UMDA applauds new indictment vs Pfaff

Lawyers for the United Micronesia Development Association Inc. brought to the CNMI Superior Court’s attention yesterday a new criminal tax indictment filed against Robert Pfaff by the U.S. Attorney for the Southern District of New York on March 18.

In a statement issued yesterday, UMDA said that Pfaff’s indictment, relating to his alleged global criminal activities, corroborates many of the key allegations made by UMDA against Pfaff and his co-defendants in a civil suit that was filed in Superior Court of the CNMI in April 2007.

Pfaff is already under criminal indictment and scheduled to go to trial later this year in federal court in New York on charges of fraud, tax evasion and conspiracy in U.S. v. Stein—a case that has been characterized as the largest criminal inquiry into abusive tax shelters in the history of the United States.

As part of the conspiracy described in the new indictment, Pfaff and his co-conspirators are alleged to have defrauded UMDA of the “honest services” of former officers and directors and to have concealed and failed to disclosed their wrongful conduct to UMDA.

“UMDA is pleased that the U.S. Attorney for the Southern District of New York is taking action to bring to justice individuals like Mr. Pfaff who betrayed the trust of the people of Micronesia by enriching themselves at the expense of UMDA shareholders,” said Russell Snow, UMDA president and CEO. “UMDA will continue to cooperate with both the U.S. Attorney and CNMI governmental authorities to ensure that the truth comes out and that those responsible for damaging UMDA are held accountable for their actions.”

UMDA is the “Saipan company” referred to in the new indictment that was victimized by Mr. Pfaff and his co-conspirators over a 10-year period.

Jose Lifoifoi, chairman of the UMDA board of directors, added: “The UMDA Board was deceived and betrayed by Mr. Pfaff and his associates during a time when they were apparently engaged in lining their own pockets, rather than looking out for the best interests of UMDA.

“Unfortunately, our auditor and accountant during this period, Deloitte & Touche, failed to call these self-serving and illegal activities to our attention.”

In April 2007 UMDA filed a civil suit against Deloitte & Touche, along with Pfaff, John Larson, and a number of their associates and corporate entities, in the CNMI Superior Court to recover tens of millions of dollars in damages (plus punitive damages) for harm done to the company over a 10-year period ending in 2006.

In the lawsuit Deloitte & Touche is accused of breaching its duties in the course of providing audit, tax, and consulting services to UMDA by failing to report numerous incidents of misconduct by Pfaff and others, as well as by engaging in conflicts of interest by representing these same individuals in numerous transactions with the company.

A preliminary injunction has been granted against the defendants to preserve assets belonging to UMDA. A trial date has not yet been set.

Lifoifoi said: “Over the last year, Russ Snow and I, along with the rest of the board, have been working diligently to put the company on a secure footing and to recover the money lost through illegal activities on the past of these insiders and the betrayal of trust by Deloitte & Touche. In addition to the lawsuit, one of the steps we’ve taken has been to cancel UMDA shares held by the defendants, which has resulted in an increase in the ownership percentage for all other, innocent shareholders.”

UMDA was founded in 1966 in Saipan. Over the years, UMDA has been involved in a wide range of businesses, including airlines, cable systems, and resort properties. UMDA’s shareholders include the government or governmental entities of the CNMI, Palau, Yap and thousands of individuals Micronesians and their families.

In December 2007 UMDA announced the purchase from JAL Group of the Hotel Nikko Saipan, a 313-room luxury hotel in Saipan. (UMDA)