Movie Director Pleads Guilty in Connection with Fraudulently Obtaining $4.7 Million in Film Tax Credits
Director of “The Golden Boys” and “The Lightkeepers” Filmed on Cape Cod Submitted Inflated and Fraudulent Film Credit Applications
BOSTON – A Los Angeles based movie director has pleaded guilty in connection with fraudulently submitting film tax credit applications claiming inflated expenses for two films made in Massachusetts that resulted in an overpayment of more than $4.7 million in taxpayer funds, Attorney General Martha Coakley announced today.
Daniel Adams, age 51, pleaded guilty today in Suffolk Superior Court on the charges of Making a False Claim against the Commonwealth (2 counts), Larceny Over $250 (2 counts), Procuring the Presentation of a False Claim to the Department of Revenue (2 counts), Filing a False Document with the Department of Revenue (1 count), and Procuring the Preparation of a False Tax Return (3 counts). After accepting Adams’ guilty plea, Suffolk Superior Court Judge Carol Ball delayed imposing the sentence until May 10, 2012 under the conditions that Adams post $10,000 cash bail, wear a GPS monitoring device, and surrender his passport. Adams is due back in court on May 10, 2012, when Judge Ball will impose the sentence.
Judge Ball stated that she will sentence Adams to serve 2 to 3 years in State Prison, with a ten-year probationary period to serve upon his release. Judge Ball also stated that she will order Adams to pay $4,377,837 in restitution to the Commonwealth during his ten-year probationary period.
An investigation began in March 2010, when an investigator at the Department of Revenue spotted suspicious tax returns connected to “The Lightkeepers” film. During the course of its review of the tax credit application, the DOR discovered that withholding tax had not been paid on the lead actors’ salaries, and required payment of that tax before issuing the tax credit certificate. Adams had the tax paid, but later attempted to recover that money by causing false Massachusetts income returns to be prepared in three of the actors’ names. Those returns sought large refunds to be deposited to Cape Filmworks’ bank account. These returns triggered scrutiny by the DOR, and led to the investigation of the underlying tax credit application. The DOR then referred their findings to the AG’s Fraud and Financial Crimes Division.
After further investigation, prosecutors found that Adams participated in a scheme to defraud taxpayers that began in 2006. Adams submitted fraudulent tax credit applications that greatly inflated expenses for two Cape Cod based film projects and in turn received a tax credit overpayment of more than $4.7 million. The Massachusetts film tax credit statute allows a film production company to receive a 25% tax credit for various payroll and production expenses incurred in the Commonwealth.
In 2006, Adams organized West Wind Productions, LLC (WWP) for the purpose of producing and distributing a motion picture. Through WWP, Adams solicited independent investors and also sought financing based on the tax credits the film would generate. Tax credit financers will often advance money to projects under an agreement to later purchase the tax credits at a discounted rate after they are issued. Tax credits are issued at the conclusion of a film, when all expenses are reviewed by a Certified Public Accountant and then submitted to the Department of Revenue (DOR).
In December 2006, WWP entered into an agreement with a tax credit consulting firm to partially fund the production of “Chatham,” later renamed “The Golden Boys.” The agreement included an initial payment to help fund the film as well as the right to later purchase anticipated film tax credits.
At the film’s conclusion, Adams supplied his expenses to an independent accountant and reported eligible costs to the DOR of more than $6.7 million. This resulted in a tax credit payment of more than $1.6 million. Investigation revealed that multiple reported costs were fictitious or inflated, and that eligible costs to produce the film were in fact only $2.3 million. As a result, Adams received an overpayment in tax credits of $1.1 million.
In January 2009, Adams organized Cape Filmworks, LLC for the purpose of producing and distributing a motion picture. Adams entered into an agreement with a tax credit financer to advance funding for the production of “The Lightkeepers” in return for purchasing the anticipated film tax credits.
At the conclusion of the film, Adams supplied expenses to an independent accountant and reported eligible costs to the DOR of over $17 million. Based on the accepted expense figure, Cape Filmworks was awarded more than $4.2 million in tax credits. According to investigators, Cape Filmworks’ accounts showed that there was in fact no other major funding for the film and that the only deposits of significance were those from the tax credit financer, totaling approximately $3 million. Numerous items listed as expenditures were a fictitious or inflated. For example, Adams reported that he had paid actor Richard Dreyfuss $2.5 million, when in fact he was paid only $400,000. As a result, Adams received an overpayment in tax credits of more than $3.6 million.
During the course of its review of “The Lightkeepers” tax credit application, the DOR discovered that withholding tax had not been paid on the lead actors’ salaries, and required payment of that tax before issuing the tax credit certificate. Adams had the tax paid, but later attempted to recover that money by causing false Massachusetts income returns to be prepared in three of the actors’ names that sought large refunds to be deposited to Cape Filmworks’ bank account. These returns triggered scrutiny by the DOR, and led to the investigation of the underlying tax credit application.
Adams was arrested on December 8, 2011 without incident by State Police assigned to the Attorney General’s Office. The next day, Adams was arraigned in Boston Municipal Court where he pleaded not guilty and was ordered held on $100,000 cash bail. A Suffolk County Grand Jury returned indictments against Adams on December 12, 2011 and he was arraigned in Suffolk Superior Court the following day and remained held on $100,000 cash bail. Today, Adams pleaded guilty to all ten charges in Suffolk Superior Court. Judge Carol Ball stayed the imposition of the sentence until May 10, 2012. Adams is due back in court on that date, when his sentence will be imposed.
The case was prosecuted by Assistant Attorney General Molly Parks, Senior Counsel for AG Coakley’s Fraud and Financial Crimes Division, with Kathy Morrissey as the Victim/Witness Advocate on the case, and was investigated by DOR Investigators Janel Cosgrove and Thomas Nowicki with assistance from Massachusetts State Police.
The AG’s Fraud and Financial Crimes Division focuses on cases of fraud and white collar crimes. These cases include: employee embezzlement; thefts by attorneys and investment advisers; tax fraud; mortgage fraud; and other crimes against companies that impact their financial standing and harm taxpayers.