Spa Castle and Corporate Officer Daniel Chon Both Plead Guilty to Felony Tax Fraud Charges; Will Pay $2.5 Million in Criminal Restitution and Civil Damages.
Queens, NY - August 23, 2018 - Attorney General Barbara Underwood and Acting Tax Commissioner Nonie Manion today announced the criminal convictions of Spa Castle Inc. (“Spa Castle”) and Spa Castle Corporate Officer Daniel Chon and a civil settlement for false claims act violations. Today, Spa Castle and Daniel Chon both pleaded guilty to felony tax fraud charges in Queens County Supreme Court. Spa Castle will pay a total of $2.5 million in criminal restitution and civil damages.
“We have zero tolerance for tax cheats who leave New Yorkers to foot the bill,” said Attorney General Underwood. “The defendants orchestrated a multi-million dollar scheme to defraud taxpayers. We’re grateful to the whistleblower who helped bring this egregious conduct to light – and it should serve as a wake-up call to all tax fraudsters who think their misconduct will go by unnoticed.”
“This conviction proves that the local community is watching and they won’t stay silent when business owners violate their trust,” said Acting Commissioner Manion. “Robbing New Yorkers of funding for vital public programs and services carries serious consequences and we’ll continue to work with the Attorney General and all our law enforcement partners to bring tax cheats to justice.
According to statements made by the prosecutor and documents filed in Queens County Supreme Court, Spa Castle Inc. is a spa facility in College Point, Queens that offers a variety of services including massages, facials, saunas, swimming pools, restaurants, bars, and other amenities. Spa Castle Inc. generates revenues by charging admission to the facility and by charging additional fees for the other services offered. Between 2010 and 2013, Spa Castle Inc.’s College Point location generated over $22 million per year in revenues.
After a whistleblower filed an action pursuant to the qui tam provisions of the New York False Claims Act in the fall of 2014, the Attorney General’s Taxpayer Protection Bureau commenced a civil investigation into Spa Castle. A preliminary investigation of the information provided by the whistleblower revealed substantial indications of knowingly fraudulent conduct on the part of Spa Castle and its principals.
The Attorney General’s Criminal Enforcement and Financial Crimes Bureau thereafter commenced a parallel criminal investigation related to Spa Castle. In August of 2015, investigators from the New York State Attorney General’s Office and the New York State Department of Taxation and Finance executed a search warrant at Spa Castle Inc. According to statements made by the prosecutor, records seized during the execution of the search warrant showed that the defendants avoided paying required sales, corporate, and MTA surcharge taxes by underreporting the money earned at the facility by millions of dollars.
In March 2017, the Attorney General’s Office filed a criminal indictment in Queens County Supreme Court. Today, both Spa Castle and Daniel Chon pleaded guilty before the Honorable Justice Robert Kohm in Queens County Supreme Court. Spa Castle pleaded guilty to Criminal Tax Fraud in the Second Degree, a Class C felony. Daniel Chon pleaded guilty to Attempted Criminal Tax Fraud in the Third Degree, a Class E felony.
The Attorney General expresses her appreciation to the whistleblower, without whose courageous step forward the misconduct might have remained concealed from the authorities, and to the whistleblower’s attorney. The whistleblower will receive $575,000 for bringing this conduct to light, as the New York False Claims Act entitles whistleblowers who report fraud against the government to a share of the recovery.
The Attorney General also thanks the New York State Department of Taxation and Finance for its important contributions to this case.
The Attorney General’s civil case was led by Assistant Attorney General Maureen Fitzgerald and Assistant Attorney General Justin Wagner, with assistance from Legal Support Analysts Bianca M. LaVeglia and Lauren Bilow of the Taxpayer Protection Bureau, under the supervision of the Taxpayer Protection Bureau Chief Thomas Teige Carroll and Deputy Bureau Chief Scott Spiegelman. The Taxpayer Protection Bureau is overseen by Executive Deputy Attorney General for Economic Justice Manisha M. Sheth.
The criminal prosecution is being handled by Assistant Attorney General Hugh L. McLean of the Criminal Enforcement and Financial Crimes Bureau, with the assistance of Supervising Analyst Paul Strocko, under the supervision of the Criminal Enforcement and Financial Crimes Bureau Chief Stephanie Swenton and Deputy Bureau Chief Joseph D’Arrigo. The Criminal Enforcement and Financial Crimes Bureau is overseen by Executive Deputy Attorney General for Criminal Justice Margaret Garnett.
Supervising Investigator Michael Leahy of the Attorney General’s Investigations Bureau led the criminal investigation, under the supervision of Investigations Bureau Chief Dominick Zarrella. Forensic auditing was provided by the Forensic Audit Section, which is led by Chief Edward J. Keegan, Jr. and Deputy Chief Sandra Bizzarro.