Five Years plus $878,000 restitution for Tax Evasion

Chase Norwood, 53, also known as Thomas Gray, was sentenced by United States District Judge Terry J. Hatter, Jr. In addition to the five year prison term, Judge Hatter ordered Norwood to pay restitution of $876,386.20.

Norwood was convicted by a jury trial in December 2009 of fifteen counts, including two counts of tax evasion, five counts of mail fraud, and eight counts of wire fraud. He has been in custody since his arrest in March of 2008.

The evidence presented during trial showed that Norwood solicited individuals to invest directly in purported Internet start-up companies including Undertherapy.com and Cal Broadband. In addition to soliciting direct investments, Norwood also solicited individuals to provide funds to an investment company that purported to invest in other start-up companies selected by the defendant.

Norwood used investor funds to support an extravagant lifestyle, including part-time residence in luxury hotels, as well as paying personal expenses for his family and friends. Further, Norwood used investor monies to hire several unlicensed brokers/telemarketers to identify individuals to invest in companies he promoted. Norwood also would use his former name, Thomas Gray, and the names of third-parties as officers and directors of the companies he promoted.

With respect to the tax fraud, in 2000 Norwood removed significant investor funds deposited to company bank accounts by writing checks to “cash” as well as using funds to pay a relative’s rental payments at a condominium complex. Additionally, Norwood used investor funds to pay his credit card bills which included his long-term rentals at luxury hotels in Los Angeles and Beverly Hills, including L’Ermitage, the Mondrian, and the “W.”

In 2001, Norwood deposited investor funds to business bank accounts opened under his former name, Thomas Gray. Norwood personally used deposited investor funds in these accounts by writing checks to “cash” and for rent payments on his mother’s condominium.

In total, Norwood received at least $117,496 in taxable income in 2000 and $183,991 in 2001, upon which he owes income tax to the United States of $33,808 and $57,662, respectively.

Although Norwood represented that the investments were high-risk, the investors were led to believe that their funds would be used to pay legitimate business expenses. Norwood and the unlicensed brokers represented to investors that their money was to be used to enable those companies to “go public.” As a part of their solicitation, Norwood and the unlicensed brokers would send business plans and executive summaries and other materials that misrepresented the facts.

For example, Norwood’s business plans for Cal Broadband falsely misled investors into believing that it was a company that had been in business for years and was recognized as a national and international wireless high-speed Internet provider when in fact the company was merely a business name created by Norwood using his former name. Norwood also indicated in his business plans provided to investors that Cal Broadband had licensing agreements and business affiliations with large computer and telecommunications companies when in fact there were no such agreements or affiliations. Additionally, Cal Broadband had no paid subscribers.

The investigation of Norwood was conducted by IRS – Criminal Investigation and the Federal Bureau of Investigation in Los Angeles.