A California court froze the assets and appointed a receiver Wednesday to run the business operated by Roni Deutch, a nationally known tax lawyer who gained a measure of fame on late-night television commercials.
Sacramento Superior Court Superior Court Judge Shelleyanne Chang ordered Deutch to appear in court June 10 for a hearing to decide if she should be fined and jailed for criminal contempt of court. She acted after the California attorney general said Deutch shredded documents and failed to promptly repay her clients in violation of a court order.
Deutch's attorneys did not return repeated telephone messages.
She once ran a business that brought in $25 million a year, according to court documents. She called herself "the tax lady, offered tax advice on national television shows and spent $3 million annually touting her services in cable television advertising.
The attorney general's office sued her for more than $34 million in August, saying her firm made false promises by saying it could help 99 percent of clients resolve tax disputes with the Internal Revenue Service.
Chang last year ordered Deutch to make sweeping changes in how she does business. She ordered Deutch to repay her clients promptly and to preserve her business records for the state's lawsuit.
The judge acted Wednesday after the attorney general's office said Deutch violated both orders repeatedly.
"Deutch showed herself to be a predator for profit, preying on innocent, hard-working people who were simply hoping to settle their accounts with the IRS," Attorney General Kamala Harris said in a statement. "By defrauding these victims, and then pleading poverty, she created a real danger that her clients will never receive their advance fees back."
The attorney general's office says Deutch's Sacramento County-based law firm shredded as many as 2.7 million pages of documents that could have been used as evidence in the state's lawsuit. It says she failed to repay about $435,000 to dissatisfied customers within 60 days in violation of the court order.
Instead, it says she shifted personal and business assets to herself and her creditors. Money from the sale of her house went to a creditor, while Deutch personally withdrew $241,000 from her business and personal bank accounts, the state says. It says she spent $21,000 on gifts to friends and family members and for a payment to a NASCAR racing team.
The receiver will run Deutch's business to make sure clients are repaid first, said attorney general's spokesman Jim Finefrock.
The state asked the judge to fine Deutch $1,000 and jail her for five days for each violation of last year's court order. That could include 29 separate instances of shredding documents and each time Deutch missed the 60-day window to repay a client, Finefrock said.
"It adds up to several hundred violations," he said.
In previous court filings, Deutch said her business drastically declined since the state sued. Though it still has 4,500 clients, Deutch said in a sworn declaration that new clients dropped from an average of 1,672 each month to just 84 in February.
Where once the firm took in $2 million a month, it is now bringing in $350,000 monthly, Deutch said.
She swore her firm was following the rules set by the judge.
Her declaration is attached to her motion asking Chang to modify the terms of her order so the firm can keep more of the money, collect more money from clients upfront, and take more time repaying clients.