The US Department of Justice has charged Robert Brockman, the Houston software billionaire, with tax evasion for allegedly hiding $2bn from the government in what prosecutors called the biggest case ever against an American citizen.

The justice department also confirmed on Thursday that Robert Smith, the Vista Equity Partners founder, would pay $140m for concealing income offshore over 15 years as part of a non-prosecution agreement.

The head of the Internal Revenue Service’s criminal tax agency, Jim Lee, called the alleged conduct of the two men “brazen”, “intentional” and underlined by “greed”.

“These allegations should disgust every American taxpayer,” said Mr Lee, the chief of the IRS’s Criminal Investigation unit based in Washington. He said he had flown across the country to appear at a press conference in San Francisco about the case because it had “disgusted me so much”.

Mr Brockman, 79, was the first investor in Mr Smith’s initial Vista fund in 2000, contributing all of the capital, some $300m, which helped to launch the private equity firm, according to the indictment.

The Houston billionaire topped up his contributions to $1bn in 2004 and continued to invest in subsequent Vista funds. Prosecutors claimed that the aim of Mr Brockman’s tax evasion conspiracy was to conceal income he earned from his Vista investments.

He was alleged to have orchestrated a complex scheme from 1999 to 2019 to hide income offshore through entities in the names of nominees who appeared on registration documents but did not exercise real control.

Mr Brockman is accused of building his own encrypted email system to direct those nominees. According to the indictment, he gave each a code word — among them “RedFish”, “King” and “Snapper” — while referring to the IRS as “the house”.

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The court documents do not name Mr Smith, instead referring to an “Individual Two” who was identified as the founder of Vista. The charges allege that he was given the code name “Steelhead” by Mr Brockman, but did not detail any broader involvement in the alleged scheme.

The charges included claims that Mr Brockman had sought to destroy and tamper with evidence of his tax evasion efforts. Prosecutor alleged that in 2006 he had read a landmark US Senate report on tax evasion and began to take steps to hide his tracks.

Through his encrypted email system, Mr Brockman in 2007 ordered one of his nominees to buy software called “Evidence Eliminator”, and the following year reminded the same person about the need to create convincing backdated documents, according to the indictment.

“We need to also remember that all copy machine/laser printer paper has encoded into it the manufacturer of that paper as well as the year and month of manufacture. For that reason I always set aside some packets of copy paper with dates on them — for potential future use,” Mr Brockman told the nominee, the indictment alleged.

Prosecutors claimed that Mr Brockman entertained drastic measures to perpetuate the scheme, including in 2015 exploring having his son renounce his US citizenship and take over the offshore entities.

Mr Brockman, who runs Reynolds and Reynolds, an automotive software company, was further accused of defrauding debt holders in the company by using his web of offshore entities to secretly buy its bonds despite restrictions on doing so.

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According to the indictment, Mr Brockman had made the trades while in possession of inside information about the company’s health.

An attorney for Mr Brockman did not immediately return a request for comment. He is set to make an appearance in court on Thursday in San Francisco.

Reynolds and Reynolds said the allegations “focus on activities Robert Brockman engaged in outside of his professional responsibilities with Reynolds and Reynolds”.

“The company is not alleged to have engaged in any wrongdoing, and we are confident in the integrity and strength of our business,” Reynolds said. Mr Brockman will continue to serve as chief executive, according to the company.

Mr Smith, 57, admitted using nominees to hide his control of foreign entities in Belize and Nevis as part of his settlement with the justice department, which allows him to avoid criminal charges.

The Vista Equity founder, who is the richest black American, has drawn praise for promising in 2019 to pay off the debt of a graduating class at historically black Morehouse College in Atlanta and built ties with Donald Trump’s administration.

David Anderson, the San Francisco US attorney, said Mr Smith had used his untaxed income offshore to buy a vacation home in Sonoma, California, and to buy ski properties in the French Alps.

The US attorney said Mr Smith had used a Houston lawyer to direct his offshore nominees.

“Although Smith wilfully [and] knowingly violated the law, Smith has accepted responsibility and agreed to provide complete and truthful co-operation,” Mr Anderson said.

Mr Smith had in 2014 approached the IRS to attempt to join a voluntary disclosure programme that provides leniency but was rebuffed, the US attorney said.

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The settlement includes a five-year non-prosecution agreement, payment of $139m in taxes and penalties, and the abandonment of an $182m protective refund claim. It also requires Mr Smith to co-operate with the US government.

The protective refund claims arose in part from filings Mr Smith had made to IRS for refunds on charitable donations he made in 2018 and 2019, the justice department said.

Mr Anderson denied that Mr Smith’s highly-publicised charitable donations and connections with the Trump administration had played a part in the decision not to charge him with a crime.

A spokesman for Mr Smith and Vista declined to comment.

Via Financial Times