Tax advice firm out of business

Kevin Rademacher

Friday, May 28, 2004 | 10:43 a.m.

Amid mounting legal battles, National Audit Defense Network has shut down -- leaving hundreds of Las Vegas employees out of work.

The Las Vegas-based company, which claimed to sell tax advice and audit services, ceased operations at 5 p.m. on Wednesday, said company President Weston Coolidge. NADN attorneys also filed a motion to convert its year-long Chapter 11 bankruptcy proceeding to a liquidation.

In a teleconference with attorneys Thursday, Bankruptcy Court Judge Lloyd King indicated that he would accept the company's motion.

With the moves, 265 employees were let go, Coolidge said. An additional 142 employees were laid off earlier this month.

"National Audit Defense Network is out of business," he said.

The bankruptcy case could be the last chapter in a series of problems involving the company. In 2002 both the Federal Trade Commission and the Nevada Attorney General's Office sued NADN, alleging it failed to honor moneyback guarantees. Those cases will continue to move forward, said Kathleen Delaney, a deputy Nevada attorney general.

Last summer, NADN's troubles mounted when it filed for bankruptcy protection. The largest creditor in the filing was the Internal Revenue Service, which had a $1.3 million claim against the company.

At that time, Coolidge blamed the bankruptcy filing not on the IRS claim but on a $1 million claim against the company by the Securities and Exchange Commission. He said the SEC's action was based on an investment NADN executives made in a company that later turned out to be running a Ponzi scheme.

The most recent legal entanglement came on April 14 when the IRS filed for a temporary restraining order against the company. Attorneys for the Department of Justice said NADN was engaged in running a tax scam and filing false federal income tax returns for customers, costing the government an estimated $324 million.

Coolidge said the decision to close the company was not related to a single event.

"There are lots of variables," he said. "It's the combination of things, which the company couldn't handle."

Delaney said Wednesday's closure of the company is "a victory for consumers."

She added, however, that the liquidation of the company could make it more difficult to recoup money lost by consumers.

"There are some very significant creditors," Delaney said. "The odds of (disgruntled consumers) being refunded in full are slim."

Coolidge said paying the final paychecks for the company's displaced employees will now be up to a court-appointed trustee.

"Hopefully there will be enough to pay everything that's owed to the employees," he said. "I can't guarantee that."

The move by NADN to liquidate the company comes less than a week after the IRS filed a motion to force the same action. Attorneys for the government in that filing said the company had mismanaged its bankruptcy case.

The IRS alleged, among other claims, that NADN made a series of dubious payments to company executives and insiders prior to and following the bankruptcy filing. The motion alleged the company made payment of a $400,000 loan to Coolidge just prior to the bankruptcy filing.

It also alleged the payment of $450,000 to the ex-wife of Robert Bennington, one of the company's founders, the payment of excessive sales commissions to managers and an unauthorized salary increase for Coolidge.

Coolidge said the efforts of both the state and federal government to pursue NADN were unfair.

"We have been totally harassed," he said. "If they don't like what you are doing they harass you until you go out of business."

Jonas Bowen, who handled national media operations for the company, was cleaning out his office Thursday morning. While he admitted that the company had probably made some marketing mistakes in the past, NADN was not operating a scam, Bowen insisted.

He said that while a few customers made complaints, "we never heard from the 90, 99 percent of our customers who were happy."

"The company did a lot of good," Bowen said. "Some of the criticism was deserved, but the main point is that the intent of NADN was always to provide assistance to taxpayers that couldn't otherwise afford a tax attorney."

With the closure of the company, Delaney said the true nature of the company might never be known.

"The key issue throughout our case and others was: Is there a core business that could survive without the alleged fraudulent activities," she said. "I'm not sure if that question will ever get answered."

Sylvia Campbell, chief executive of the Better Business Bureau of Southern Nevada, has tracked hundreds of complaints against NADN and had mixed emotions based on the number of employees who are out of work.

"Although it's really too bad that the company had to go out of business," she said, "I do believe there are a lot of customers out there that had not received the products or services they had paid for ... I think this is a good thing."

Delaney said it will now take time to determine what is available in the company's bankruptcy estate in order to return money to creditors.

"The good news is that this is the end for NADN as far as contact with future customers," she said. "The bad news is we still have a long way to go."