The way federal prosecutors see it, National Audit Defense Network is a tax-scamming, boiler-room operation that's used bogus businesses, a phony Web site and misleading claims to bilk U.S. taxpayers out of an estimated $324 million over the past four years.
If prosecutors get their way and a federal court judge places a temporary restraining order on the National Audit Defense Network next week, it could put the Las Vegas-based company out of business, attorneys for the tax audit protection outfit said.
U.S. District Judge Lloyd George heard arguments Thursday on a motion that would stop the telemarketing company from preparing tax returns and making false and fraudulent statements in the promotion of some of the company's products.
George said he would likely announce a decision on the case next week, and told the parties to meet and see if they can come up with any other solutions in the meantime.
The government alleges in a civil complaint that the National Audit Defense Network is running a tax scam and filing false federal income tax returns for customers, an operation that cost the government an estimated $324 million over the past four years.
The Audit Defense Network is also going through Chapter 11 bankruptcy proceedings initiated in June 2003. At the time of the filing, its largest creditor was the IRS with a $1.3 million claim against the company.
Lawyers for the company argued that a temporary restraining order could impact its bankruptcy reorganization and force it to cease operations. The lawyers asked George to give them time to work out a compromise with the government that would ensure that those selling the company's products do not make fraudulent promises to customers.
Justice Department Attorney Evan Davis said that the company already had its chance, and that management and ownership are aware that some of the company's sales people are making fraudulent claims to customers to sell product.
"This is not a company that has learned its lesson, it's a company that is trying to fly under the radar," Davis said. "We're not trying to shut NADN down, we're trying to address fraudulent conduct. If the company cannot survive without this fraudulent conduct it doesn't deserve to survive."
The Shopn2000 Web site advertises personal "Internet-mall" Web sites for people with disabilities. The customers then pay $10,475 to modify the Web sites to "comply" with ADA, and customers are told that by paying for this modification every year they can claim a yearly $5,000 ADA tax credit and a $5,475 business tax deduction, according to the complaint.
Attorneys for the company said that they have already discontinued the sale of Shopn2000 products, but Davis said the company can't be expected to police itself.
Several former and current employees and managers allegedly involved with the National Audit Defense Network are also named as defendants in the complaint, including Robert Bennington, a former co-owner and co-founder of the company; Weston J. Coolidge, the company's director; and Alan L. Rodrigues, who runs the day-to-day operations of the company.
NADN's bankruptcy proceedings were prompted by a $1 million Securities and Exchange Commission claim against the company, Coolidge said last year.
The commission's claim, he said, was related to an investment the company made in a failed company that was later determined to be a Ponzi scheme.
NADN also faces a federal lawsuit filed in 2002 by the Federal Trade Commission and a lawsuit filed by the state of Nevada in Clark County District Court. Those lawsuits claim that the company failed to honor a money-back guarantee offered on its services.
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