UNITED STATES OF AMERICA
v.
JEFFREY P. CHERNICK,
Defendant.
    
Release Date: JULY 28, 2009

                    UNITED STATES DISTRICT COURT
                    SOUTHERN DISTRICT OF FLORIDA
 
                         STATEMENT OF FACTS

The United States Attorneys Office for the Southern District of Florida, the United States Department of Justice, The Tax Case of Jeff Chernick Tax Division, and the defendant, Jeffrey Chernick, stipulate to and agree not to contest the following facts, and stipulate that such facts, in accordance with Rule 11(b)(3) of the Federal Rules of Criminal Procedure, provide a sufficient factual basis for the plea of guilty in this case:
 
         OBLIGATION TO REPORT WORLDWIDE INCOME AND FOREIGN
                           BANK ACCOUNTS

United States citizens who have income in excess of a certain amount are obligated to file a federal income tax return with the United States Internal Revenue Service ("IRS"). On said return, United States citizens are obligated to report their worldwide income. Additionally, United States citizens who have an interest in or a signature or other authority over a financial account in a foreign country with assets in excess of $ 10,000 are required to disclose the existence of such account on Schedule B, Part III of their individual income tax return.
 
                             BACKGROUND

The defendant owns and operates Jeff Chernick, Inc., a corporation that represents Hong Kong and Chinese toy manufacturing companies. In approximately 1981, the defendant established JCHERN, a Hong Kong corporation, and opened offshore bank accounts in the name of the Hong Kong corporation for the purpose of, among other things, concealing from the IRS commissions paid to the defendant by the Hong Kong and Chinese toy manufacturers for toy sales in the United States.

As the defendant needed money in the United States, he obtained bank checks drawn on these offshore accounts made out to his United States corporation. The defendant would hand carry these bank checks from Hong Kong to the United States. Typically, the defendant would hand carry approximately twelve checks back to the United States per year; ten checks each January, each for approximately $ 25,000, one check each July for $ 10,000 to $ 15,000, and one check each October for $ 25,000 to $ 30,000.

Over time, the defendant opened additional offshore accounts in the Caribbean, including at UBS in the Cayman Islands. In approximately 2002, the defendant established offshore accounts in the name of the offshore entities at UBS AG in Switzerland ("UBS"). By 2005, the total value of the assets at UBS was approximately $ 8 million.
 
                        UBS ACCOUNT RECORDS

According to records obtained from UBS AG in Switzerland, there were UBS accounts in the name of Simba International Limited, ("Simba"), a Hong Kong corporation. According to internal UBS Form A, Verification of the Beneficial Owner's Identity, dated April 19, 2002, the defendant, listed as a resident of Greenwich, Connecticut, represented that he was the beneficial owner of the UBS account in the name of Simba.

From at least 1998 through 2008, the defendant corresponded from the United States with UBS managers and bankers, along with Swiss financial service providers via telephone, fax, mail and email to discuss his UBS bank accounts and offshore entities. Utilizing these forms of correspondence, the defendant directed investment activities and the payment of fees for banking and other services rendered by Hong Kong and Swiss financial service providers.

SWISS BANK EXECUTIVE was a former UBS manager in the United States cross-border business and left UBS because of concerns over UBS's entry into a Qualified Intermediary Agreement with the IRS. In or about approximately 2003, SWISS BANK EXECUTIVE convinced the defendant to invest a portion of his offshore assets with a smaller Swiss bank located in Zurich, SWISS BANK. SWISS BANK EXECUTIVE told the defendant that since SWISS BANK had no presence in the United States and had not entered into a Qualified Intermediary Agreement with the IRS, it was not subject to United States scrutiny and therefore could not be pressured by the United States government to disclose his identity and account information to United States authorities.

From approximately 1998 through 2008, the defendant personally met with SWISS BANK EXECUTIVE, UBS SWISS CLIENT ADVISOR #1, UBS SWISS CLIENT ADVISOR #2, and SWISS LAWYER, located in Zurich, to discuss his Swiss bank accounts and offshore entities that were maintained at UBS and SWISS BANK. These meetings predominantly took place when these individuals were in the United States at various locations, including hotels in New York City.

When traveling to the United States, SWISS BANK EXECUTIVE and SWISS ATTORNEY would dress as tourists to avoid detection. SWISS BANK EXECUTIVE would falsely report to United States customs that he was coming to the United States to visit his brother. During meetings in the United States, the defendant discussed with SWISS BANK EXECUTIVE, UBS SWISS CLIENT ADVISOR #1, UBS SWISS CLIENT ADVISOR #2, and SWISS ATTORNEY the investments held in his offshore accounts and the payment of fees for banking services rendered by Hong Kong and Swiss financial service providers. SWISS BANK EXECUTIVE mailed the defendant's bank statements from Switzerland to an address in the United States instead of hand carrying them for fear that the bank statements would be seized by United States customs agents. Before providing the defendant with his statements, SWISS BANK EXECUTIVE, and UBS SWISS CLIENT ADVISORS #1 and #2 would physically cut the defendant's name and account number from the statements so that they could not be tied to the defendant and his accounts.

From approximately 2002 through 2008, the defendant had a credit card linked to his UBS bank accounts so that he could access the funds in his UBS account while traveling abroad. UBS SWISS CLIENT ADVISOR #2 advised the defendant never to use this credit card in the United States because the card could be traced back to the defendant's Swiss accounts. In May of 2008, UBS SWISS CLIENT ADVISOR #1 advised him to stop using the