Getnick & Getnick LLP and Labaton Sucharow LLP have secured a major settlement in the second stage of the largest-ever tax whistleblower recovery in New York state history. New York Attorney General Barbara Underwood announced the $30 million settlement today. It follows a related $40 million settlement in April 2017, bringing the total recovery to $70 million.

The Relator, whose identity remains protected, will receive 22% of the Sept. 27, 2018 settlement ($6.6 million). The case was filed under the New York False Claims Act, which was amended to cover tax claims in 2010.

Leaders in the Law reported on Labaton in March 2018, when the firm represented plaintiffs against Merrill Lynch in a combined whistleblower settlement that is the largest in the Securities and Exchange Commission’s history. The firm was also listed in the 2017 edition of New York’s Personal Injury Lawyers.

Getnick and Labaton represent the Relator in a tax evasion case brought against Harbinger Capital Partners Offshore Manager LLC, the investment manager for New York-based hedge funds run by Philip Falcone from 2002 to 2009. The case alleges that the defendants evaded New York State and City taxes by shifting income derived from Harbinger from New York to Alabama to avoid New York’s higher tax rates. The previous settlement announced in April 2017 was with Harbert Management Corporation, an Alabama-based investment company that had an investment and business relationship with Harbinger Capital Partners Offshore Manager.

The announcement includes a superseding complaint brought by the Attorney General’s office that reveals the details of the allegations. The complaint states, “Because it carried on its business in New York, Offshore Manager had a clear obligation under New York State Tax Law to apportion and allocate income as taxable in New York State, but instead apportioned 100 percent of its income to the state of Alabama, which had lower tax rates than New York.”

The complaint also states,”…Offshore Manager systematically camouflaged its New York presence…”

In addition, the complaint states, “Offshore Manager made profits remarkable even by Wall Street standards but failed to pay what should have been paid to the city and state where it made these profits and misled tax authorities to ensure that it would not have to pay its fair share.”

The Attorney General’s Office said its investigation into the conduct at issue in this matter continues.

“Today’s settlement adds substantially to the recovery for the state and reveals the extent of the potential liability for hedge funds with multi-state operations and the vigor of the state’s tax enforcement efforts,” said Neil Getnick, managing partner of Getnick & Getnick.

“The Attorney General’s Office did an extraordinary job working with us and our client to bring the second stage of this complex case to conclusion, again illustrating the value of the public-private partnership established by the New York False Claims Act and the New York AG’s particularly innovative approach to its implementation,” said Jordan Thomas, Chair of Labaton’s Whistleblower Representation practice.

The press release from the New York Attorney General Underwood is here. Assistant Attorney General Justin Wagner of the Taxpayer Protection Bureau led the Attorney General’s investigation, under the supervision of Deputy Bureau Chief Scott J. Spiegelman. He was assisted by Legal Support Analyst Bianca M. LaVeglia. The Bureau, led by Bureau Chief Thomas Teige Carroll, is part of the Economic Justice Division, headed by Executive Deputy Attorney General for Economic Justice Manisha M. Sheth.

Senior Counsel Sabita Krishnan and Division Chief Gail Rubin of the Affirmative Litigation Division handled the investigation on behalf of New York City, with help from Senior Counsel Brian Horan.