A federal judge in San Diego froze $500 million in bank and investment accounts managed by Xelan Inc., which is accused of perpetrating a massive tax fraud and Ponzi scheme, authorities said Thursday.
In a civil complaint filed Tuesday but unsealed Thursday, law enforcement officials claimed that the San Diego company lured doctors into a fraudulent tax scheme, which allowed them to write off millions of dollars in bogus deductions for supposed benefit plans and charitable contributions.
Meanwhile, some of the company's officers diverted millions of dollars in investor funds for their own use, making the scam part Ponzi scheme, part tax fraud, according to the complaint filed by the Justice Department.
In response to the complaint, a U.S. District Court judge froze the assets controlled by Xelan. The judge also appointed a receiver to preserve the company's assets for potential payment of taxes and claims by allegedly defrauded parties.
Xelan officials, including Chief Executive L. Donald Guess and general counsel David C. Jacquot, could not be reached for comment. A former corporate officer named in the suit, Leslie S. Buck of Maryland, said he had not seen the suit and could not comment.
Xelan, whose website said the professional services company was formed 32 years ago by doctors for doctors, urged medical professionals to buy insurance with the profits that their practices generated. Xelan executives said the premium would be deductible, thus eliminating the doctor's net income as a tax liability, according to the suit.
According to the Justice Department, however, the money collected by Xelan wasn't used to buy insurance premiums but was instead used to buy investments managed by a Xelan affiliate, Barbados-based Doctors Benefit Insurance Co.
About $500 million, owned by 4,000 U.S. doctors, is now held in accounts with Doctors Benefit, according to the Justice Department. The Internal Revenue Service estimates that these doctors could owe as much as $420 million of that in back taxes, interest and penalties.
In addition, the company told doctors that they could get income tax deductions for charitable contributions made to the Xelan Foundation, which would turn around and pay the college tuition bills of the doctor's children, according to the complaint.
Both the premiums and the charitable contributions were bogus, tax officials said in court filings.
"The defendants control and are dissipating millions of dollars that were fraudulently obtained from members of the public through what is, in part, a Ponzi scheme," the complaint said.
The Justice Department also complained in the court filing that Xelan executives sought to obstruct the IRS investigation through delays and misinformation.
Instead of giving the agency the names of doctors who participated in the scheme, the suit said, the company provided a much longer list of doctors who had attended company seminars.