John Zelepos, 49, of North Stonington, was sentenced on Monday by U.S. District Judge Victor A. Bolden in Bridgeport to 12 months and one day of imprisonment, followed by three years of supervised release, for tax evasion and structuring cash transactions.
Zelepos also was ordered to pay a $25,000 fine, forfeit more than $500,000, and pay back taxes with interest and penalties.
According to court documents and statements made in court, Zelepos is the sole owner of Mystic Pizza, LLC, a Schedule C retail restaurant business in Mystic, CT. The sentencing was announced by Deirdre M. Daly, United States Attorney for the District of CT, and William P. Offord, Special Agent in Charge of IRS Criminal Investigation in New England.
From 2006 to 2010, Zelepos diverted approximately $567,435 in cash from Mystic Pizza’s gross receipts, approximately $330,005 of which was deposited into his personal bank account, his and his wife’s personal checking account, his wife’s personal checking account and passbook savings accounts in the name of each of his three minor children.
During the same time period, Zelepos caused Mystic Pizza to pay a total of $162,168 to two “no-show” employees who performed no work for the restaurant.
Zelepos then deducted the wages as expenses on his tax return’s Schedule C for Mystic Pizza. Zelepos failed to disclose to his tax return preparer receipt of the diverted cash and the two no-show employees.
Based on this conduct, the federal tax loss for 2006 to 2010 was $234,407. Zelepos has paid restitution in that amount, but still is required to pay interest and substantial penalties.
Zelepos also intentionally structured financial transactions to avoid having the bank file Currency Transaction Reports (CTR). Federal law requires all financial institutions to file a CTR for currency transactions that exceed $10,000.
To evade the filing of a CTR, individuals will often structure their currency transactions so that no single transaction exceeds $10,000.
Structuring involves the repeated depositing of amounts of cash less than the $10,000 limit, or the splitting of a cash transaction that exceeds $10,000 into smaller cash transactions in an effort to avoid the reporting requirements. Even if the deposited funds are derived from a legitimate means, financial transactions conducted in this manner are still in violation of federal criminal law. Structured funds are subject to forfeiture to the United States.
Between January 2010 and January 2011, Zelepos engaged in 61 currency transactions in amounts less than $10,000, depositing a total of $522,658 into the business account, his personal account, his and wife’s personal bank account, and his three children’s bank accounts in amounts ranging from $3,000 to $9,998. The cash deposits were made on sequential days, or multiple cash deposits were made on the same day. Zelepos knew that the bank was required to issue a report for a currency transaction in excess of $10,000 and by conducting his financial transactions in amounts less than $10,000 he intended to evade the transaction reporting requirements.
Zelepos was ordered to forfeit $522,658 as a result of his illegal structuring.
On January 2012, pursuant to a court-authorized federal seizure warrant, the IRS seized $63,084.49 from a payroll account Mystic Pizza held at Chelsea Groton Bank. Those funds are being applied to the forfeiture, reducing the remaining forfeiture amount to $459,573.51.
On March 31, 2015, Zelepos waived his right to indictment and pleaded guilty to one count of tax evasion and one count of structuring financial transactions.
Zelepos was ordered to report to prison on October 30, 2015.
This matter was investigated by the Internal Revenue Service – Criminal Investigation Division. The case was prosecuted by Assistant U.S. Attorney Peter S. Jongbloed.