Everybody who watches TV cop shows knows you have a right to remain silent and that what you say can be used against you. Betty Loren-Maltese who went from being President of the Town of Cicero to being federal prisoner 13706-424 was familiar with her right to remain silent. What she may not have realized is that what she did not say could be used against her, at least in Tax Court. The Tax Court judge explained the principle involved by quoting the Roman orator, for whom the town, more associated with Al Capone, than any classical figure, was named.
We can also draw inferences from her silence if, under the circumstances, it would’ve been natural for her to object. This later principle is not constitutional, just an acknowledgment of human nature. The original Cicero made the point 2,000 years ago in his oration exposing the plot of Lucius Catilina and his friends to plunder their government’s treasury. He observed that people have a natural tendency to defend their reputation, and that silence in the face of accusations suggests that there might be some merit to the charges. The Latin is more succinct: Cum tacent, clamant.
Ms. Loren-Maltese had been convicted of taking part in an insurance scheme that defrauded Cicero (the town not the dead Roman) of around 12 million dollars. In an appeal of the criminal case she had argued, to no avail, against her sentence and restitution order because so little of the money had actually been received by her. Her trial for criminal tax fraud had resulted in a hung jury causing that charge to be dismissed, but failing to get her the way they got Al Capone does not relieve her of civil liability. The IRS was able to satisfy the Tax Court that there had been fraudulent under reporting in 1994, which in addition to carrying a nasty penalty also eliminates the statute of limitations on assessment. Here is some of the story:
The silence that shouts out here arose from Cicero, Illinois, a suburb of Chicago that sits on its western hip like a well-holstered gun, and that has a colorful history that reaches back into the 1920s when Al Capone took refuge there. (Capone, though best known for his failure to file accurate tax returns, was also apparently well known for superintending a large number of saloons and other illegal enterprises in Cicero during Prohibition.) Some of this past is not dead, and is not even past—as Ms. Loren-Maltese remarked at trial: “There’s always investigations in Cicero.”
The Commissioner boiled down this sea of information into a very detailed analysis of two transactions: Ms. Loren-Maltese’s purchase of a 1993 classic black Cadillac Allante convertible, and her investment in a luxury golf course and clubhouse. The Commissioner contends that her withdrawal of more than $350,000 from the Committeeman Fund to finance the car and investment created taxable income and that she fraudulently tried to evade the tax due on that income.
Ms. Loren-Maltese, whose coiffure is legendary in Chicagoland, broke her Fifth Amendment silence on this subject only once—to tell us that though the car was a convertible, she didn’t go “cruising around” Town with the top down because she “wouldn’t want to mess up hair.” On this narrow issue, we find her entirely credible, but the evidence that her use of the Cadillac was personal rather than political is overwhelming. Though she was a good-humored, engaging, and credible witness when actually answering questions, her silence on substantive questions severely injured her case—not only because we specifically warned her that claiming the Fifth Amendment would allow us to draw a negative inference, but because the Commissioner’s voluminous evidence against her strongly supported that inference.
Shortly after she bought the car, Ms. Loren-Maltese called her secretary, Lauren Racanelli, down from her office to “see her new car” (while she was on her way to her summer home in Lakes of the Four Seasons in Crown Point, Indiana). Both Ms. Racanelli and Commander Clarence Gross (of the Cicero Police Department), and even her own administrative assistant, never saw the Cadillac at any political or campaign function, and there were numerous such events during Ms. Loren-Maltese’s presidency
These facts, together with Ms. Loren-Maltese’s silence at trial, lead us to find that she personally converted $53,512.40 from the Committeeman Fund to buy a car for her personal use, failed to include that amount as income on her return, and that then caused an understatement of her tax liability. .
Plaza Partners bought the Four Seasons Golf Course from Miscauno Management on December 2, 1993. Ms. Loren-Maltese went with Gregory Ross, John LaGiglio, and Michael Spano, Sr. to see if it would be a good investment. Between July and September of 1994 Ms. Loren-Maltese gave Mr. LaGiglio three checks totaling $300,000 that she drew on the Committeeman Fund’s account. All these checks were for investment in the Four Seasons.
The investment was memorialized in a promissory note dated January 11, 1994; a nominee agreement executed by Ms. Loren-Maltese dated November 1, 1994; and a mortgage on the Four Seasons dated November 28, 1994. All these documents identify Ms. Loren-Maltese in her personal capacity only—there is no mention of her in any representative capacity, much less as an officer or agent of the Committeeman Fund. .
We draw a negative inference from her taking the Fifth Amendment when asked at trial about whether she knowingly falsified the Forms D-2 to disguise her investment in the Four Seasons. The omissions and inconsistencies in these forms, along with her less-than-credible explanations, flash another badge of fraud, that of implausible explanations.
According to her interview with the Chicago Sun Times, Ms. Loren-Maltese, who is living on social security, will not be able to pay the $238,399 in taxes and penalties, since all her possessions were sold to pay restitution before she went to prison. It will be interesting to see if I’ll be reading an appeal of a collection due process hearing in a couple of years. That would be entertaining.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com on August 8th, 2012