As of Thursday, August 11, 2016
Masud Sarshar, known for taking an ordinary workwear brand and converting it into a colorful array of pants called Dickies Girl, has been charged by the federal government with hiding more than $21 million in income in Israeli banks and avoiding U.S. taxes on it.
Sarshar was charged with one count of conspiracy to defraud the United States and one count of corruptly endeavoring to impair and impede the due administration of the internal revenue laws.
In an agreement signed July 30, Sarshar agreed to plead guilty and pay more than $8.3 million to the Internal Revenue Service. If the U.S. District Court in Los Angeles accepts his plea, Sarshar will be sentenced to 24 months in prison, according to a press release issued by the U.S. Justice Department.
In addition, the government said the clothing manufacturer agreed to pay a civil penalty of 50 percent of the high balance of his undeclared accounts to resolve his civil liability for not disclosing the existence of his Israeli bank accounts.
“As the filing of the criminal charges demonstrates, the days of bank secrecy are rapidly changing,” said Chief Richard Weber for the IRS–Criminal Investigation. “IRS-CI works vigorously to stop offshore tax schemes such as this one and is proud that our forensic accounting skills helped uncover over $21 million in untaxed gross business income in this investigation.”
Sarshar’s attorney, Edward Robbins Jr., said the investigation started around April 2013. “I suppose it came as a shock [to Sarshar],” he said. “It is not a pleasant sensation to find yourself the subject of a criminal investigation. It’s a disaster.”
Sarshar is scheduled to appear before a U.S. magistrate judge on Sept. 27. A sentencing hearing has not been set yet.
According to the government, between 2006 and 2009, Sarshar diverted more than $21 million in untaxed business income to accounts with Bank Leumi, Israel’s largest bank, and a second, unnamed Israeli bank. Sarshar also earned more than $2.5 million in interest from those accounts between 2007 and 2012.
Court documents allege that Sarshar omitted all of this income from his 2006 through 2011 individual and corporate tax returns.
While this seems like a case of numbers, the allegations against Sarshar read like something out of a Russian spy novel. Court documents told a tale of Israeli bank managers frequently visiting the garment manufacturer in Los Angeles and meeting with him in his car to avoid detection at his office or home.
At his request, the banks did not send him bank statements by mail. Instead, they were often hand delivered on a flash drive secreted away in a female manager’s necklace, court documents said.
During these visits, the bankers offered Sarshar “back-to-back” loans, which Bank Leumi made to Sarshar through its U.S. branch, and he collateralized with funds from his other Israeli bank account, the U.S. government maintained.
Using these loans and other devices, Sarshar was able to bring back $19 million in his off-shore accounts to U.S. accounts without creating a paper trail.
In addition, the Israeli banks suggested Sarshar, who was born in Iran, obtain Israeli and Iranian passports instead of using his U.S. passport when traveling from Israel to the United States to avoid being flagged as an American citizen.
Even with the two different passports, Sarshar was tagged as a U.S. citizen at which time the banks advised he transfer his remaining funds to yet another Israeli bank, which he did in late 2011.
This was not Bank Leumi’s first run-in with the U.S. government over hiding funds for U.S. citizens. In 2010, the Israeli bank entered into a non-prosecution agreement with the Justice Department for helping 1,500 U.S. account holders hide assets in offshore accounts. Bank Leumi agreed to pay the U.S. government $270 million and provide the names of the account holders.
Sarshar is a colorful Los Angeles businessman who came up with a colorful product. In 1984, he launched Apparel Limited and started out taking Dickies overalls, made by Williamson-Dickie in Texas, and dyeing them in 24 customized colors that quickly became popular with young women. He then acquired the Dickies Girl license and adapted that bright color palette to simple but stylish pants that took off with the juniors set.
Dickies Girl grew rapidly and operated out of a 75,000-square-foot warehouse and office space at 3011 E. Pico Blvd., just east of downtown Los Angeles. The distinctive building attracted more than its share of attention. Several years ago, Sarshar hired 85 teams of graffiti artists, headed by Los Angeles graffiti artist Man One, who spent two days and used 25,000 spray cans to coat the outside warehouse walls with graffiti.
In 2012, Sarshar had a falling out with Williamson-Dickie and sued the company in federal court, claiming that the workwear company was cannibalizing the Dickies Girl brand.
Apparel Limited said in its lawsuit that it became aware in 2010 that Williamson-Dickie allegedly was manufacturing and selling merchandise that duplicated Apparel’s custom-designed Dickies Girl line. But instead of selling juniors sizes, which come in odd numbers, the Texas company was making garments in even-numbered misses sizes, the lawsuit said.
In 2014, Sarshar gave up the Dickies Girl license, which was then awarded to Los Angeles clothing maker Jerry Leigh of California.