Operation Stolen Treasures

Amid the nation's economic meltdown, financial-conspiracy theories fueled a tax-fraud case for the ages

With any fringe belief system, it's often hard to discern between sincere believers and crass profiteers. But there was plenty of evidence the scheme's ringleaders always knew they were on shaky legal ground. When federal agents executed a search warrant at Old Quest's Fontana office on Sept. 30, 2009, they found a three-ring binder labeled "Kryptonite." Inside was a printout of the 1099OID Fraud Alert.

A number of emails between Old Quest executives expressed concern about the repeated fraud warnings, the frivolous filing letters and the government freezing their customers' bank accounts. Mendoza didn't help his cause by cashing out $281,000 from an Old Quest bank account on the day investigators searched his office. And to compound their problems with the IRS, Ruiz and Mendoza never declared the income they received from Old Quest.

Ruiz and Mendoza were both convicted of conspiracy and tax fraud on Jan. 30. They face roughly 10 years in federal prison.

Perhaps a jury would have regarded them as misguided believers seduced by a fantastic conspiracy theory if not for the sheer absurdity of the figures. On behalf of its mostly low-income clients, Old Quest claimed $344 million in investment income and almost $300 million in tax withholdings, and it sought some $194 million in refunds.

While much of the Treasury money was ultimately recouped, the customers, most already in dire financial straits, were left in the cold.

Jose Perez and his wife, Jesus, paid $12,500 on an installment plan for a land-patent sign that remained in their window as their house went into foreclosure. When Arturo Ruiz transferred the couple into the OID program, he told them, "It's so new your tax professional hasn't heard of it yet."

Both Jose and Jesus worked in a warehouse and together earned less than $50,000 per year. Their Old Quest returns declared $1.28 million in interest income for 2008, with almost every dime withheld as taxes. They testified that they signed their tax papers without much examination—neither spoke English nor seemed to have any understanding of what the forms conveyed about their finances, let alone the finer points of redemption theory.

The number was not entirely arbitrary—the couple was drowning in debt after taking several loans from subprime lenders, amounting to $1.28 million. The Perezes lost the money they paid Old Quest, as well as their house. Each was fined $5,000 by the IRS.

Jesus Zepeda went to an Old Quest land-patent presentation in a hotel in Rancho Cucamonga in 2008 after he failed to sell his house in a short sale. He originally thought he was attending a loan-modification program, but he knew something was amiss when a woman in the audience, who said she worked in a real-estate office, started yelling at Ruiz and Mendoza, calling them thieves and cheats. Ruiz and Mendoza laughed at that woman, according to Zepeda.

Hundreds of people were at the second meeting Zepeda attended in a warehouse in Rancho Cucamonga. After a third Old Quest presentation, Zepeda purchased a land patent for $12,500—a "special offer" he got on condition of bringing in more people to future seminars. He, too, was later transferred to the OID program.

The part-time construction worker's tax return claimed $822,100 in income derived from interest, almost all withheld in taxes.

"They went out and found people who were losing their homes, and they advertised to them," said Robbins, who described Old Quest's ideal customers as people who were desperate, uneducated and didn't speak English.

In hindsight, of all the slides Ruiz, Mendoza and their employees flashed before the thousands of men and women who came to hear what they had to offer, one stands out as perhaps the most surprising of them all:

"Never, ever LIE on your tax return."

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2 comments
olga
olga

Do they really beleive these things? It is funny but how casn you think it is right?  Just to get your money maybe but I would like some I just don't make stories from make up history like this! 

 
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