Beanie Babies creator and Santa Barbara hotelier Ty Warner was sentenced to probation in federal court Tuesday for failing to report income he earned from a secret Swiss bank account.
Warner, 69, owns several properties on the South Coast, including the Montecito Country Club, the Coral Casino Beach and Cabana Club, the Four Seasons Resort The Biltmore, San Ysidro Ranch, Sandpiper Golf Club and the Rancho San Marcos Golf Course.
He was sentenced after pleading guilty to one charge of tax evasion, for failing to report more than $24.4 million in income from secret Swiss bank accounts, according to the U.S. Attorney’s Office.
Warner was charged and sentenced in U.S. District Court in the Northern Division of Illinois, where he lives and his TY Inc. company is based. In addition to probation, Judge Charles Kocoras also ordered Warner to perform 500 hours of community service for three Chicago high schools and pay a $100,000 fine, assistant U.S. Attorney Randall Samborn said.
The judge said society will be best served to allow Warner to “continue his good works,” according to Samborn.
Warner pleaded guilty to one charge of tax evasion last year and agreed to pay $53.5 million in civil penalties for failing to file a Foreign Bank Account Report. That represents half of the highest balance of his unreported foreign bank accounts, which peaked over $100 million, Samborn said. He will pay about $27 million in back taxes and interest.
“It is imperative when an individual brazenly breaks the law and lies repeatedly on tax returns year after year and evades millions of dollars in taxes, that person has to be held accountable,” U.S. Attorney Zachary Fardon said. “That’s true if you are rich or poor, and no one is above the law.”
With a guilty plea, Warner admits he had undeclared bank accounts at two Switzerland banks between 1996 and 2008 and failed to report the $24.4 million in gross income, or interest, from those accounts.
Warner traveled to Zurich in January 1996 to open an undeclared account at the Union Bank of Switzerland, Samborn said.
“Warner has never identified the source of the funds or the purpose behind the secret account, other than to suggest that opening the account was based on the success of Beanie Babies sales,” he said.
The Union Bank of Switzerland has admitted to helping taxpayers hide accounts from the Internal Revenue Service and reached an agreement with the United States to release some information, according to the U.S. Attorney’s Office.
After that agreement, in 2002, Warner’s banker left for Zuercher Kantonalbank and suggested clients come with him “because it had no similar agreement with the IRS,” according to Samborn. Warner transferred $93.6 million to the new account under a different name, the Molani Foundation, which hid his identify.
His banker, Hansreudi Schumacher, who managed the new account, was indicted in 2008 for conspiracy to defraud the United States and is still a fugitive, according to the U.S. Attorney’s Office.
In 2009, the Union Bank of Switzerland agreed to provide identities and account statements for some United States clients, and Warner is the second person to be prosecuted from that investigation.
Warner disclosed his second account in late 2009, but the government had known about it for more than a year, according to the U.S. Attorney’s Office.
Tax evasion has a maximum penalty of five years in prison and a $250,000 fine. Anyone convicted of tax offenses have to pay for prosecution costs and are civilly liable for back taxes and interest.
Warner's attorney could not be reached for comment.