An Indianapolis man who operated a downtown payroll services business was sentenced Tuesday to six years in federal prison and ordered to pay back nearly $9 million for a scheme that defrauded clients in multiple states.
David L. Downey, 51, who ran Time Payroll from 2009 to 2017, pleaded guilty in August to wire fraud, federal employment tax evasion and passport fraud.
He was sentenced in U.S. District Court in St. Louis to the maximum prison sentence called for under the plea agreement. The court also ordered Downey to pay restitution to clients of $8,780,118.
Downey, who had clients in Indiana, Illinois, Kentucky and Missouri, admitted to moving money from his clients’ accounts into his Charles Schwab brokerage accounts, then failing to pay substantial amounts of those funds to the IRS for the clients’ employment taxes.
The U.S. Attorney’s Office said Downey moved about $20 million into his day-trading accounts at Charles Schwab and returned only $11 million to the IRS for employment taxes. He admitted to a loss to the clients and to the IRS of $9,428,160.
After closing his business in late 2017, Downey cashed out his brokerage and bank accounts and moved to California, where he attempted to get a U.S. passport in San Diego using his brother’s name and a California driver’s license showing his brother’s name and his own picture.
Special Agents from the IRS Criminal Investigation unit in St. Louis arrested Downey on Nov. 16, 2018, at the Kimpton Shorebreak Hotel in Huntington Beach, California. He was in possession of $955,956 in cash at the time of his arrest. He had also spent $53,990 in cash to purchase a Jeep Cherokee in California, using his brother’s name.
The cash and the vehicle were seized and were forfeited for restitution to his clients as part of the plea agreement.
One of Downey’s clients was Health Facilities Rehab Services in Sikeston, Missouri. HFRS initially lost $851,174 to Downey and, after suing him, was eventually paid $650,000 of that loss. HFRS is entitled to restitution for the remainder of its loss.