Justin French will not be making any deals for a while.
The formerly high-flying developer is in federal custody after being sentenced to 16 years for a massive real estate tax credit fraud.
“I truly regret all of the actions I took, that I created and allowed my self to be a part of,” French told Judge John A. Gibney Jr. just before he was sentenced Tuesday morning at the federal courthouse downtown. “I have done everything humanly possible and intend to continue to until everyone is completely whole.”
French previously pleaded guilty to the real estate scheme, which is calculated to have netted him more than $11 million at the expense of a long list of victims, including the IRS, the Virginia Department of Taxation and more than 100 individual investors.
Judge Gibney took a hard line against French, delivering a sentence two years above the 14-year term requested by the U.S. Attorney’s office.
“This was sophisticated and coldly calculated,” Gibney said of French’s scheme. “There was no reason for it but for greed.”
Gibney admonished French for his lavish lifestyle, mentioning his historic mansion and frequent trips to Las Vegas.
“He flouted the tax laws, and,” Gibney said, pausing to find the right words, “moral law that requires us to take care of other people.”
Gibney said French’s prior conviction for a drugs-for-guns deal in 1994 and a desire to deter others from similar crimes played into the sentencing. French’s cooperation with federal authorities and confession to the crime helped to take some years off of the 30-year maximum sentence.
When French is released in 2027, he will be 56 and barred from working in the real estate field or any business in which he accepts money from investors.
French’s attorney John Honey requested permission for French to self-report to prison, but that was denied. French’s wife, Tanya, held back tears as French mouthed parting words to her while being taken into custody by the U.S. Marshall.
French’s father and uncle were also present. Also present were some of those who had been wronged by French, including at least one banker and Kathleen Kilpatrick, the director of the Virginia Department of Historic Resources.
“I think the judge got it exactly right,” Kilpatrick said later when reached by phone. “Mr. French’s activities have done profound damage to many people, including his investors and including the life’s work of a lot of great developers.”
Kilpatrick pledged to implement more checks into the program to prevent future fraud and has been overseeing changes since January.
“Some of them have been implemented and some are still in progress because they are regulatory in nature,” Kilpatrick said. “We want to ensure that faith, strength and belief in the system is shored up and developers are not painted with a broad brush with that kind of activity.”
Federal investigators credit DHR for first reporting French’s suspicious bookkeeping.
In January, French confessed to charges of conducting unlawful monetary transactions and wire fraud that arose from his real estate scheme to obtain and sell historic tax credits to investors.
Through his company French Consulting Company, French applied for and received tax credits from the state and federal government for rehabilitating historic buildings over a five-year period. The state and federal credits combined are equal to 45 percent of the amount spent to develop a given property.
French admitted that he grossly inflated his costs in order to receive larger tax credits, which would be sold to investors. French forged invoices submitted by the contractors he worked with, notably City & Guilds and Cityspace Construction. French submitted the forged invoices to his accountant, who certified the costs as part of the application process — which is required by the state for projects exceeding a certain amount.
The French story first unraveled after Richmond BizSense covered the developer’s feud with the Markel Corp. over tax credit funds in a story published June 30, 2010. Over the following weeks, details of French’s battle with banks and investors became a public spectacle that climaxed when the FBI and IRS confiscated computers and documents from French’s Shockoe Slip office during a daylight search of the property.Between 2007 and 2009, French obtained $18.8 million in tax credits from the state alone, records show.
BizSense reported afterward that French had inflated the costs on projects to obtain more from tax credits. Days later, French was arrested on state charges at the Richmond International Airport with a one-way ticket out of town.
The specific property that French’s criminal charges are based on is the property at 1509 Belleville St. in Scott’s Addition. French claimed expenses of more than $1.5 million in renovating the property and received combined tax credits of more than $700,000. French sold those credits to the Markel Corp. and a California-based investment fund.
The actual expenses for the property were $403,200, for which he should have only received $180,000 in credits. In total, French fraudulently obtained more than $525,000 in this deal alone.
French has agreed to pay $7 million in restitution so far, but the federal authorities are still tallying up the bill. So far, total losses by victims for the scheme equal $11,266,622.
During the sentencing hearing, Assistant U.S. Attorney Laura Marshall addressed the complicated subject of how French’s assets are being handled. So far the government has received $3.1 million liquidating French’s assets, which includes the sale of 316 Mitchell St. to a student-housing developer for $2.6 million. The property covers 12 acres off Chamberlayne Avenue just north of Interstate 95.
The judge said French would have to pay back the balance of his debts once he leaves prison.
Marshall said potential victims have been notified. Those victims include more than 100 individual investors who contributed their retirement savings, severance packages and other accounts to French’s scheme with hopes of receiving legitimate returns.
Also being treated as victims are the IRS and the Virginia Department of Taxation, who awarded the tax credits under false pretenses. It is unclear at this point whether the tax agencies plan to “claw back” credits from investors who already claimed them on their taxes or charge them penalties or interest if they do. Investors in that situation will not be able to receive restitution since they have yet to incur losses, but they may be able to at a later date.
Marshall also addressed the involuntary bankruptcy proceedings against French, in which several banks who lent French money are
seeking repayment. Marshall said the forfeited assets are exempt from the bankruptcy, and that creditors involved in any bankruptcy case may not be considered victims of the specific crime for which French has been charged.
Following the sentencing, U.S. Attorney Neil MacBride and Virginia Attorney General Ken Cuccinelli addressed an audience of reporters outside of the courthouse.
[youtube width=”325″ height=”400″]http://www.youtube.com/watch?v=aYnEEsexXVQ[/youtube]
“For all the talk about some of the rehabilitation work he did, it looks like it was just a cover for his vast criminal enterprise,” Cuccinelli said.
Cuccinelli said that French still faces state charges but that the amount of time he faces will be minimal compared with the federal sentence.
“He got the hammer blow today,” Cuccinelli said.