UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
UNITED STATES OF AMERICA
v.
ZEBBIE JOE USHER, III
)
)
)
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)
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No. 3:14-CR-36
(REEVES/GUYTON)
UNITED STATES SENTENCING MEMORANDUM
The United States of America, by the United States Attorney for the Eastern District of
Tennessee submits the following sentencing recommendations with respect to the defendant, Zebbie
Joe Usher, III. For the reasons set forth herein, the United States respectfully submits that a sentence
within the applicable Guideline range would be appropriate. 1
STATEMENT OF FACT
The defendant was the chief executive officer of Service Provider Group, LLC (“SPG”). He
was also involved in the management of several affiliated companies, including Business Personnel
Solutions, Inc. (“BPS”), First Financial Employee Leasing IV, Inc. (“FFEL”), and Employee Staff
LLC. These companies were involved in the employee benefits and payroll processing business, and
were the types of businesses known as Professional Employer Organizations, or “PEOs.” PEOs
provide a service through which an employer may outsource employee management and human
resources tasks, such as employee benefits, payroll, payroll tax, income tax withholding, and
workers’ compensation.
BPS, FFEL and Employee Staff were required to make deposits of payroll taxes to the IRS on
The United States is in agreement with the computation contained in the Presentence Investigation
Report (“PSR”) that the defendant’s applicable Guideline offense level is 31 and that his criminal
history category is I, resulting in a sentence range of 108 to 135 months. PSR ¶¶ 31, 36. Because
the statutorily authorized maximum sentences for the defendant’s offenses are less than the maximum
sentence in the applicable Guideline range, the effective range is 108 to 120 months. PSR ¶ 51.
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a regular basis. In addition, they were required to file, following the end of each calendar quarter,
IRS Forms 941, Employers Quarterly Federal Tax Returns. The client companies of the PEOs
provided funds that were to be used to pay for, among other items, the payroll taxes for the PEO
employees. Those funds were to be held in trust by the PEO entities before being paid over to the
IRS. Rather than using the PEO funds to pay the 941 taxes, however, the defendant and his
co-conspirators used the funds to pay for personal expenditures and expenses of SPG, BPS, FFEL and
Employee Staff.
In an attempt to prevent the IRS from discovering that the PEO entities were not paying the
IRS the payroll taxes, the defendant and his co-conspirators knowingly prepared and filed false Forms
941 that showed the PEOs as owing far less in payroll taxes than was actually owed. They did this in
order to keep their tax payments at a level that the companies could afford, instead of what they were
legally required to pay. The Form 941 for the fourth quarter of the year would have a falsely inflated
amount of payroll tax to make up for the deficiency in the first three quarters. This was done in the
hope that by inflating the fourth quarter Forms 941, the IRS would not detect the scheme. The
defendant and his co-conspirators would pay the inflated fourth quarter amount by pulling back
money that had already been paid to the PEOs by their customers for the first quarter of the next year.
They would then falsify the Form 941 for the first quarter of the following year and pay an amount
less than what was actually due. And, in this manner, the scheme would keep rolling along. When
it finally was brought to the attention of the authorities in 2012, the tax loss had grown to
$29,174,931.87.
The scheme described above began in 2009 and continued until 2012. The arrangement
came to light in December 2012, when one of the defendant’s co-conspirators, Toby Fanning,
contacted IRS-CI through his attorneys. Fanning, who had served as the chief financial officer of
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BPS before being fired from that position, expressed an interest in providing information regarding a
large and ongoing scheme to defraud the IRS.
Fanning told investigators that, beginning in 2009, defendant Usher and his co-conspirator
Phil Lawrence had taken money from the PEOs to fund personal ventures, which caused the BPS,
FFEL and Employee Staff to suffer losses and left them unable to pay the IRS the payroll taxes that
were owed. Fanning provided specific examples of instances in which the co-conspirators, himself
included, converted funds to personal use that should have been used to satisfy payroll tax
obligations.
On February 21, 2013, a search warrant was executed at the headquarters of SPG and several
of its affiliated companies. Usher subsequently agreed to cooperate with the United States and has
been interviewed on numerous occasions. In doing so, he has provided information regarding both
his own involvement in the PEO scheme as well as the involvement of other co-conspirators. 2
ANALYSIS
1. The factors stated in 18 U.S.C. § 3553(a)(2) favor the imposition of a sentence within
the prescribed statutory range.
As the Court and the defendant are aware, the sentence to be imposed should be “sufficient,
but not greater than necessary,” to meet the following needs as set forth in 18 U.S.C. § 3553(a)(2):
(A) to reflect the seriousness of the offense, to promote respect for the law, and to
provide just punishment for the offense;
(B) to afford adequate deterrence to criminal conduct;
(C) to protect the public from further crimes of the defendant; and
(D) to provide the defendant with needed educational or vocational training, medical
As did Usher and Fanning, Phil Lawrence also cooperated with the Government’s investigation.
Both Fanning and Lawrence, however, committed suicide on January 27, 2015 and February 7, 2015,
respectively.
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care, or other correctional treatment in the most effective manner.
Adherence to the Guidelines is particularly important in the case of criminal tax offenses,
because of the important public policy goals that the tax laws seek to achieve. As stated in the
Introductory Comments to the Part T of the Guidelines:
The criminal tax laws are designed to protect the public interest in preserving the
integrity of the nation’s tax system. Criminal tax prosecutions serve to punish the
violator and promote respect for the tax laws. Because of the limited number of
criminal tax prosecutions relative to the estimated incidence of such violations,
deterring others from violating the tax laws is a primary consideration underlying
these guidelines. Recognition that the sentence for a criminal tax case will be
commensurate with the gravity of the offense should act as a deterrent to would-be
violators.
The policy goals that are unique to tax offenses would be satisfied through the imposition of a
sentence within the applicable Guideline range, and such a sentence would be sufficient, but not
greater than necessary, to advance the goals set forth in 18 U.S.C. § 3553.
a. A sentence within the applicable statutory range would reflect the seriousness of
the offense, promote respect for the law, and provide just punishment for the
defendant.
The sentence to be imposed should be sufficient, but not greater than necessary, to reflect the
seriousness of the offense, to promote respect for the law and to provide just punishment. Defendant
Usher has pleaded guilty to the offense of conspiracy to defraud the United States, in violation of 18
U.S.C. § 371, and tax evasion, in violation of 26 U.S.C. § 7201. Congress has recognized the
seriousness of both crimes by making them punishable by terms of imprisonment of up to 5 years.
See 18 U.S.C. § 371, 26 U.S.C. § 7201. Moreover, the seriousness of this offense is evident from the
$29,174,931.87 financial loss to the IRS. 3
Although the parties have stipulated that the Internal Revenue Service is only victim for purposes of
restitution and sentencing guideline computations (see Plea Agreement at ¶ 10), this is the result of
the IRS’ having given individuals employed by the customer companies credit for their payroll
4
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Usher was a central player in the SPG scheme. As the CEO of SPG and through his
management role with respect to the other PEO entities, he was aware of the nature of the fraudulent
scheme as well as its magnitude. In addition, Usher reaped significant financial rewards from this
offense.
Fraudulent payroll tax schemes on the scale of SPG can run for years without being
discovered. Had Fanning not come forward and exposed his and his co-conspirators’ crimes, the
fraudulent activity could have continued for months, or even years, and losses would have continued
to mount. The very nature of the crime involved the collaboration of numerous individuals who
sought to make their scheme difficult to detect. In light of the seriousness of this offense, it appears
that a sentence within the prescribed Guideline range would be consistent with the goals of 18 U.S.C.
§ 3553.
b. A sentence within the statutory range would afford adequate deterrence to
criminal conduct.
A Guideline sentence is also warranted under Section 3553(a)(2)(B) and the need for a
sentence that would deter future criminal conduct. As noted above in the discussion of the
Introductory Comments to Part T of the Sentencing Guidelines, the range of potential punishments
embodied in the Guidelines are specifically designed to punish the violator and promote respect for
the tax laws. The overarching consideration of the Guidelines, as they relate to tax offenses,
however, is deterrence.
From the standpoint of sentencing, deterrence takes two forms: (1) specific deterrence, to
deter similar crimes by the defendant who is being sentenced, and (2) general deterrence, to deter
criminal actions by others who may contemplate committing similar offenses. A Guideline sentence
withholdings, even where the amounts withheld were converted to personal use by the
co-conspirators or used for PEO company expenses, rather than being remitted to the IRS.
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in the present case would serve both purposes.
The need for specific deterrence is lessened to a certain degree by Usher’s actions after his
offense was discovered. As noted above, he promptly admitted his guilt and has diligently
cooperated with the United States in uncovering the nature of the offenses and the identities of those
involved in committing them. In addition, he has provided assistance to the United States with
respect to its investigation of another, unrelated offense. Through his guilty plea, this defendant has
accepted his culpability and has agreed to pay the United States full restitution for the tax loss that
resulted from his offense. For these reason, it is unlikely that any particular sentence is needed to
deter him from future criminal conduct.
In addition to providing specific deterrence, however, the sentence in this case should be
sufficiently severe to provide general deterrence. The nation’s tax system can only function in an
environment in which taxpayers can trust that everyone is required to pay his fair share and that those
who seek to cheat the system will be punished. Since only a limited number of criminal tax matters
are prosecuted, the sentences that are handed down by courts must deter future tax crimes. This
requirement is particularly necessary in the case of a crime that represents a sophisticated and
collaborative effort to maximize illicit returns while avoiding detection. Permitting the defendant to
face anything less than a Guideline sentence for offenses of this magnitude would send a particularly
negative message to the public -- that individuals can engage in sophisticated schemes, resulting in
enormous losses to the American taxpayers, without facing significant penal sanction.
c. Protection of the public from further crimes of the defendant
Title 18, United States Code, Section 3553 (a)(2)(C) states that the Court should consider the
extent to which a sentence is needed to protect the public from further crimes by a defendant.
Because Usher has admitted his responsibility and has cooperated with the Government, it appears
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highly unlikely that any particular form of sentence is necessary to safeguard the public from future
crimes that he might commit.
d. The need for educational or vocational training, medical care or other
correctional treatment in the most effective manner
In determining the appropriate sentence under 18 U.S.C. § 3553, the Court is also guided by
the statute to consider the need “to provide the defendant with needed educational or vocational
training, medical care, or other correctional treatment in the most effective manner.” See 18 U.S.C.
§ 3553(a)(2)(D). There is no indication that Usher is in need of any type of education or vocational
training or that he requires any type of medical treatment other than as commonly provided by the
Bureau of Prisons. Accordingly, the factors set forth in 18 U.S.C. § 3553(a)(2)(D) do not appear to
have particular significance in determining an appropriate sentence.
CONCLUSION
For the reasons set forth above, a sentence within the statutorily capped Guideline range of
108 to 120 months would be consistent with the goals of 18 U.S.C. § 3553.
Respectfully submitted,
WILLIAM C. KILLIAN
United States Attorney
By:
s/ Frank M. Dale, Jr.
_
FRANK M. DALE, JR.
Assistant United States Attorney
800 Market St., Suite 211
Knoxville, TN 37931
(865) 545-4167
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CERTIFICATE OF SERVICE
I hereby certify that on May 14, 2015, a copy of the foregoing was filed electronically.
Notice of the filing will be sent by operation of the Court=s electronic filing system to all parties
indicated on the electronic filing receipt. All other parties will be served by regular U.S. Mail.
Parties may access this filing through the Court=s electronic filing system.
s/ Frank M. Dale, Jr.
FRANK M. DALE, JR.
Assistant United States Attorney
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