Regardless of whether you believe the feds are soft on white collar crime, there is one story out of California that illustrates their relentless prosecution of dubious charges against an entrepreneur and his attorney girlfriend.
According to a Forbes article, California businessman Steven Zinnel’s bankruptcy was discharged in 2008. In his filing, he listed assets of $842,000 and debts of $6 million. Acting on a tip from his disgruntled ex-wife who believed Zinnel was hiding assets, the FBI instigated an investigation against Zinnel and his girlfriend, attorney Derian Eidson, who was suspected of helping him hide assets.
A June 2011 federal indictment against Zinnel contended that his contentious divorce and subsequent bankruptcy led him to hide assets, including a purported ownership stake in a company called System 3. The indictment said that Zinnel set up System 3 as an outside electrical contracting company but that his name was nowhere on company documentation. The company paid a monthly consulting fee to a company called Done Deal, a company owned by Eidson and that listed Zinnel as an employee, which the government contends was meant strictly for Zinnel. Done Deal generated a majority of its revenue from other sources, but the government maintained its sole purpose was to hide assets for Zinnel.
In 2008, System 3’s owner offered Zinnel $4 million as a one-time buyout for the consulting work, which Zinnel accepted. However, the buyout offer was part of an elaborate set-up orchestrated by the government in its attempt to prove that Zinnel had an ownership stake in the business. The feds also sought to gather more evidence against Eidson with the ruse, and enlisted the help of System 3’s owner in asking her to attend meetings to finalize the buyout.
Eidson did attend two meetings with a System 3 attorney and legal assistant, both of whom were working with the feds on the supposed sting. Eidson objected to language in the buyout agreement that positioned the transaction as a ownership buyout rather than a termination of the consulting agreement and insisted that it be changed.
However, Zinnel never signed the agreement because he and Eidson were indicted on charges they conspired to hide assets. Both were offered plea deals — Zinnel for five years in prison, and Eidson for one year in prison. Both rejected these offers and went to trial.
In July 2013, Zinnel was found guilty on multiple fraud counts. Eidson was cleared of all charges except those related to the staged System 3 buyout meetings she attended, where there was no contract ever executed and no money changed hands. She was found guilty on two charges of money laundering in connection with the System 3 buyout meetings.
Prosecutors pushed for tough sentences for both, using the $4 million settlement offer to calculate the sentences under the Federal Sentencing Guidelines. Using that number — a number that was offered by System 3’s CEO with encouragement from the FBI — Eidson’s possible sentence came to 9-11+ years. In April 2014, she was sentenced to just over 10 years — a shockingly long sentence for a first-time non-violent offense where money never changed hands.
Zinnel was sentenced to 18 years in prison in March 2014. And the System 3 agreement? In the end, the company paid $2.8 million to the government, of which Zinnel’s ex-wife got $305,000 and his children received $300,000. The company paid an additional $350,000 to the bankruptcy court.
Eidson has appealed her conviction. She has been in jail for two years, during which time she has been moved to seven different prisons.
The methods used by the FBI in prosecuting this case — wiretaps, hidden microphones, undercover sting operations and informants — used to be reserved for pursuing organized crime bosses and drug kingpins. The use of these tactics in white collar cases illustrates that the feds are serious about pursuing business executives and will use all the weapons in their arsenal to prove purported criminal activity.
The Cogdell Law Firm is a full service criminal litigation and appellate law firm. We provide client-focused representation at all stages of the process, whether our clients are seeking to avoid charges, have been charged, or are seeking reversal of a conviction on appeal. When results matter most, contact Dan Cogdell at 713-426-2244 or email@example.com.