Reynolds and Reynolds CEO Brockman charged with tax evasion, laundering

Robert T. Brockman, head of the largest private dealership management system company in the U.S., was charged with using a web of Caribbean entities to evade taxes in what may be the largest prosecution of its kind in U.S. history.

Brockman, 79, is accused of using a family charitable trust based in Bermuda and other offshore entities to hide assets from the Internal Revenue Service while failing to pay taxes, according to an indictment unsealed Thursday in federal court in San Francisco. Brockman was also charged with money laundering and other crimes.

Brockman is CEO of Reynolds and Reynolds Co. of Dayton, Ohio, a DMS provider to dealerships and manufacturers in the U.S., Canada and Europe. Brockman was due to appear Thursday before a judge in U.S. District Court in San Francisco.

“Mr. Brockman has pled not guilty and we look forward to defending him against these charges," Kathryn Keneally, a lawyer for Brockman and a partner in the Jones Day law firm in New York, said in an email to Automotive News.

A Reynolds spokesman told Automotive News via email that “the allegations made by the Department of Justice focus on activities Robert Brockman engaged in outside of his professional responsibilities with Reynolds & Reynolds. The Company is not alleged to have engaged in any wrongdoing, and we are confident in the integrity and strength of our business.”

The spokesman also said that Brockman is working with his own private attorney and added: "While the situation is evolving, Mr. Brockman will continue to serve as Chairman and CEO of Reynolds & Reynolds at this time.”

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Like many wealthy Americans, Brockman set up offshore trusts that on paper were overseen by independent directors. However, the indictment charges that he conspired over two decades to secretly maintain “complete” control over trust assets while failing to pay capital gains and income taxes.

The 39-count indictment also charges Brockman with wire fraud, evidence tampering and destruction of evidence. Brockman used code names and encrypted emails to secretly manage the trusts, according to the indictment. Prosecutors received help from Robert Smith, the CEO of Vista Equity Partners, who set up his private equity fund two decades ago with a $1 billion investment from Brockman’s trust structure.

Brockman earned about $2 billion in capital gains made through his Vista investments, according to the indictment.

The $2 billion in tax fraud, “is the largest ever tax charge against an individual in the United States,” David Anderson, U.S. Attorney for Northern District of California, said in a press conference.

“Brockman is charged with two schemes, a tax fraud scheme and an investor fraud scheme,” Anderson said Thursday.

“In the tax fraud scheme, Brockman is charged with hiding approximately $2 billion in income from the IRS over a period of 20 years. In the investor fraud scheme, Brockman is charged with manipulating debt securities by his own company to defraud investors.”

The company declined to comment on the size of Brockman’s ownership stake in Reynolds and declined to comment on the government’s allegations regarding Reynolds’ debt securities.

In all, Brockman faces seven counts of tax evasion, six counts of failing to file foreign banking reports, 20 counts of wire fraud and counts for conspiracy, concealment money laundering, tax evasion money laundering, international money laundering, evidence tampering and evidence destruction, Anderson said.

Jim Lee, chief of Internal Revenue Service’s criminal division, said the allegations disgusted him so much, he flew to California to be part of the press conference.

“These allegations should disgust every American taxpayer as well, because the law applies to all of us when it comes to tax and paying our fair share,” Lee said.

Lee added: “Through the use of offshore accounts over 20 years, Mr. Brockman seemingly spent as much time covering up his tracks as he did earning the money in the first place -- a clear indication to me that he knew exactly what he was doing.”

Smith, 57, avoided prosecution by agreeing to cooperate against Brockman. He also admitted he failed to pay $30 million in taxes, and will pay $140 million in back taxes, fines, and penalties, according to people familiar with the matter.

False paper trails

Brockman created false paper trails to secretly purchase a luxury yacht now known as Albula and to spend $30 million on properties called the “Frying Pan Canon Ranch” and the “Mountain Queen” vacation home in Pitkin County, Colo., prosecutors said. His offshore investments are at the heart of the charges against him.

Brockman’s investment in the first private equity fund set up by Smith came from an entity held as part of the A. Eugene Brockman Charitable Trust, which was named for Brockman’s late father. Brockman is a beneficiary of the trust.

Prosecutors said Brockman secretly bought and sold debt securities in his own company, breaking a promise to investors that he would not buy or sell his own company's debt. The indictment also alleges that Brockman bought this debt while he possessed inside information.

Brockman also used secret bank accounts in Bermuda and Switzerland to hide his untaxed income and to launder the proceeds of his investor fraud. Brockman is alleged to have used code words over a proprietary encrypted e-mail system to hide his illegal conduct, prosecutors said. Brockman's code name was permit. Others were code named red fish, king, bone fish, snapper and steelhead. The IRS was codenamed the house, Anderson said.

"Brockman directed the destruction of paper documents and computer media using shredders and hammers,” he said.

Other charges

Smith, meanwhile, faced a related four-year criminal tax inquiry involving about $200 million that moved through Brockman-linked offshore structures.

Smith’s settlement includes a non-prosecution agreement in which he admits that he failed to pay about $30 million in taxes, with penalties and interest making up the remainder of the expected payout, according to a person familiar with a call that Smith conducted Wednesday with investors. Smith said on the call that over three years, he failed to file accurate reports of foreign bank and financial accounts, known as FBARs, the person said.

Smith is the wealthiest Black person in America with a net worth of $7 billion. The criminal tax probe into Smith was first reported by Bloomberg News in August.

Automotive News contributed to this report.