Federal prosecutors indicted 16 individuals in January in a $10 million federal income tax fraud scheme that was initially uncovered by the $262 million Widget Financial Federal Credit Union in Erie, Pa. last spring.

The new, superseding indictment announced Jan. 13 reveals the accused opened or attempted to open 3,493 bank accounts, 4,563 credit cards using 11,468 stolen identities affecting 443 banks and credit unions. The defendants used the bank accounts to deposit fake federal income tax returns.

In total, these 16 individuals are accused of filing 3,370 fraudulent federal income tax returns that sought more than $38 million in tax refunds, but the actual loss to the U.S. Treasury was $10 million, according to the indictment.

This massive fraud scheme was initially announced by federal investigators in April when they indicted five persons with conspiracy to commit wire fraud and other charges. The new superseding indictment named an additional 11 defendants who were accused of wire fraud. A superseding indictment allowed prosecutors to replace a previous indictment.

Most of the individuals indicted were from the New York City area including Queens, Bronx, Brooklyn, Rockaway, Staten Island, Hempstead and Laurelton.

Though the nationwide fraud affected more than 400 financial institutions, the indictment only identified one bank, PNC, Widget Financial FCU, and seven other credit unions.

They are the $167 million Treasury Department Federal Credit Union in Washington; $359 million Air Force Academy Credit Union in San Antonio; $4.2 billion Pennsylvania State Employees Credit Union in Harrisburg, Pa.; $638 million Red Canoe Credit Union in Longview, Wash.; $83 million Rutgers Federal Credit Union in New Brunswick, N.J.; $3.5 billion Lake Michigan Federal Credit Union in Grand Rapids, Mich., and the $85 million Winward Community Federal Credit Union in Kailua, Hawaii, court documents showed.

Widget Financial first detected the fraud in December 2012 when a team of about nine employees began looking at about 10 questionable accounts, Widget Financial President/CEO Gail J. Cook, said in an interview with CU Times in April 2014.

The credit union also spotted other suspicious activity with the accounts and reported its findings to the federal authorities. The FBI launched an investigation and acknowledged during a press conference last April that Widget Financial FCU's crucial fraud detection work broke the case wide open.

However, Pennsylvania State Employees CU said it reported this fraud to the IRS a year before Widget Financial did.

“I never want to rain on anyone's parade and Widget Financial Credit Union deserves credit for what they did,” Gregory Smith, president/CEO of PSECU, said in a May 2014 CU Times article. “We filed our auspicious activity Reports with the IRS in 2011 as we typically do when we uncover these types of scams. We were able to seize $11,000 of that ($41,000) and returned it to the IRS.”

Moreover, CEOs of Air Force Academy and Red Canoe said their credit unions were not involved in the case or did not know anything about it.

Other CEOs declined to comment or did not return calls seeking comment.

Instant Insights /

Credit Union Helps Bust Tax Fraud Scam

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