Gregory A. White, United States Attorney for the Northern District of Ohio, and Eileen J. O’Connor, Assistant Attorney General for the Tax Division, announced today that a federal grand jury returned an indictment against Winfield Thomas and Jeanne Herrington, charging Thomas with Conspiracy to Defraud the IRS and Interference with the Administration of the Internal Revenue Laws, and Herrington with Interference with the Administration of the Internal Revenue Laws and 17 counts of Mail fraud. In addition to the indictment against Thomas and Herrington, a federal grand jury returned an indictment against Thomas Fruth, charging him with three counts of filing false income tax returns. According to court records, both Thomas and Fruth live in Findlay, Ohio, and Herrington, originally from Parma, Michigan, is currently a fugitive from justice.

In addition to the indictments returned against Thomas, Herrington and Fruth, a number of other individuals have entered guilty pleas related to the case. Chad Rickle, of Findlay, Ohio, pled guilty to Conspiracy to Defraud the IRS. Rickle admitted to preparing over 900 fraudulent tax returns with a tax loss of over $1 million. Duane Fry and Jennifer Fry, both of Findlay, Ohio, pled guilty to a conspiracy charge related to the scheme alleged against Thomas and Herrington. As part of their plea agreements, Duane Fry admitted to a tax loss of over $626,000 and Jennifer Fry admitted to a tax loss of over $71,000.

Daniel Fry, of Findlay, Ohio, pled guilty to aiding and assisting in the preparation of a false income tax return, in connection with the trust returns cited in the indictment returned against Thomas Fruth (discussed below). Daniel Fry admitted to a tax loss of over $63,000. The plea agreements entered into by Chad Rickle, as well as Duane, Jennifer and Daniel Fry were all unsealed on September 6, 2006. No sentencing dates have been scheduled for the individuals who have pled guilty.

Count One of the indictment against Thomas and Herrington charges Thomas with conspiring with Rickle and others to defraud the IRS by taking the following actions: Thomas marketed and sold to a number of clients in northwest Ohio a trust system that purported to allow them to reduce or eliminate their income tax liabilities. After the IRS began notifying Thomas’ clients that the trust system was fraudulent, Thomas initially advised his clients that they should ignore the IRS. Later, Thomas organized meetings and gave clients specific instructions on how to impede, impair and obstruct the IRS in order to satisfy the clients’ outstanding tax liabilities. Those instructions included the use of something called Redemption Theory.

The indictment against Thomas and Herrington alleges that, according to Redemption Theory as espoused by Thomas, when the United States went off the gold standard in 1933, the United States began to be funded with debt instruments secured with the energy and labors of current and future citizens, and each citizen’s birth certificate became the collateral for U.S. currency. Supposedly, the value of a citizen’s birth certificate is $1,000,000, and that amount is held in a top-secret government account called the Strawman. Also according to Redemption Theory as espoused by Thomas, whenever a person received correspondence with their name in all capital letters (i.e., JOHN DOE), then the correspondence was not addressed to the actual person, but to that person’s Strawman. An individual could gain control of, or “reclaim” (using the parlance of Redemption Theory) his or her Strawman by filing Uniform Commercial Code forms with a State. On the forms, each client claimed to be a creditor of his or her own Strawman. For example, the forms would allow a client named John Doe to give notice to the public that JOHN DOE (i.e., the Strawman) owed a debt to John Doe, the person. Thomas obtained information about Redemption Theory from a book entitled “Cracking the Code: Redemption in Law, Theory & Practice”.

The indictment against Thomas and Herrington goes on to allege that, according to Redemption Theory as espoused by Thomas, after a client reclaimed his or her Strawman, the client could use the “value” of their Strawman to satisfy debts, including credit card bills and government obligations. Moreover, based on this theory, an individual could add to the initial $1,000,000 value of his or her Strawman by “Accepting for Value” financial obligations, including IRS debts, traffic tickets, judgments, credit card bills and the like. Generally, according to this theory, after a client “Accepted for Value” an obligation, the client could use other fictional financial instruments, such as Bills of Exchange or Sight Drafts, to satisfy debts via the client’s Strawman.

Count Two of the Indictment against Thomas and Herrington charges Herrington with interference with the administration of the internal revenue laws by (1) advising a number of individuals, mostly clients of Winfield Thomas, to send fraudulent letters to the IRS in order to frustrate the IRS’s collection efforts, and (2) providing instruction to those individuals on how to complete Sight Drafts to satisfy the clients’ tax liabilities. According to the indictment, Sight Drafts are fraudulent financial instruments that look similar to bank checks, and Herrington advised a number of individuals to draft them in such a way that they purported to be payable through IRS employees. In addition, Herrington advised those individuals to add language on the Sight Drafts which threatened IRS employees with bankruptcy if the Sight Drafts were dishonored.

Count Three of the Indictment against Thomas and Herrington charges Thomas with interference with the administration of the internal revenue laws by aiding and assisting a number of clients in preparing and submitting to the IRS false and fraudulent Bills of Exchange totaling over $15 million. The Bills of Exchange were fraudulent financial instruments that purported to allow clients to satisfy their outstanding tax obligations.

Counts Four through Twenty of the indictment against Thomas and Herrington charge Herrington with 17 Counts of Mail Fraud for fraudulently advising numerous individuals, mostly clients of Winfield Thomas, that they could extinguish their outstanding debts by sending fraudulent Sight Drafts to the IRS. The total amount of Sight Drafts included in the mail fraud charges totals over $2 million.

The indictment returned against Thomas Fruth charges him with filing false trust tax returns for Puddle Jumper Enterprises which included income, deductions and tax payments from other individuals that were not legitimately reportable by Puddle Jumper Enterprises.

If convicted, each defendant’s sentence will be determined by the Court after review of factors unique to this case, including the defendant’s prior criminal record, if any, the defendant’s role in the offense and the characteristics of the violation. In all cases the sentences will not exceed the statutory maximum, and in most cases will be less than the statutory maximum.

The government’s case is being prosecuted by Trial Attorneys Del Wright Jr. and John Kane of the U.S. Department of Justice, with the assistance of the United States Attorney’s Office for the Northern District of Ohio. The case has been investigated by the Internal Revenue Service, Criminal Investigation Division, Toledo, Ohio.

An indictment is only a charge and is not evidence of guilt. A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.