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Beanie Babies creator gets probation for tax evasion

A man walks past a display for Ty Beanie Babies products at Toy Fair 2013 in New York, February 11, 2013. REUTERS/Andrew Kelly/Insider Image
A man walks past a display for Ty Beanie Babies products at Toy Fair 2013 in New York, February 11, 2013. REUTERS/Andrew Kelly/Insider Image

By Mary Wisniewski

CHICAGO (Reuters) - The billionaire creator of Beanie Babies, Ty Warner, will serve two years of probation, including mentoring high school students, following his guilty plea on a tax evasion charge, but no jail time, a federal judge ruled on Tuesday.

Warner, 69, who pleaded guilty in October, told U.S. District Court Judge Charles Kocoras in Chicago that his crime was the "biggest mistake" of his life. Warner already had agreed to pay a civil penalty of nearly $53.6 million.

Ranked as the 209th richest American by Forbes with a listed net worth of $2.6 billion in 2013, Warner failed to report more than $24.4 million in income and evaded nearly $5.6 million in federal taxes from millions hidden in Swiss bank accounts, according to Chicago prosecutors.

Prosecutors had argued that Warner should serve time in jail given the extent of the cover-up, and federal guidelines called for up to five years in prison.

"I am truly sorry," said the slightly-built Warner, who wore headphones to compensate for hearing loss. He told Kocoras the letters of support he received "made my feelings of shame and embarrassment that much more unbearable."

Kocoras cited Warner's many acts of charity before imposing probation rather than prison. Kocoras said he had reviewed letters from people helped by the billionaire, including a woman with a kidney disease Warner had stopped to ask for directions. After learning of her condition, Warner paid for her treatment.

"Society will be best served by allowing him to continue his good works," Kocoras said.

Warner was sentenced to at least 500 hours of community service, which will include mentoring students at Leo High School, a Catholic boys' school in a poor, mostly African-American neighborhood in Chicago.

Before sentence was imposed, Assistant U.S. Attorney Michelle Petersen questioned what kind of message probation would send to honest taxpayers.

"The consequences cannot be simply to pay what you owe," Petersen said.

In seeking probation, defense attorneys said in a court document that Warner was a college drop-out from an unhappy family who became a "self-made American success story" and others in similar tax circumstances had not gone to prison.

Beanie Babies, small plush toys sold for $5 to $7, have been popular with collectors. At their peak of popularity in the 1990s, some collectors paid hundreds of dollars for a rare character on the resale market, according to press accounts.

Warner was charged as part of an ongoing investigation of U.S. taxpayer clients of Union Bank of Switzerland and other overseas banks that hid foreign accounts from the IRS, according to prosecutors. UBS agreed in 2009 as part of a deferred prosecution program to provide the U.S. government with the identities of certain customers, prosecutors said.

The federal charge to which Warner pled guilty alleged that, in 2002, Warner earned more than $3.1 million through investments held in his UBS account, but did not tell his accountants and failed to report it on his tax form.

(Reporting by Mary Wisniewski; Editing by Ken Wills and Gunna Dickson)

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