The fallout from an alleged accounting fraud in Centennial has mushroomed to more than $10 million in claims.
Creditors of Centennial accountant Don R. Iley say he owes them $19 million, according to recent bankruptcy court filings. But seven months after bankruptcy proceedings started, the court trustee has turned up just $727,000 in cash to pay back alleged victims.
Iley’s former customers say the accountant made their money disappear, too. They allege that he stole it from their bank accounts when they thought he was paying their taxes. (You can read about former clients in a previous BusinessDen story here.)
“I guess the distressing part is that it appears the cost of the operations of Iley & Associates far exceeded its actual legitimate revenue,” said Tom Connolly, the court-appointed trustee recovering money from Iley to pay creditors.
Seven former clients forced Iley’s firm into bankruptcy in December, claiming that he had siphoned $2.5 million from their bank accounts instead of paying state and federal treasuries.
Since then, 61 claims totaling $19 million have been filed against Iley and Iley & Associates, many of them by former customers.
Bankruptcy attorney Steven Abelman, who works at Brownstein Hyatt Farber Schreck and isn’t involved in this case, said former clients may file claims in excess of the money they believe Iley swindled.
“Some people might say that not only did they lose $100,000 that they put into their payroll, but because certain people didn’t get paid timely, then they had to pay a penalty to the IRS for the withholding portion, so they’re entitled to the penalty,” said Abelman. Other creditors might say they lost employees or suffered other damages as a result of the alleged theft, he added.
Of the 61 claims filed, five are from banks, tax authorities or others that identify themselves as not being Iley’s customers. They claim $706,966.
Iley’s checkered past goes back more than 10 years: Customer complaints about Iley and his firm go back to 2001, according to documents made public by the Colorado State Board of Accountancy, which licenses and censures CPAs.
In prior infractions, the state accounting board fined Iley a total of $13,100 and placed him on probation. But the board let Iley off of probation early in 2013 after he said he had learned his lesson.
This December, the state accounting board again received consumer complaints, this time saying Iley had filed fraudulent tax returns and embezzled funds.
Former customers told the board that Iley accessed their bank accounts in order to deduct money for payroll taxes. But while Iley withdrew money from the accounts, tax authorities never received it. The customers say Iley reported the firm had no employees and therefore owed no taxes.
The board revoked Iley’s CPA license in February. A board investigation also found that the IRS had opened an independent investigation.
The bankruptcy case, meanwhile, has flip-flopped from a Chapter 7 liquidation, to a Chapter 11 restructuring, and back.
At a meeting of creditors in March, Caroline Fuller of Fairfields and Woods, who represents the petitioners that pushed Iley into Chapter 7 as well as the creditors committee, asked Iley repeatedly what he did with clients’ money. Iley pled the Fifth Amendment.
Connolly has been trying to answer the same question – where did the money go? One challenge, Connolly said, is that Iley seems to have used the same bank accounts for personal and businesses expenses.
“That egg is so scrambled that we can’t unscramble it,” he said.
Connolly said Iley’s Parker home – two bedrooms and four bathrooms with a basement bar, an exercise room and a hot tub – is a major physical asset he is seeking to sell.
In a list of assets filed in April, Iley values the property at $2.2 million, but says the court can only claim half of that sum since he purchased it with his wife. Connolly has sued for the right to sell the house and use its full sale value to pay creditors.
Iley also lists four cars, three guns, sports memorabilia retirement accounts and other property, which he values at $2.3 million total.
Iley also owns a stake in an app startup, Snaportation, and a shoe company, Hawaiian Jellys. Iley in May valued his ownership of Snaportation at $12 million.
Connolly said both investments are “of dubious value.”
Ken Buechler is representing Iley & Associates in the bankruptcy. Iley has also retained a criminal defense lawyer, Gary Lozow.
Iley’s prior personal counsel, Weinman & Associates, withdrew from the case. Litigation counsel from Allen & Vellone has also applied to withdraw from the case.