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At a hearing on July 21, 2008, Francis appeared in court and pleaded not guilty to two felony counts of tax evasion. His attorneys stated that Tax returns for his businesses were prepared, filed and signed by CFO and CPA Michael Barrett without being shown to Francis. Then, amazingly, when Barrett left the companies, he contacted the IRS to report the accounting mistakes with the hope of collecting a 35% monetary reward from the government’s Tax Whistleblower Program. Francis knew none of this at the time of his indictment. We are forbidden by court order to display Michael Barrett’s letter to the IRS as well as his corresponding signed claim form a reward on this website, but the shocking letter and the almost unbelievable claim form can be viewed in its entirety on various news media websites including www.tmz.com.
From 2003 to 2008, Francis worked to defend himself against a very noisy and public persecution by authorities in Panama City Beach (Bay County), Florida, and finally won his freedom in March of 2008. He immediately busied himself with the demanding task of rebuilding his company after his long absence in jail. Francis filed a number of motions asking for the federal tax case to be dismissed.
On Monday February 2, 2009, Francis was scheduled to attend a routine early morning court hearing in the tax case, but had fallen ill with the flu the previous night. Francis’ personal physician visited him late Sunday night at the request of a close Francis friend, who had reported that Francis was suffering from violent bouts of vomiting. Francis’ physician injected him with the anti-nausea drug compazine, which knocked Francis out. Before falling into a deep sleep, Francis notified his attorneys that he would not be able to make his early morning court appearance.
When Joe did not arrive at the courthouse for his scheduled hearing due to his serious illness, an arrest warrant was issued for him. Francis got out of bed and made his way to the courthouse despite having the flu. To his great surprise, he was handcuffed, placed under arrest and charged with contempt for being 4 hours late to the hearing. Francis spent the night in jail. The following day, he was released to home detention and electronic monitoring. Though he was not a flight risk and posed no conceivable risk to the community, prosecutors in the case asked Judge Otero to revoke Francis’ bail and keep him behind bars until his trial. The judge declined to do so, and Francis was free to begin working in earnest on his defense. That’s when the facts of the tax case’s origins started to become apparent, and those facts were both surprising and alarming.
The tax case against Francis began with a series of letters from Michael Barrett to the IRS. Barrett offered to provide information on a “big client” who, according to Barrett, had filed improper tax returns (Again, we are forbidden by court order to display Michael Barrett’s letter to the IRS as well as his corresponding signed claim form a reward on this website, but the letter and the claim form can be viewed in its entirety on various news media websites including www.tmz.com). Barrett didn’t mention that it was Barrett himself who had prepared those returns! Barrett told the IRS he was “very interested” in receiving a reward in exchange for the information. It took several phone calls and letters before the IRS responded. After listening to Barrett’s allegations, they went to the US Department of Justice filed charges against Francis.
Cut to two years later, September 2009. Francis was preparing to go to trial with every expectation of exonerating himself. Jury selection had begun and the trial was underway. At the last minute, it was revealed that federal prosecutors had failed to disclose that they had over 6000 company emails from Girls Gone Wild’s records in their possession, most of which proved Francis’ innocence. The emails has initially been lost when Girls Gone Wild’s email servers were wiped out by Roman Pelikh, the company’s Chief technical Officer at the time, the day he learned that Francis was about to be released from jail on bail. Discovery rules state that the prosecution must share exculpatory evidence with the defendant so that the defendant can prepare a proper defense. But the prosecutors failed to share this new information with Francis’s legal team until the trial began, apparently hoping that Francis and his lawyers would not have time to review the material before going to court.
A quick investigation by Francis and his legal team uncovered a rat’s nest of intrigue that produced one startling revelation after another. Michael Barrett, Joe’s trusted CFO and CPA, had schemed with Roman Pelikh, then Girls Gone Wild’s Chief Technology Officer and Will L’Heureux, the company’s then-VP of Operations, to set up a series of phony companies to steal millions of dollars from Joe Francis and his companies.
Among the uncovered emails was the first evidence of an attempted setup by the conspirators. An email from Pelikh to Barrett contained a link to an Internet story revealing that the IRS would pay out monetary rewards to anyone who providing tips on apparent tax offenders. The sole commentary Pelikh included with the link in his email to Barrett was a smiley face. The gesture may have been droll, but Pelikh’s message was clear: “This may be a way to set up Joe Francis.” A series of additional emails between Barrett and Pelihk made it abundantly clear that two had premeditated this setup of Joe Francis from the beginning.
As the pieces of this sordid puzzle came to light, it became clear to some observers that Michael Barrett did not contact the IRS with accusations of tax fraud against his former boss simply to collect a reward, but to hopefully put Francis behind bars before Francis could uncover Barrett’s illegal scheme to defraud Francis and his companies. Upon discovering this scheme, Francis and Girls Gone Wild immediately filed a report with the Santa Monica Police Department and filed a lawsuit against Barrett, Pelihk and L’Heureux seeking millions of dollars in damages.
Though Barrett, Pelihk and L’Heureux have yet to be tried for their criminal conspiracy, the evidence is clear that the three devised a plan to embezzle money from Francis and his companies and hide their fraudulent criminal activities from Francis.
Barrett resigned from Girls Gone Wild in April 2004, but with the assistance of Pelihk and L’Heureuex, continued to steal money from Girls Gone Wild using fraudulent invoices under the names of the shadow companies the three had created.
In late 2004, Barrett began contacting the IRS and falsely accusing Francis of criminal tax evasion, clearly hoping that the IRS would prosecute and incarcerate Francis, thereby removing the possibility that Francis could catch the ongoing fraud by Barrett, Pelihk and L’Heureuex while recovering a monetary reward from the IRS for himself. Again we are forbidden by court order to display Michael Barrett’s letter to the IRS as well as his corresponding signed claim form a reward on this website, but the letter and the claim form can be viewed in its entirety on various news media websites including www.tmz.com.
Francis’ legal team alerted the federal prosecutors to this conspiracy. The prosecutors questioned Barrett, and Barrett quickly confessed his fraudulent activities to federal prosecutors. Francis and Girls Gone Wild have filed a lawsuit against the three (Click on this link to view Francis’ lawsit against Michael Barrett) for fraud, conspiracy to defraud, negligence of misrepresentation, professional negligence, breach of fiduciary duty, constructive fraud, conversion (essentially, theft), breach of contract, breach of implied covenant of good faith and fair dealing, common law unfair competition, violation of California business and professional codes, and unjust enrichment. The suit seeks millions of dollars recovery. Federal prosecutors realized that the government’s star witness in the tax case against Francis was a confessed liar and thief, and as his motives for reporting Francis to the IRS became clear, the entire case began to crumble. Prosecutors immediately began seeking a deal with Francis in order to avoid having to try to prove their crumbling case in court. In turn, because Francis was anxious to close this chapter of his life and avoid spending millions more dollars in legal fees to defend himself, he took a misdemeanor plea deal in order to be done with the case forever.
In September 2009, Francis pleaded guilty to two misdemeanor counts of knowingly filing false tax returns (though he had not reviewed, and had not signed those returns). The plea agreement included $249,705 in restitution to the IRS and a small fine. The plea agreement also called for Francis to receive credit for the time he had already served in jail, with no additional jail time.
During a sentencing hearing on November 6, 2009, Judge Otero followed the prosecutors’ recommendations and sentenced Francis in accordance with the plea agreement. Francis left the court that day feeling happily assured that he had finally brought this long legal nightmare to an end. Francis said, as he stepped from the courthouse on a crisp fall day in Los Angeles, “I have admitted that I should have and could done more to reevaluate one of the tax positions that my former CFO assisted me in taking. I accept responsibility for that. I’m happy to finally be able to redirect my attention to the business at hand, which is to provide quality entertainment for our millions of fans all over the world.”
