South Florida Farnell Brothers Sentenced for Tax Evasion

Michael Farnell and James Farnell, residents of Boca Raton, Fla., were sentenced to prison terms last week for income tax evasion following an April indictment, according to the Justice Department and Internal Revenue Service (IRS). Judge William P. Dimitrouleas sentenced Michael Farnell to a term of 18 months in prison. His brother James Farnell was sentenced to a term of 42 months.

Michael and James Farnell sold stock in a privately held Florida-based technology company between 2004 and 2006 and failed to report the capital gains or pay taxes on the capital gains from those stock sales. In 2004, the U.S. Securities and Exchange Commission (SEC) filed suit against the Farnell brothers for securities violations at another company that they operated the year 2000. A majority of the stock sales at issue in this case violated the injunction from the SEC’s lawsuit.

According to public documents and statements made in court, the Farnell brothers held their stock in this Florida-based technology company in the name of nominee trusts. The proceeds of the stock sales were deposited into bank accounts titled in the name of these nominee trusts. Neither brother filed tax returns in 2004 and 2005. James Farnell also failed to file a 2006 tax return. As part of the sentencing, Michael Farnell and James Farnell both agreed that they failed to report additional income paid to them by this Florida-based technology in 2001 through 2003.

Michael Farnell was ordered to pay restitution of $448,128 and James Farnell was ordered to pay restitution of $434,115, both to the IRS.

Farnell Brothers Subject of 2006 SEC Litigation

Details of earlier SEC actions are outlined in SEC Litigation Release No. 19604, dated March 9, 2006, involving Securities and Exchange Commission v. Vector Medical Technologies, Inc., Michael H. Salit, James P. Farnell, Michael J. Farnell, David A. Zimmerman, and Stanley Wasser, Case No. 03-80858-CIV-HURLEY/LYNCH (S.D. Fla.).

The Securities and Exchange Commission announced that on February 1, 2006, the Honorable Daniel T.K. Hurley, United States District Court for the Southern District of Florida, adopted the Magistrate’s Report and Recommendation in full and entered Final Judgment of disgorgement and civil penalties against Vector Medical Technologies, Inc., Michael Salit, James Farnell and Michael Farnell.

On December 20, 2005, Magistrate Judge Frank J. Lynch, Jr., conducted an evidentiary hearing, and thereafter filed his Report and Recommendation. By adopting the Magistrate’s Report and Recommendation in full, the District Court entered a Final Judgment that ordered Vector Medical to pay $14,208,718 in disgorgement and prejudgment interest; Salit to pay a $486,000 civil penalty; James Farnell to pay $1,127,796 in disgorgement and prejudgment interest and a $100,000 civil penalty; and Michael Farnell to pay $715,320 in disgorgement and prejudgment interest, and a $100,000 civil penalty.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.