist him in the purchasing and operation of the health care facilities. He created a staffing and management services entity for approximately 15,000 employees of the various Skyline-owned health care and rehabilitation facilities. In 2018, Schwartz transferred the employees of approximately 89 health care facilities to seven such staffing companies, one for each state where the facilities operated. Schwartz controlled the finances of the staffing companies, even though each one was nominally owned by other individuals.

According to the indictment, Schwartz was required to collect and pay over to the IRS all taxes withheld from the pay of employees of Skyline and related companies. From October 2017 through May 2018, Schwartz caused taxes to be withheld from employees’ pay but failed to then pay over more than $38 million in employment taxes to the IRS. Instead of using the funds withheld from the staffing companies’ employees to pay payroll taxes as he was required to do, Schwartz used the funds for his own personal gain and for other unrelated expenses of the staffing companies, according to the indictment.

Also, the indictment asserts that as an administrator of the Skyline 401K plan, Schwartz further had an obligation to file an annual Form 5500 financial report with the Secretary of Labor for calendar year 2018, but knowingly and willfully failed to file the report.

The employment tax fraud count is punishable by a maximum penalty of five years in prison and a $250,000 fine, or twice the gross gain or loss from the offense, whichever is greatest. The failure to file a Form 5500 related to the retirement plan count carries a maximum potential penalty of 10 years in prison and a $250,000 fine, or twice the gross gain or loss from the offense. Sentencing is scheduled for April 10, 2025.

Topics Agencies Fraud New York