Hedge Fund Manager Indicted on Tax Fraud Charges

An indictment was unsealed today in the Western District of Texas charging a Cayman national who renounced his U.S. citizenship with tax evasion, filing false returns and willfully failing to file tax forms disclosing foreign assets.

According to court documents and statements made in court, Justin Ryan Schmidt previously resided in Austin, Texas, where he managed a hedge fund focusing on cryptocurrency investments. Between 2020 and March 2022, Schmidt allegedly earned a total of more than $6 million from his hedge fund but did not report any of this income on his 2020, 2021 or 2022 tax returns. In fact, the indictment alleges, in each of those years, Schmidt falsely reported total income of $5,000 or less, while he held millions of dollars in foreign bank accounts. Even though he was required by law to report these foreign bank accounts to the IRS, Schmidt is charged with willfully failing to do so.

In November 2021, Schmidt became a British citizen, subsequently renouncing his U.S. citizenship in March 2022. Individuals who expatriate from the United States are required to report certain information to the IRS about their net worth, income, assets, and liabilities as of the date of their expatriation. The indictment alleges that Schmidt willfully filed a false expatriation statement reporting that his net worth was $25,000 at the time of expatriation, when in fact it exceeded $2 million.

According to court documents, in 2023, Schmidt paid approximately $5.8 million to purchase real property in Snowmass Village, Colorado, and sold the property a few months later for approximately $9 million. The indictment alleges that Schmidt did not report the gains from this sale on his 2023 income tax return and evaded payment of taxes by submitting false documents to prevent taxes from being withheld on the sale of the property.

Schmidt faces a maximum penalty of five years in prison for tax evasion, three years in prison for each count of filing false tax forms and five years in prison for each count of willfully failing to file forms disclosing foreign bank accounts.

Assistant Attorney General A. Tysen Duva of the Justice Department’s Criminal Division made the announcement.

IRS Criminal Investigation is investigating the case.

Senior Litigation Counsel Michael C. Boteler and Trial Attorney Michael Jones of the Criminal Division are prosecuting the case.

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.