United States v. Koudanis

207 F. Supp. 3d 115, 2016 U.S. Dist. LEXIS 125737, 2016 WL 4926416
CourtDistrict Court, D. Massachusetts
DecidedSeptember 15, 2016
DocketCriminal Action No. 15-10387-PBS
StatusPublished
Cited by3 cases

This text of 207 F. Supp. 3d 115 (United States v. Koudanis) is published on Counsel Stack Legal Research, covering District Court, D. Massachusetts primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Koudanis, 207 F. Supp. 3d 115, 2016 U.S. Dist. LEXIS 125737, 2016 WL 4926416 (D. Mass. 2016).

Opinion

MEMORANDUM AND ORDER

Patti B. Saris, Chief United States District Judge

INTRODUCTION

Defendants, owners and operators of Nick’s Famous Roast Beef in Beverly, Massachusetts, have been indicted in an alleged tax evasion scheme. The scheme purportedly involved the defendants un-derreporting cash income generated at the restaurant during the 2008-2013 tax years and subsequently fabricating cash receipts during an IRS audit. Defendants Nicholas Koudanis, Eleni Koudanis, and Steven Koudanis have moved for a Franks hearing and to suppress evidence gathered by the government during the December 11, 2014 searches of the restaurant and the Koudanis residence. The defendants argue that the affidavit submitted in support of the search warrant application contained material misstatements and omitted material information that the affiant either knew about or could have learned if he had performed a further investigation. Because the defendants have not made a substantial showing (1) that the affiant acted intentionally or recklessly with regard to the alleged misstatements or omissions and (2) that probable cause would be lacking had these misstatements been excluded or the omissions included, the defendants’ motion for a Franks hearing and to suppress (Docket No. 65) is DENIED.

FACTUAL BACKGROUND

Nick’s Famous Roast Beef (Nick’s), located in Beverly, Massachusetts, opened in 1975 and specializes in roast beef sandwiches and fried foods. Nicholas Koudanis (Koudanis) and Nicholas Markos (Markos) each own one-half of the restaurant and are responsible for the restaurant’s daily operations. Eleni Koudanis, Nicholas Kou-danis’s wife, manages the business’s books. Steven Koudanis, son of Nicholas and Ele-ni Koudanis, works in the restaurant.

On December 9, 2014, Magistrate Judge Page Kelley issued warrants to search the restaurant and the home of Nicholas and Eleni Koudanis. The warrant applications relied on an affidavit prepared by IRS Special Agent William Noonan. Agent Noonan presented the following facts in his affidavit to the magistrate judge.

Based on Noonan’s investigation, Nick’s received gross cash income far in excess of what it reported to the IRS. Noonan stated that the defendants sought to conceal these tax underpayments in two ways. First, Nick’s is a cash business. It only accepts cash and it has an ATM for customers to use. It also pays for many of its roast beef shipments in cash. This allows Nick’s to declare that its expenses are less than they actually are. By declaring less in the way of expenses, Nick’s can more easily justify its underreporting in the way of income. Second, and relatedly, the defendants use a second cash register to fabricate cash receipts. The fake receipts, showing less income than was received, were then used to prepare Nick’s tax filings.

[119]*119Noonan estimated that Nick’s gross receipts were approximately $2 million more per year than it reported on its tax returns. Noonan learned that this additional income was used by Koudanis and his sons to purchase real estate, nearly $800,000 of which was paid for in cash, far in excess of what they reported as income on their tax returns.

In reaching these conclusions, Agent Noonan relied primarily on two confidential informants (CIs), with corroboration from other witnesses, documents, and photographs. Each Cl independently contacted the IRS Whistleblower Office about the alleged tax fraud. Cl 1 submitted his tip in April 2010. Cl 2 submitted her tip in September 2012.

I. Confidential Informant 1

Noonan described Cl 1 as experienced in the restaurant and restaurant supply business. In 1969, Cl 1 began working for a sandwich shop chain. He worked at the company’s main office, where franchisees purchased their food supplies. In 1978, after nine years in this position, Cl 1 purchased the food supply arm of the business. For nearly twenty years—from 1978 to 1996—Cl 1 owned and operated this food supply business. During this period, he grew the business from $2 million in annual sales to $14 million in sales by adding numerous pizza and roast beef shops as clients. In 1996, Cl 1 closed the business because of increased debt and other problems.

Soon after, Agar Supply Company hired Cl 1. When Cl 1 joined Agar, he brought with him many of his former clients. Many of those clients requested that they be permitted to continue paying part of their orders in cash. Prior to the time Cl 1 joined Agar, nearly all of Cl l’s clients used two separate accounts for food supply purchases: a cash account and a check account. The clients would report only purchases made by check on their tax returns. Purchases made in cash went unreported to the IRS. When Cl 1 joined Agar, many of the clients he retained sought this same treatment from Agar. Ultimately, in 2002, Agar gave Cl 1 its blessing to use cash accounts in hopes that it would drive up sales. Cl 1 provided Noonan with copies of Agar records confirming the cash account practice. Cl 1 stated that Agar employed the two-account system from at least 2002 to 2006.

After implementing the two-account system, Agar hired additional salespersons to oversee the increased demand. In 2004, Agar hired Flora Papadopolous, who had previously worked in a roast beef restaurant for many years. In 2005, Agar hired another employee, Paula Hios. Hios also had experience in the roast beef business. Based on conversations with Papadopolous and Hios, Cl 1 told Noonan that the two-account system continued after he was fired in 2006. He estimated that nearly 70% of Agar’s clients paid some portion of their bills in cash.

Nick’s was one of Agar’s clients participating in the two-account system. Nick’s has been an Agar client since 2003. Cl 1 told Noonan that, as of 2006, Nick’s was purchasing between 50 and 60 boxes of roast beef per week from Agar. Agar delivered four shipments per week to Nick’s; three of the four were paid for in cash. Based on Cl l’s experience, he believed that Nick’s generated $1,000 in gross cash sales per box per week for a total of $50,000 to $60,000 each week in 2006.

Cl 1 no longer works at Agar; he was fired from his position in 2006. Cl 1 explained to Noonan why he had been terminated. Cl 1 said that Agar told Cl 1 that he had not followed the company’s policy requiring salespeople to deposit all cash received from customers within twenty-[120]*120four hours. Agent Noonan explained in his affidavit that Cl 1 was angry at Agar after it fired him. Cl 1 stated that he went to work for Agar’s competitors, but that his former clients declined to change suppliers. Noonan also noted that Cl 1 stated that, in addition to any financial reward he might earn from his whistleblower tip, he hoped that the investigation would negatively affect Agar. Noonan ran a criminal background check on Cl 1 and found only an OUI from 2012,

On April 6, 2014, Cl 1 called Hios, a former colleague of Cl l’s at Agar. The call was recorded. In September 2012, after Cl 1 was fired, Reinhart Foodservice, LLC, acquired Agar, Reinhart is one of the largest food distributors in the country. At the time of the 2014 phone call with Cl 1, Hios worked for Reinhart. Cl 1 asked Hios if Reinhart had maintained Agar’s two-account system after the acquisition. Hios replied that some clients continued to use cash accounts, but no new clients were afforded the option.

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Cite This Page — Counsel Stack

Bluebook (online)
207 F. Supp. 3d 115, 2016 U.S. Dist. LEXIS 125737, 2016 WL 4926416, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-koudanis-mad-2016.