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The Justin French saga ends

Al Harris May 4, 2011 9
Justin French

Justin French

Justin French will not be making any deals for a while.

The formerly high-flying developer is in federal custody after being sentenced to 16 years for a massive real estate tax credit fraud.

“I truly regret all of the actions I took, that I created and allowed my self to be a part of,” French told Judge John A. Gibney Jr. just before he was sentenced Tuesday morning at the federal courthouse downtown. “I have done everything humanly possible and intend to continue to until everyone is completely whole.”

French previously pleaded guilty to the real estate scheme, which is calculated to have netted him more than $11 million at the expense of a long list of victims, including the IRS, the Virginia Department of Taxation and more than 100 individual investors.

Judge Gibney took a hard line against French, delivering a sentence two years above the 14-year term requested by the U.S. Attorney’s office.

“This was sophisticated and coldly calculated,” Gibney said of French’s scheme. “There was no reason for it but for greed.”

Gibney admonished French for his lavish lifestyle, mentioning his historic mansion and frequent trips to Las Vegas.

“He flouted the tax laws, and,” Gibney said, pausing to find the right words, “moral law that requires us to take care of other people.”

Gibney said French’s prior conviction for a drugs-for-guns deal in 1994 and a desire to deter others from similar crimes played into the sentencing. French’s cooperation with federal authorities and confession to the crime helped to take some years off of the 30-year maximum sentence.

When French is released in 2027, he will be 56 and barred from working in the real estate field or any business in which he accepts money from investors.

French’s attorney John Honey requested permission for French to self-report to prison, but that was denied. French’s wife, Tanya, held back tears as French mouthed parting words to her while being taken into custody by the U.S. Marshall.

French’s father and uncle were also present. Also present were some of those who had been wronged by French, including at least one banker and Kathleen Kilpatrick, the director of the Virginia Department of Historic Resources.

“I think the judge got it exactly right,” Kilpatrick said later when reached by phone. “Mr. French’s activities have done profound damage to many people, including his investors and including the life’s work of a lot of great developers.”

Kilpatrick pledged to implement more checks into the program to prevent future fraud and has been overseeing changes since January.

“Some of them have been implemented and some are still in progress because they are regulatory in nature,” Kilpatrick said. “We want to ensure that faith, strength and belief in the system is shored up and developers are not painted with a broad brush with that kind of activity.”

Federal investigators credit DHR for first reporting French’s suspicious bookkeeping.

In January, French confessed to charges of conducting unlawful monetary transactions and wire fraud that arose from his real estate scheme to obtain and sell historic tax credits to investors.

Through his company French Consulting Company, French applied for and received tax credits from the state and federal government for rehabilitating historic buildings over a five-year period. The state and federal credits combined are equal to 45 percent of the amount spent to develop a given property.

French admitted that he grossly inflated his costs in order to receive larger tax credits, which would be sold to investors. French forged invoices submitted by the contractors he worked with, notably City & Guilds and Cityspace Construction. French submitted the forged invoices to his accountant, who certified the costs as part of the application process — which is required by the state for projects exceeding a certain amount.
The French story first unraveled after Richmond BizSense covered the developer’s feud with the Markel Corp. over tax credit funds in a story published June 30, 2010. Over the following weeks, details of French’s battle with banks and investors became a public spectacle that climaxed when the FBI and IRS confiscated computers and documents from French’s Shockoe Slip office during a daylight search of the property.Between 2007 and 2009, French obtained $18.8 million in tax credits from the state alone, records show.

BizSense reported afterward that French had inflated the costs on projects to obtain more from tax credits. Days later, French was arrested on state charges at the Richmond International Airport with a one-way ticket out of town.

The specific property that French’s criminal charges are based on is the property at 1509 Belleville St. in Scott’s Addition. French claimed expenses of more than $1.5 million in renovating the property and received combined tax credits of more than $700,000. French sold those credits to the Markel Corp. and a California-based investment fund.

The actual expenses for the property were $403,200, for which he should have only received $180,000 in credits. In total, French fraudulently obtained more than $525,000 in this deal alone.

French has agreed to pay $7 million in restitution so far, but the federal authorities are still tallying up the bill. So far, total losses by victims for the scheme equal $11,266,622.

During the sentencing hearing, Assistant U.S. Attorney Laura Marshall addressed the complicated subject of how French’s assets are being handled. So far the government has received $3.1 million liquidating French’s assets, which includes the sale of 316 Mitchell St. to a student-housing developer for $2.6 million. The property covers 12 acres off Chamberlayne Avenue just north of Interstate 95.

The judge said French would have to pay back the balance of his debts once he leaves prison.
Marshall said potential victims have been notified. Those victims include more than 100 individual investors who contributed their retirement savings, severance packages and other accounts to French’s scheme with hopes of receiving legitimate returns.

Also being treated as victims are the IRS and the Virginia Department of Taxation, who awarded the tax credits under false pretenses. It is unclear at this point whether the tax agencies plan to “claw back” credits from investors who already claimed them on their taxes or charge them penalties or interest if they do. Investors in that situation will not be able to receive restitution since they have yet to incur losses, but they may be able to at a later date.

Marshall also addressed the involuntary bankruptcy proceedings against French, in which several banks who lent French money are

seeking repayment. Marshall said the forfeited assets are exempt from the bankruptcy, and that creditors involved in any bankruptcy case may not be considered victims of the specific crime for which French has been charged.

Following the sentencing, U.S. Attorney Neil MacBride and Virginia Attorney General Ken Cuccinelli addressed an audience of reporters outside of the courthouse.

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“For all the talk about some of the rehabilitation work he did, it looks like it was just a cover for his vast criminal enterprise,” Cuccinelli said.

Cuccinelli said that French still faces state charges but that the amount of time he faces will be minimal compared with the federal sentence.

“He got the hammer blow today,” Cuccinelli said.

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9 Comments »

  1. Bruce Milam May 3, 2011 at 12:00 pm - Reply

    Anytime I learn that a convicted felon has been caught again in a criminal enterprise, and hear about his victims, I have to ask, have they not heard about Google? It only takes a few minutes to research the person or entity with whom you plan to invest or lend millions of dollars from your shareholders and depositors. In this case a convicted felon shnookered the head of a federal department, the head of a state department,a major corporation and several area bankers. Was he really that sharp in explaining away his criminal past, or did everyone just look the other way? Why aren’t the persons who make those decisions held accountable?

  2. Igor May 3, 2011 at 12:20 pm - Reply

    I guess this is one step closer to Pulitzer prize for RBS for exposing this fraud.

  3. Andrew May 3, 2011 at 2:53 pm - Reply

    I am glad the judge took a hard stance on this and gave him more then the 14 years that was requested. To Bruce yeah I still can’t believe that no one found his past convictions until so late. Good work and reporting to RBS.

  4. BCJ May 3, 2011 at 3:03 pm - Reply

    Only 16…..Justin can do that kinda time standing up…..!

  5. Mr powers May 3, 2011 at 3:24 pm - Reply

    This is what happens when you buy things to impress old people. I still just try to impress the 22 yr olds with a ticket to a far away beach and a fancy little car! No hanging around a country club with blue headed people, no living in an expensive neighborhood with blue headed people and no blue headed or fake blonde headed old ladies in my house!

  6. Cindy May 4, 2011 at 6:51 am - Reply

    EXCELLENT point Bruce. I had a boss once who’s first assigment to me with every new project was “find out everything you can about this company and their leadership.” A prison term for federal arms and drugs violations would be very telling. It reminds of that case where the fake ‘Baron’ took a bunch of Richmonders’ money in a Ponzi scheme and the were all !gasp! surprised! Sometimes people’s greed makes them overlook bright RED flags. People were getting rich off their association with French, so they didn’t ask too many questions.

  7. 31 year old May 4, 2011 at 9:15 am - Reply

    To my knowledge, none of Justin’s prior criminal record was available online. Only a paid private investigation into his criminal history turned this up, just before the media caught wind of it too. There is a good article in Richmond Magazine’s May issue about him too.

  8. Harold May 4, 2011 at 9:33 am - Reply

    @31 – Actually a google search turns up an article about him from the time where he was convicted in the 90’s. It lists his name, partners, specifics of the crime and his sentence. It didn’t take a private investigator. So no, his records were not available online but it wasn’t hard to find out he was a felon.
    As far as that article. Its funny how he gets convicted and is talking to the feds, who have said that other indictments may be coming, and all of his former partners are falling all over themselves to publicly distance themselves from him. The same people who made millions off of this fraud. Who profited due to this. Now they are scrambling to get ahead of the fall out that follows. Lay with the dogs, get up with fleas. I wish that some of these publications would fact check more thoroughly before putting stuff like that out. All these people were writing and singing Justin’s praises. Now that he has fallen, they ought to be more careful about singing the virtues of his associates until the investigations are over.

  9. Anne May 4, 2011 at 12:11 pm - Reply

    I certainly hope the individuals who were fleeced out of their own money don’t have to wait 16 years for repayment. The IRS and Dept of Taxation are claiming to be victims? Puh-lease. They’re the ones who didn’t do their own due diligence and awarded all the tax credits with little, if any, oversight. I don’t know, perhaps a convicted felon should have had a little more scrutiny throughout the process? I’m glad he’s getting jail time, though I don’t think he’s getting what he really deserves.

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