Rabbi Pleads Guilty in Decade Long Tax Fraud Scheme - NBC Southern California

Rabbi Pleads Guilty in Decade Long Tax Fraud Scheme

Prosecutors said sect members helped donors avoid paying federal income taxes

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    The head of an Orthodox Jewish group and four sect members pleaded guilty Monday in Los Angeles to federal conspiracy charges in what prosecutors called a decade-long tax fraud and money laundering scheme.

    The head rabbi, Naftali Tzi Weisz, entered his plea before U.S. District Judge John F. Walter and faces up to five years in prison when sentenced Nov. 16.

    Prosecutors said the 61-year-old Weisz and other sect members helped donors avoid paying federal income taxes by having them make contributions to charitable groups run by Spinka, a Brooklyn, N.Y.-based Orthodox Jewish group led by the rabbi.

    An assistant, Gabbai Moshe Zigelman, 62, pleaded guilty last year to conspiracy and was sentenced to a two-year federal prison term.

    Four others pleaded guilty Monday in U.S. District Court to their roles in the fraud scheme.

    The operation, according to the government, had two goals: to obstruct the Internal Revenue Service and to further an unlicensed money-transmitting business.

    Weisz, several associates and five charitable organizations associated with Spinka were indicted by a federal grand jury in late 2007.

    According to court documents, Weisz and Zigelman secretly refunded up to 95 percent of the charitable contributions through several methods.

    In some cases, the contributors received cash payments through an underground money transfer network involving various participants, some of whom owned businesses in downtown Los Angeles' jewelry district.

    A second method involved wire transfers from Spinka-controlled entities into accounts secretly held at a bank in Israel, prosecutors said.

    The accounts were established with the assistance of an international accounts manager at the bank, Joseph Roth, who previously pleaded guilty in the scheme, court documents show.

    Roth, 66, of Tel Aviv, admitted helping contributors in the United States obtain loans from the Los Angeles branch of the Israeli bank that were secured by the funds in the secret bank accounts in Israel.

    The contributors could then use the funds in the United States.

    After their money was placed in the secret accounts at the Israeli bank, contributors also could hire Spinka to help secretly repatriate the money into the United States in exchange for an additional money laundering fee, according to the indictment.

    The four others who entered guilty pleas Monday are:

    -- Yaacov Zeivald, 44, of Valley Village;

    -- Yosef Nachum Naiman, 57, of Los Angeles;

    -- Alan Jay Friedman, 45, of Los Angeles; and

    -- Moshe Arie Lazar, 62, of Los Angeles.

    Walter is expected to sentence the four in November.

    In his plea agreement, Weisz admitted he learned from Zigelman that the Spinka charitable organizations had received $8,493,659 in 2006 and that Spinka had “profits” of $744,596, after deducting the amounts paid back to the various contributors.

    At sentencing, Weisz faces a statutory maximum penalty of five years in federal prison, a U.S. Attorney's Office spokesman said.

    Prosecutors have said they are investigating more than 100 others who were contributors to Spinka organizations.

    In sentencing one donor earlier this year, Walter rejected a bid for probation and imposed a six-month prison sentence, saying the crime reflected “arrogance” and warning that other contributors who do not come forward to authorities could face “significantly higher” sentences.

    Lawyers for five Brooklyn-based Spinka charitable organizations are expected to appear before Walter on Wednesday or Thursday, where at least one guilty plea is expected to be entered, according to the U.S. Attorney's Office.