u.s.

Department of Justice

Federal Bureau of Investigation

450 Golden Gate Avenue

In Reply, Please ReIer t.o San Francisco, CA 94102
FIle No February B, 1991

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II nYlDIIIYt{J 1/~1fI '1 th11/1'!uM/ ')7l'N/U
Mr. william T. Mc Givern
united states Attorney
Vi,,1 /til II/If} flo,) '1 htloJ tJ ~~""illt1t .
Northern District of California
450 Golden Gate Avenue
P.O. Box 36055
San Francisco, California 94102
Attn: Mr. Michael Yamaguchi
Assistant u.s. Attorney
Re: Chip Armstrong, dba
Hamilton Taft and
company
#1 Market ~'Plaza,
Spear s~et Tower
r'

San Fr~cisco, Ca 94105

Possi~e Fraud by Wirer
Tax raud
00: San Francisco
Dear Mr. Me Givern:
Our office is SUbmitting the following information to
you for a prosecutive opinion as to 'whether a violation of
Federal Law has taken place.

The San Francisco Division first became cognizant of

the existence of Hamilton Taft and Company in August of 1988 when
I ~as interviewed at our office. I I was
the co-founder of Hamilton Taft and the other founder was one, -
I I who founded the company in ,1979. For your
information r Hamilton Taft is a service company which provides. a
b7C tax paying service on behalf of their clients. Hamilton Taft and
Company collects money from their ~us clients and in turn
pays their clients various feder~, state~ and local income
1 - Addressee 'nn,O '""\ I fJt, -~I~ 1
1 - 196A-2868 ~ I \ , 1/ 'V
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(2) \
Enclosures

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taxes. Unemployment taxes and other various tax liabilities are
also paid by Hamilton Taft. When a company becomes a client of
Hamilton Taft, it notifies Hamilton of the companies payroll
dates, pertinent payroll information, the state in which the
company is required to pay taxes and the type of taxes which need
to be paid and on what dates. Hamilton collects monies from
these various clients and in turn pays the clients tax obligation
whether they be local, county, state and/or federal income taxes,
unemployment taxes and/or other tax liabilities.
b7C I I advised that when a client company enrolls
with Hamilton Taft, the company notifies Hamilton of its payroll
dates, pertinent payroll information the state in which the
company is required to pay taxes and the type of taxes which need
to be paid. The company then remits to Hamilton Taft on a timely
basis its payroll tax liability. The client company will also
remit funds to Hamilton Taft which would be used to pay the
aforernentionedtax liabilities. Historically the funds were
either wired to a Hamilton Taft Impound Account each time a
payroll is paid by the company or Hamilton Taft gains access to
the companies account by a depository transfer check.
Hamilton Taft was also responsible for filing all
applicable federal, state, county and local tax filing
information on behalf of its client and pay their various taxes
as they become due for the service Hamilton Taft charges its
clients a fee based on the number of times a client renders a
payroll and the number of areas taxing agencies which have to be
ultimately paid. Hamilton Taft also receives the interest in
which it can generate on the funds its clients deposit with it.
All this information is revealed to the client prior to a
contract being entered into by the client and Hamilton Taft.
This is also done orally by Hamilton Taft's sales
representatives.
As Hamilton Taft grew, the company became concerned
with what its liability may be with the funds they were
collecting on behalf of their clients. Because of this internal
concern in 1981, the firm contacted Baker and McKenzie Attorney's
at Law, 555 California street, San Francisco, California, 94104
and requested that this firm provide Hamilton with an opinion of
the characterization of the funds it was holding on behalf of its
clients for tax payments.
On October 29, 1981, Baker and McKenzie issued an
opinion that basically stated that at the time a payroll is
rendered, that is paid by the employer, the funds representing
the withheld taxes belong to the federal government. The
employer becomes a trustee for those funds and as such the duties
and responsibilities of a trustee are mandated under common law.

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 In addition various state and federal law mandates how a trustee
needs to act in his capacity as a trustee.
~
Although Hamilton Taft is not the employer but an ...::
"'.

independent agent, it was the opinion of Baker and McKenzie that

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the funds are still trust funds and the holder of these funds () I~~~ s~

(Hamilton Taft) still bears the responsibility of a trustee. ~\. -~

~ ~~
S::'~ ~
When interviewed by the Federal Bureau of Investigation ~~ ~
(FBI) I
in August of 1988, I went so far as to stat,e that some <:i::i:::-
individuals representing clients have stated that the collected j.~;.;.~
funds need to be put in a bank account separate from other funds ~ ."~
~ of that particular entity. In addition~ during his tenure at lJ~
"'~~, Hamil ton Taft, Hamil ton ,Taft considered themselves to be trustees "'-t..it ~i
, for those funds on behalf of the various .
taxing agencies. :L:"t>:;;
~ "~ i.'

By way of background information, I I

stated that in ~\ ~
August of 1984, Hamilton Taft was sold to the Cigna.Corporation ~~
the large insurance conglomerate out of Philadelphia, "~
Pennsylvania and Hartford, Connecticut. At that time, Hamilton
Taft had approximately 900 corporate clients and was -handling on
'"a daily basis, approximately $100,000,000 in client deposits.
According to a personality conflict developed
b7C between himself and one formally Executive Vice
President of cigna Corporat~on W 0 was placed by that corporation
as the person in charge of Hamilton Taft's operation. Because of
tbe persynality differences be~enl landl lonel I
I Jwas appointed as President of Hamilton Taft.

Shortly after leaving ,Hamilton Taft in the latter half~\

of 19~5,1 ,1stated he became aware th. at Hamilton Taft stc;rted 1
to lose approx1mately $100,000 per month. He noted that whlle he (.
was President of Hamilton Taft, that the company although not
highly profitable, was able to stay in a slight profit position.
He understands that Hamilton Taft hired another President but'the
company continued to lose, money in C.igna and soon thereafter
began to look for a buyer for Hamilton "Taft. In December of
1987, Maxphrama Incorporated of Dallas, Texas paid $500,000 to
Cigna Corporation as a down payment for the purchase of Hamilton
Taft. On February 29, 1988, Maxphrama Incorporated completed 'its
purchase of Hamilton Taft from Cigna Corporation. / .
____~'also stated to onel I former Executive
Vice President in charge of operations for Hamilton Taft provided
him with the foregoing information. r--1allegedly toldl Ion
February 27,1988 that~ I ~iml ! transfer
$5,000,000 by wire transfer to a brokerage house in New brl~ans,
Louisiana called the Howard Wiel Labluisse Friedricke Investment
Security Incorporated. Al1eqediy~toldl I that this wire
transfer was td'"purchase a Treasury B111 at 5 1/2% interest. r I
allegedly asked I Iwhy she was purchasing a Treasury" Birr--

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 with such a short yield period, I I would not respond to
Mayl s question and just told him to do it. c::::::J told! I that
the $5,000,000 was exclusive~stomer funds which were put on
deposit with Hamilton Taft. ~told' ~that at the time the
transfer was made, Hamilton Taft did not have any funds of its
own.
~__I noted that the form 8-K report which,. was filed in -'-'.
the Securities Exchange Commission (SEC) by Maxphrama for the
purchase of Hamilton Taft, Maxphrama states it has used a
$5,000,000 Treasury Bill to secure a promissory note which funds
were used to conclude the ~urchase of Hamilton Taft from Cigna
Corporation. According tal Itold him that these funds
had been transferred to th~s brokerage firm from customer funds
in the custody of Hamilton Taft. According toL' . ~ also
advised thatl J

Ihad directed him to wire transfer $50,000

; -

in an unrelated transaction.
hJ--l:--\"'"
In order to assist you in preventing your opinion from fs
a historical point of view~ Yle are enclosing a copy of the actual r ~I~
7 [~

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FD-302 noting interview Of, I
with appropriate copies of -J /~'~ '1\
documents provided byl to our agent. --/-t G
I
was also interviewed in December of
1988. I~--:===~Ih~a~d~b~e~e~n~hiired by Hamilton Taft as Treasurer-
Manager of the firm. I I is a Certified Public Accountant
I
(CPA) having become a CPA in the state of ta~;f:rnia
Ibasically stated that shortly after became
:': t986.
President of Hamilton Taft, she told him t a sewall e making
the day to day investment decisions regarding the funds of
Hamilton Taft. She instructed him not to make any investment
unless she okayed them. He explained to her that any monies b7C
collected from the clients only had a two or three day "window"
during which they could be invested prior to having to be paid to
taxing entities. Thereafter, all investments he made, other than
into commercial paper, were done at the direction ~ L
I I In connection with his responsibilitiesC: ~would
assist in the preparation of the monthly financial statements for
Hamilton Taft. Each month a meeting would be held to discuss a
just completed financial statement for the previous month. At
the close of such a meeting in April, 1988, after the close of
the April financial statements,l lstated that he had a
conversation with in her office. During this
conversation was bragging on the financial strength of
Maxphrama an ow axphrama was in the process of purchasing C &
H Nationwide Incorporated, a specialized trucking company.
Apparently, in order to sUbstanti~te herr statements and the
strength of Maxphrama, she showedL _ the Hamilton financial
statement which listed Hamilton Taft's assets in excess of
30,000,000. r I
financial picture was quite different than
the financial statements which he had prepared for Hamilton from
the month of April, 1988. J3i{))~. x ~~'lJJ~~ l~.~'~~~~'~;} - , :~: ~~'J~t::1JDL~~~ ~/~:.~~,
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 ~
pparent to~ lin looking at the financial
statement showed him that someone had taken the April,
1988 financ~a statements of Hamilton and re-did them. The
financial statement prepared for Hamilton Taft showed its
reta)U:d earnt'ngs at approximately $200,000. , Istated he
toldL _ . during this conversation that he thought the
financ~al statements which she had showed him for Hamilton Taft
were a fabrication and not rl:prese:ta~ive of Hamilton Taft's
actual financial condition. _ ~ Jreplied that the people in
Dallas were taking care of these f~nancial statements.
~~~_rnoted that the above incident concerning what he
considered false and misleading financial statements was a major
factor in his ultimate decision to sever his employment with
Hamilton Taft. A copy of the interview form FD-302 the interview
oil I is incorporated as part of this communication.
It should also be noted that onel was I
interviewed in september of 1988 regarding his former employment
with Hamilton Taft. At the time of this interview,c::J stated
that he was self-employed as a consultant specializ~ng in
employment taxes. He stated that prior to being self-employed,
he was employed for five years with Hamilton Taft in San
Francisco as their Chief Operations Officer and Executive Vice
President. A copy of the interview conducted withc::J is
attached hereto.

This matter was informally presented to the united

states Attorney's office which concluded that there was a lack of (.
evidence to support the violation of any federal law at that
time. Our case was subsequently closed. I IttI j J.'j(J ; : .'. ". /$. ' .~..-,..
~/Dd tl~/ w(J~ rJ~ . ..,..,,~.fJ _~,~M:.,•.'"

On December 24, 1990 7 -the. o~fiqe receiy..etf~complaint S/,.; :..~j:A.

Icall from one I ~L .Cont.r~~ler "and CPA. I I
( stated that he was the current Controller of Hamilton Taft and
that he was calling the FBI because he felt that his employer was). < }11
cheating the Internal Revenue Service - (IRS) by not paying ta~es (--/1'li'~ I-J; ,'iiI
owing to not only the I~S but other taxing entities wh~n th~Y J ;~~
wer,e due. I - ~advlsed that at least $20,000,000 J.n cl~ent rJIJ ' ! --~:'t
funds have been transferred to accounts controlled by Chip ~B~ .
Armstrong, the new CEO of Hamilton Taft. I I stated that
tbe:e f"rdS were used to purchase one or more companies in Texi?-s.
I ~ stated that Hamilton Taft had approximatel: 100
emp oyees in San Francisco in July of 1990. I t advised
.

Armstrong is basically operating a Ponzi scheme, ut~lizing the

tens of millions of dollars which are sent to Hamilton Taft for
the ultimate payment of tax liabilities sustained by Hamilton
Taft I s clients. I ~ has documentation, to support his claims r~~ t; ~r\ ~
and is scheduled to present same to t~e rBI on Jar:uary 13" ~991 7"~t:"S~'" ~
at 10: 00 am. I I furth 7r stated that th 7re ~s an ongo~ng , i.; ~:-% ~:
procedure for prov1d~ng lul11ng letters to c11ents who actually ~~~< ~
comPlain to Hamilton Taft when they, the client, receive a late ~ t~·~ ~, ~
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notice from the IRS. , ~ states that a letter on Hamilton

Taft stationery is generated to the IRS berating the IRS for
having made an error in showing at least the front copy of a
check drawn on Hamilton Taft/s checking account allegedly
demonstrating that payment was actually made on a particular date
for a particular tax liability_ These checks were never sent to
the IRS but a copy of the letter was sent to the client, thereby
stalling the clients further inquiries.
Please contact us at your earliest convenience so that
we might discuss this matter in greater detail.
Sincerely yours,
RICHARD W. HELD
Special Agent in Charge

By: b7C

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