Crypto fund manager gets 37 months for hiding $7M from the IRS

Austin Crypto Fund Manager Sentenced for Multi-Year Tax Scheme

Justin Ryan Schmidt, the manager of Austin-based cryptocurrency hedge fund Translunar, has been sentenced to 37 months in federal prison after a multi-year scheme to hide millions of dollars in income from the IRS.

U.S. District Judge Robert Pitman for the Western District of Texas sentenced Schmidt to 37 months in prison, three years of supervised release, and $3.4 million in restitution.

Schmidt managed a hedge fund focusing on cryptocurrency investments. Between 2020 and March 2022, he earned a total of more than $6 million from his fund but did not report any of this income on his 2020, 2021, or 2022 tax returns, instead falsely reporting earning income of $5,000 or less during each of those years. At the same time, he held millions of dollars in foreign bank accounts that he failed to disclose to the IRS.

False Expatriation Filing at the Centre of the Case

Schmidt's attempts to escape U.S. tax obligations did not stop with underreporting. In November 2021, Schmidt became a British citizen and renounced his U.S. citizenship in March 2022. Individuals who expatriate from the United States are required to report certain information to the IRS about their net worth, income, assets, and liabilities as of the date of their expatriation. Schmidt willfully filed a false expatriation statement reporting that his net worth was $25,000 at the time of expatriation, when in fact it exceeded $2 million.

Schmidt also falsely stated he had complied with U.S. tax obligations for the previous five years. He additionally failed to report gains from the 2023 sale of real estate in Snowmass Village, Colorado.

The case carries a broader message for the crypto industry. U.S. authorities are continuing to crack down on tax evasion involving cryptocurrency income, even when people move overseas or renounce their U.S. citizenship. Although the case was not about investor fraud, it highlights that income from cryptocurrency investments must still be reported and taxed under U.S. law. The IRS Criminal Investigation division investigated the case, while prosecutors from the Justice Department handled it.

Sources:
U.S. Department of Justice: Hedge Fund Manager Pleads Guilty to Tax Evasion in Austin
IRS Criminal Investigation: Hedge Fund Manager Pleads Guilty to Tax Evasion
Crypto Times: Crypto Hedge Fund Manager Gets 37 Months in Prison