United States v. Katholos

SEZ,

UNITED STATES DISTRICT COURT Sy □□

WESTERN DISTRICT OF NEW YORK AUG 1 0 2022

Sea

UNITED STATES OF AMERICA, □□□ DISTRICS

Plaintiff,

v. 17-CV-531 (JLS) (HKS)

MARIKA MARAGHKIS KATHOLOS,

Defendant.

DECISION AND ORDER

The United States commenced this action pursuant to 31 U.S.C.

§ 3711(g)(4)(C), seeking judgment against Defendant Marika Maraghkis Katholos

for an outstanding penalty of $4,474,320.29 assessed against her, pursuant to 31

U.S.C. § 5321(a)(5), for failure to report timely her financial interest in, or signature

or other authority over, a foreign financial account during the 2007 calendar year,

as required under 31 U.S.C. § 53814 and implementing regulations. See Dkt. 1; Dkt.

6 (redacted Complaint).

There are three motions before the Court: (1) Katholos’s motion to strike

allegations in the Complaint or, alternatively, to designate a tax law expert, Dkt.

81; (2) the Government’s motion for summary judgment, Dkt. 83; and (3) Katholos’s

motion to amend her amended answer, Dkt. 96.

For the following reasons, Katholos’s motion to strike and to designate a tax

law expert is denied, the Government’s motion for summary judgment is granted in

part and denied in part, and Katholos’s motion to amend is denied as moot.

PROCEDURAL HISTORY

Katholos filed an answer to the Complaint on August 11, 2017, Dkt. 7, which

was amended with consent of the Government and the Court on December 11, 2018,

Dkt. 31, 32. After numerous extensions of time, see Dkt. 14, 28, 35, 43, 48, 50, 53,

56, 63, all discovery was completed by February 28, 2021. Dkt. 63.

Katholos filed the pending motion to strike on June 9, 2021, Dkt. 81, and the

Government filed its response on June 23, 2021. Dkt. 82.

On July 16, 2021, the Government filed a motion for summary judgment.

Dkt. 83. On September 20, 2021, Katholos responded, Dkt. 98, and moved to amend

her answer, Dkt. 96. On October 28, 2021, the Government filed a reply in support

of summary judgment, Dkt. 111,1 and a response to Katholos’s motion to amend,

Dkt. 112. Katholos filed a response in further support of her motion to amend on

November 18, 2021. Dkt. 116.

After the parties briefed the pending motions, the Court referred the case to

mediation. Dkt. 120. The parties engaged in mediation on March 22, 2022, but

were unable to settle the case. See Dkt. 125.

Qn April 27, 2022, Katholos also filed a notice of supplemental authority regarding

proper calculation of the assessed penalty, Dkt. 127, and the Government

responded. Dkt. 130.

BACKGROUND?

Katholos was born and grew up in Buffalo, New York. Dkt. 83-2, { 1, 3;

Dkt. 98-1, J] 1, 3. Her father, Theodore Katholos, was a Greek immigrant and

successful businessman. Dkt. 83-2, ]{ 1, 2; Dkt. 98-1, Jf 1, 2. After completing

college, Katholos moved to Greece in 1994 and has lived there since. Dkt. 83-2, { 4;

Dkt. 98-1, { 4.

Katholos and her father, who did not speak or read English well, Dkt. 83-2,

4 2; Dkt. 98-1, | 2, went to Zurich, Switzerland, and opened two accounts ending in

83394 and 71711 with UBS. Dkt. 83-2, |] 10, 15; Dkt. 98-1, Jf 10, 15 (stating that,

although Katholos accompanied her father, it was Mr. Katholos who opened the

accounts). Katholos’s name is on both accounts as an accountholder of record. Dkt.

90-5 at 1, 8; Dkt. 90-6 at 1,8. Both were “numbered” accounts. Dkt. 83-2, {J 11,

16; Dkt. 98-1, Jf 11, 16. As to the first UBS account, any correspondence was sent

2 The following is a summary of the facts found in the statements of undisputed

facts and exhibits filed by both sides in connection with the motion for summary

judgment.

On summary judgment, “[a] party may object that the material cited to support or

dispute a fact cannot be presented in a form that would be admissible in evidence,”

but Federal Rule of Civil Procedure 56(c)(2) “simply provides that the evidence must

be capable of presentation in admissible form at the time of trial; it does not require

that the materials be presented in an admissible form on summary judgment.”

Hinterberger v. Catholic Health Sys., 299 F.R.D. 22, 38 (W.D.N.Y. 2014) Ginternal

quotation marks and citation omitted). To the extent the Court includes facts based

on evidence that was objected to, the Court has concluded that such evidence is

capable of presentation in admissible form at the time of trial. Both parties are

entitled to continue to raise their objections at or before trial.

to a P.O. Box in Athens, Greece, and as to the second UBS account, correspondence

was directed to be held at UBS. Dkt. 83-2, 11, 16; Dkt. 98-1, [4 11, 16.

The Government states that, when opening these accounts, Katholos signed a

document indicating that she was not a U.S. citizen and did not have dual

citizenship. Dkt. 83-2, 17. Katholos states that she presented her United

States and Greek passports to UBS bankers, and that her Greek passport indicates

that her place of birth is the United States. Dkt. 98-1, | 12, 17. Katholos states

that she would “just: sign[]” forms because she and her father trusted UBS. Dkt. 98-

1, 18.

In February 2005, Katholos met with a UBS representative, Carmen

Kaufmann, in Zurich to discuss the accounts. Dkt. 83-2, | 19; Dkt. 98-1, 7 19.

During the meeting, UBS recommended the formation of a Liechtenstein entity

called the Storchen Family Foundation (the “Foundation”), which was ultimately

formed on February 28, 2005. Dkt. 83-2, |] 19, 20, 21; Dkt. 98-1, | 19, 20, 21.

Katholos also asked Kaufmann about obtaining “good tax advice” in Greece, but did

not ask about obtaining tax advice in the United States. Dkt. 83-2, 4 19; Dkt. 98-1,

q 19.

On March 3, 2005, another UBS account ending in 36795 was opened (the

“Foundation Account”) under the name Storchen Family Foundation c/o Consilia

Anstalt, signed by members of the Foundation’s board. Dkt. 83-2, | 22; Dkt. 98-1,

| 22. The funds from the prior UBS accounts as well as funds from an account of

Katholos’s husband “pooled together and funded the foundation.” Dkt. 83-2, | 24;

Dkt. 98-1, | 24. In the account opening documents, Katholos is identified as one of

the beneficial owners of the assets in the Foundation Account. Dkt. 83-2, § 25; Dkt.

98-1, | 25. Copies of Katholos’s family members’ United States passports were

included in those documents. Dkt. 83-2, | 25; Dkt. 98-1, | 25. A copy of Katholos’s

Greek passport is included in the account opening documents, but her United States

passport is not. Dkt. 83-2, | 25. Katholos maintained contact with UBS

representatives concerning account activity and investment options. Dkt. 83-2,

{ 26; Dkt. 98-1, J 26.

At some point, UBS proposed creation of a Hong Kong entity to facilitate

different investments. Dkt. 83-2, { 28; Dkt. 98-1, | 28; Dkt. 111-1, | 28. The

Government asserts that Katholos signed and sent a letter to the Foundation’s

board asking that it consider creating a private investment company in Hong Kong

and transfer the assets and account held in the Foundation’s name to the new,

Hong Kong entity. Dkt. 83-2, § 29. Katholos does not dispute that the letter

contains her signature, but disputes that she requested anything because all

decisions were made by her father. Dkt. 98-1, | 29. She states that she did not

create the letter, but that anything her father or UBS told her to sign, she signed.

Id.

On December 29, 2005, Hong Kong issued a certificate of incorporation for

Storchen Finance Ltd. Dkt. 83-2, { 34; Dkt. 98-1, | 34. On January 3, 2006,

Storchen Finance Ltd. board members established a UBS account ending in 65569

(‘Storchen Finance Account”) in the name of Storchen Finance Ltd. Dkt. 83-2, | 35;

Dkt. 98-1, 7 35. Katholos is listed as one of the beneficial owners of the Storchen

Finance Account. Dkt. 83-2, | 35; Dkt. 98-1, J 35.

Katholos maintained communication with UBS bankers regarding

investment strategies, performance of the accounts, and instructions on how to

invest better. Dkt. 83-2, 9 39; Dkt. 98-1, § 89 (not disputing that Katholos

communicated with UBS on her father’s behalf).

On February 27, 2007, Katholos sent a request to UBS to transfer 35,000

euros from the Storchen Finance Account, which she described as “my account

Storchen 1,” to her personal account in Athens. Dkt. 83-2, 45; Dkt. 98-1, | 45.

The transfer was made on February 28, 2007. Dkt. 88-2, 4 45; Dkt. 98-1, 7 45. On

June 11, 2007, Katholos emailed UBS requesting a transfer of 50,000 euros to the

Bank of Cyprus from the Storchen Finance Account, which was executed that day.

Dkt. 83-2, | 48; Dkt. 98-1, J 48. On November 27, 2007, Katholos emailed UBS

stating that she would like to make a loan to an investor with funds from the

Storchen Finance Account, and that transfer was made the same day. Dkt. 83-2,

q{ 49; Dkt. 98-1, J 49. Also, in December 2017, a transfer of 10,000 euros was made

from the Storchen Finance Account for the benefit of Katholos. Dkt. 83-2, 9 50; Dkt.

98-1, { 50.

For decades, the Katholos family used the same certified public accountant—

Charles Koelemeyer—to prepare their federal income tax returns. Dkt. 83-2, | 59;

Dkt. 98-1, ] 59. The Government contends that Mr. Koelemeyer prepared an

individual income tax return for Katholos in 2007. Dkt. 83-2, □ 69. Katholos

contends she is unaware of who prepared the return. Dkt. 98-1, 69. Katholos

never spoke to Mr. Koelemeyer about the preparation of her returns from 2005 to

2007, and she never reviewed, signed, or filed those returns. Dkt. 83-2, | 72; Dkt.

98-1, | 72. On her individual tax return for 2007, questions relating to interest in

or signature authority over foreign accounts and trusts were answered in the

negative. Dkt. 83-2, | 70. Katholos did not file a Report of Foreign Bank and

Financial Accounts (“FBAR”) for 2007. Dkt. 83-2, { 58; Dkt. 98-1, J 58.

On July 17, 2008, because of a criminal investigation by United States

authorities, UBS announced that it would no longer provide cross-border services to

United States clients or offshore trusts, foundations, and non-operating

corporations beneficially owned by United States citizens. Dkt. 83-2, | 73; Dkt. 98-

1, 73. Katholos went to Zurich and was told that, “[a]ll U.S. people had to leave

the bank.” Dkt. 83-2, 7 75; Dkt. 98-1, { 75. UBS even offered to carry the money

out for her. Dkt. 83-2, { 75; Dkt. 98-1, | 75. Katholos refused, Dkt. 83-2, | 75; Dkt.

98-1, { 75, and the Storchen Finance Account remained open until at least 2013.

Dkt. 83-2, | 80; Dkt. 98-1, { 80.

In February 2009, Katholos attempted to make a voluntary disclosure to the

Internal Revenue Service (“IRS”), but it was rejected as untimely. Dkt. 83-2, { 81;

Dkt. 98-1, | 81. Katholos timely submitted an FBAR for calendar years 2008 and

2009, but she did not mention the Storchen Finance Account. Dkt. 83-2, |] 83, 84;

Dkt. 98-1, { 83, 84.

The IRS investigated Katholos for potential violations of FBAR reporting

requirements. Dkt. 83-2, { 89; Dkt. 98-1, 89. The IRS assessed and imposed a

willful FBAR penalty against Katholos for calendar year 2007 in the amount of

$4,127,601.75. Dkt. 83-2, J 98; Dkt. 98-1, | 93.

Around March 31, 2016, the IRS issued a Notice of Deficiency to Katholos

with tax penalties for years 2006 through 2008. Dkt. 98-1, 201, 202; Dkt. 111-1,

{{ 201, 202. Katholos filed a petition in the United States Tax Court contesting the

proposed deficiency. Dkt. 98-1, | 204; Dkt. 111-1, | 204. A stipulated decision was

entered in the case on April 23, 2021. Dkt. 98-1, | 207; Dkt. 111-1, 207.

ANALYSIS

I. Katholos’s Motion to Strike Allegations in the Complaint

Katholos moves for an out-of-time order striking several allegations in the

Complaint. See Dkt. 81. Katholos argues that her stipulation with the IRS in the

Tax Court case refutes the allegations in the Complaint, thereby precluding

admission of evidence supportive of such allegations. Id. Alternatively, Katholos

asks that the Court designate an expert to explain tax law principles underlying

“that stipulated decision and [to] demonstrate their conflict with such allegations.”

Id. at 1.

Federal Rule of Civil Procedure 12(f) permits a court to “strike from a

pleading... any... immaterial, impertinent, or scandalous matter.” To succeed on

a motion to strike, the moving party must show that no evidence in support of the

allegations proposed to be stricken would be admissible, the allegations have no

bearing on the relevant issues, and permitting the allegations to stand would result

in prejudice. Holmes v. Fischer, 764 F. Supp. 2d 523, 532 (W.D.N.Y. 2011); Roe v.

City of New York, 151 F. Supp. 2d 495, 510 (S.D.N.Y. 2001).

Katholos mainly argues that evidence of the challenged allegations would be

precluded based on the stipulation and, therefore, inadmissible. In relevant part,

the stipulation, entered on April 23, 2021, states that Katholos does not owe any

income tax, additions to tax, or penalties for the 2007 tax year. It also states that

“none of the exceptions -to the [statute of] limitations on assessments set forth in

I.R.C. § 6501(c) applies to any of petitioner’s tax years 2006, 2007, and 2008.” Dkt.

81-1. Katholos contends this means that the IRS acknowledged that her 2007 tax

return was not a “false or fraudulent return.” Dkt. 81 at 3-4; see 26 U.S.C.

§ 6501(c)(1) (stating that in the case of a false or fraudulent return with the intent

to evade tax, the tax may be assessed at any time).

Preclusion based on a prior decision applies if: “(1) the identical issue was

raised in a previous proceeding; (2) the issue was actually litigated and decided in

the previous proceeding; (3) the party had a full and fair opportunity to litigate the

issue; and (4) the resolution of the issue was necessary to support a valid and final

judgment on the merits.” Interoceanica Corp. v. Sound Pilots, Inc., 107 F.3d 86, 91

(2d Cir. 1997) (internal quotation marks and citation omitted).

The Court finds that none of the issues raised in the challenged allegations

was raised in the stipulation. For example, the allegation that Katholos failed to

report certain earnings and interest income in 2007, Dkt. 6, { 32, does not necessarily

conflict with the conclusion that there was no tax deficiency for that year. See Dkt.

82 at 10 (explaining that there are “innumerable combinations of income, deductions,

losses, and credits, as well as other issues, that may cause a taxpayer not to owe

income tax for a particular year”).

Katholos also argues that several of the allegations, considered in the

aggregate, conflict with the de facto agreement in the stipulation that Katholos did

not fraudulently file her 2007 tax return. See, e.g., Dkt. 81 at 9-10 (“[IJt could not

have been, as the complaint alleges, Ms. Katholos who had, in fact, ‘checked the box

“No” for both’ of the relevant questions on her 2006 and 2007 returns covering

foreign bank accounts and trusts. Because if she had been the one who had

supplied that negative answer, then given the additional allegations in paragraph

3 The closest overlap between the challenged allegations and the stipulation is the

allegation that states:

According to the Form 4549, dated October 30, 2014, the income tax

deficiencies for such years based on the failure to report these earnings

are as follows:

Year Ended Increase in Tax Due

December 31, 2007 $ 46,340.47

Dkt. 6, § 36. This 2014 form appears to conflict with the later stipulation, which

states that there is no deficiency for the 2007 tax year. Dkt. 81-1. But the

stipulation does not alter that Katholos was initially thought to be deficient on

October 30, 2014.

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27 of the complaint that the defendant ‘controls/controlled the UBS Account No.

65569’ and ‘was involved with the decision making regarding the performance and

investments of the UBS Account No. 65569,’ her negative answer would have

rendered her 2006 and 2007 returns fraudulent.”). But the stipulation contained no

factual conclusions regarding the issue of fraud, and the issue in this case will be

whether Katholos willfully failed to file an FBAR. In other words, the stipulation

may preclude certain legal issues from being relitigated, but it does not preclude the

admission of evidence to prove a different issue. See Matusick v. Erie County Water

Authority, 757 F.3d 31, 48-49 (2d Cir. 2014) (“Critical to the resolution of the

question [of preclusion] is the determination of whether the ‘issue’ that is identical

in the two proceedings involves a factual or legal determination. .. . If the issues are

merely [factual], they need only deal with the same past events to be considered

identical. However, if they concern the legal significance of those facts, the legal

standards to be applied must also be identical; different legal standards as applied

to the same set of facts create different issues.” (internal quotation marks and

citation omitted)).

Because the challenged allegations are not identical to the issues discussed in

the stipulation, collateral estoppel is inapplicable and, therefore, does not preclude

the admissibility of evidence supportive of those challenged allegations. To the

extent Katholos raises additional relevancy and Rule 403(b) objections about such

evidence, the Court will entertain those objections at or before trial. Ultimately,

however, nothing warrants striking these allegations, which are just that—

11

allegations. See Lipsky v. Commonwealth United Corp., 551 F.2d 887, 893 (2d Cir.

1976) (“[C]ourts should not tamper with the pleadings unless there is a strong

reason for so doing.”); Zurich Am. Life Ins. Co, v. Nagel, 538 F. Supp. 3d 396, 399

(S.D.N.Y. 2021) (“[MJotions to strike are viewed with disfavor and infrequently

granted.” (internal quotation marks and citation omitted)); Crespo v. New York City

Transit Auth., No. 01-CV-0671, 2002 WL 398805, at *11 &.D.N.Y. Jan. 7, 2002)

(“[M]Jotions to strike are not favored and will not be granted unless it is clear that

the allegations in question can have no possible bearing on the subject matter of the

litigation.” (internal quotation marks and citation omitted)).

The Court also denies Katholos’s alternative request for the Court to allow

Katholos to designate a tax law expert to explain further the “proper construction of

that decision document.” Dkt. 8] at 14. At this time, there is no apparent reason

why the Court would be unable to provide the jury with any necessary instruction

pertaining to the stipulation.

For these reasons, Katholos’s motion to strike is denied.

II. Motion for Summary Judgment

Also pending before the Court is the Government’s motion for summary

judgment with respect to: (1) its claim that Katholos violated 31 U.S.C. § 5314 and

implementing regulations; and (2) its assessment of penalties pursuant to 31 U.S.C.

§ 5321(a)(5)(C).

Summary judgment is warranted if “there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of law.” See Fed.

12

R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Only

disputes “over facts that might affect the outcome of the suit under the governing

law will... preclude the entry of summary judgment.” See Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986). In determining whether a genuine issue of

material fact exists, courts “resolve all ambiguities and draw all permissible factual

inferences in favor of the party against whom summary judgment is sought.” See

Lederman uv. New York City Dep’t of Parks and Recreation, 731 F.3d 199, 202 (2d

Cir. 2013) (quotation marks and alterations omitted).

Section 5314 requires United States citizens to “keep records, file reports, or

keep records and file reports, when the... citizen... makes a transaction or

maintains a relation for any person with a foreign financial agency.” In 2007,

implementing regulations required that a person “having a financial interest in, or

signature or other authority over . .. [a] financial account in a foreign country shall

report such relationship to the Commissioner of the Internal Revenue for each year

in which such relationship exists, and shall provide such information as shall be

specified in a reporting form prescribed by the Secretary to be filed by such

persons.” 31 C.F.R. § 103.24 (2007), amended and recodified at 31 C.F.R.

§ 1010.350 (2011). Covered individuals were required to file the reporting form,

known as the FBAR, “on or before June 30 of each calendar year with respect to

foreign financial accounts exceeding $10,000 maintained during the previous

calendar year.” 31 C.F.R. § 103.27(c) (2007).

13

Penalties for violating Section 5314 differ based on the willfulness of the

violation. Non-willful violations result in a penalty that “shall not exceed $10,000.”

31 U.S.C. § 5321(a)(5)(B). Willful violations result in a penalty that is the greater of

$100,000 or 50 percent of the balance of the account at the time of the violation. Id.

§ 53821(a)(5)(C). The Government contends Katholos willfully failed to fle an FBAR

in 2007, and maintains that the $4,127,601.75 penalty is correct.

Katholos admits that: (1) she was a U.S. citizen; (2) during 2007, the

Storchen Finance Account was a foreign financial account with a balance of over

$10,000; and (8) she did not file an FBAR for calendar year 2007. Dkt. 98 at il.

Katholos disputes, however, that she had a “financial interest in, or signature or

other authority over,” the Storchen Finance Account such that she was obligated to

report it on a 2007 FBAR. She further argues that, even if she was obligated to file

an FBAR in 2007, her failure to do so was not willful, and that the $4,127,601.75

penalty is incorrect.

A. Whether Katholos had a financial interest in, or signature or other

authority over the Storchen Finance Account

1. Financial Interest

The parties seem to agree that the FBAR instructions, and the definitions

they contain, are not binding on this Court. The Court employs a plain-meaning

4 Katholos argues that the Government “cannot disregard the only all-inclusive

definition of ‘financial interest’ that existed at that time and was set forth in the

FBAR instructions,” Dkt. 98 at 17, but later acknowledges that the “instructions in

a form, without notice and comment, do not have the force of law, and absent formal

rulemaking, the plain meaning of terms like ‘signature or other authority’ apply,”

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approach to determine the meaning of “financial interest” and “signature or other

authority.” See United States v. de Forrest, 463 F. Supp. 3d 1150, 1157 (D. Nev.

2020) (appearing to use a plain-meaning approach); United States v. Kelley-Hunier,

281 F. Supp. 3d 121 (D.D.C. 2017) (same); United States v. Zimmermann, No. 2:19-

CV-4912-CAS-EX, 2020 WL 6065338, at *4 (C.D. Cal. Sept. 16, 2020) (same); see

also In re Various Grand Jury Subpoenas, 235 F. Supp. 3d 472, 480-81 (S.D.N.Y.

2017) (noting that the term “financial interest” was not defined by Section 103.24).

Black’s Law Dictionary defines “financial interest” as an “interest involving

money or its equivalent.” Interest, Black’s Law Dictionary (11th ed. 2019). In turn,

“interest” is defined as a “legal share in something; all or part of a legal or equitable

claim to or right in property.” Jd.

Here, it is undisputed that Katholos was a beneficial owner of the Storchen

Finance Account. In general, a “beneficial owner” is “[o]ne recognized in equity as

the owner of something because use and title belong to that person, even though

legal title may belong to someone else; esp., one for whom property is held in

trust.—Also terms equitable owner.”5 Owner, Black’s Law Dictionary (11th ed.

2019). Though Katholos denies that her status as a beneficial owner is “tantamount

to having a ‘financial interest’ in the account that may give rise to the FBAR

reporting requirements,” Dkt. 98-1, § 25, the Court concludes that, as a beneficial

id. at 25. Katholos has cited no authority to support her inconsistent stance toward

the definitions contained in the FBAR instructions.

5 Relatedly, Black’s Law Dictionary defines “beneficial interest” as a “right or

expectancy in something (such as a trust or an estate), as opposed to legal title to

that thing.” Interest, Black’s Law Dictionary (11th ed. 2019).

15

owner, Katholos had an equitable claim or right to the Storchen Finance Account—

even if she did not have legal title. And because “interest” includes equitable rights

to property, Katholos’s arguments regarding legal title, who funded the account,

and direct interest are not dispositive. See Continental Cas. Co. v. Bowen, No. 2:09-

cv-00810-TC, 2011 WL 222340, *4 (D. Utah Jan. 21, 2011) (‘Although an ownership

interest in an entity would certainly be considered a financial interest in that

entity, ownership is not necessary to have a financial interest.”). Thus, based on

her status as a beneficial owner, the Court concludes that Katholos had a financial

interest in the Storchen Finance Account.

2. Signature Authority

The Court also concludes that Katholos was required to file a 2007 FBAR

based on her signature authority over the Storchen Finance Account. See Signatory

authority, Black’s Law Dictionary (11th ed. 2019) (“1. The power to bind with a

signature, esp. as a result of an express grant of the power.—Also termed signing

authority. 2. License to make a decision, esp. to withdraw money from an account or

to transfer a negotiable instrument.”).

Katholos notes that her signature was not on the applicable signature card

for the Storchen Finance Account and argues that the authority to dispose of and

manage the funds of the Storchen Finance Account rested solely with the board.

Dkt. 98 at 20-22. She also states that, to the best of her knowledge, she could not

act on her own with respect to the Storchen Finance Account. Dkt. 98-1, □ 153. In

support, Katholos cites United States v. Horowitz, 361 F. Supp. 3d 511 (D. Md.

16

2019), aff'd, 978 F.3d 80 (4th Cir. 2020), in which the defendant had not signed the

signature card for an account and, therefore, could not control the disposition of

money, funds, or other assets in the account. Dkt. 98 at 21-22.

In Horowitz, however, the court determined that “[w]ithout that signature

specimen, [the defendant] could not write to, or otherwise directly communicate

with, the bank to control the disposition of money, funds or other assets” in the

account, Horowitz, 361 F. Supp. 3d at 524 (internal quotation marks and citation

omitted). In contrast, in this case, the Government has sufficiently shown that

Katholos controlled the disposition of funds even though her signature was not on

the signature card for the Storchen Finance Account.

For example, it is undisputed that on February 27, 2007, Katholos handwrote

a letter to UBS requesting a transfer of 35,000 euros from the Storchen Finance

Account—which she referred to as “my account Storchen 1”—to her account in

Athens, and that the transfer was executed the next day. Dkt. 83-2, | 45; Dkt. 98-1,

45. Likewise, it is undisputed that on June 11, 2017, Katholos sent an email

requesting a transfer of 50,000 euros from the Storchen Finance Account to the

Bank of Cyprus, and the transfer was made that day. Dkt. 83-2, 9 48; Dkt. 98-1,

§ 48. Furthermore, on November 27, 2007, Katholos sent an email asking that a

loan be taken out of the Storchen Finance Account, and the transfer was made that

day. Dkt. 83-2, | 49; Dkt. 98-1, | 49.

While Katholos generally contends that any of her requests were made on

behalf of her father, and that she served solely as a means of communication

17

because of her father’s limited English, see, e.g., Dkt. 98 at 24, the Government

notes, “[t]here is no evidence that [her father’s] signature or verbal approval was

ever required by UBS or the Storchen Foundation board® for [Katholos] to manage

the funds in the accounts,” Dkt. 83-1 at 8. Furthermore, Katholos admits that in

2008, after she learned that there was a potential problem, she traveled to Zurich

where UBS encouraged her to close the account and advised that they could arrange

for her to carry the funds in cash out of the bank. See Dkt. 98-1, [] 192-195. Based

on this evidence, the Court concludes that Katholos also had signature authority

over the Storchen Finance Account.

Therefore, the Court grants the Government’s motion for summary judgment

in part as to Katholos’s financial interest and signature authority over the Storchen

Finance Account and, thus, her obligation to file an FBAR disclosing such interest

in and authority over the account in 2007.

B. Whether Katholos’s failure to file an FBAR in 2007 was willful

Having determined there is no triable issue as to whether Katholos had a

financial interest in or signatory authority over the Storchen Finance Account, the

Court concludes that Katholos was obligated to file an FBAR in 2007. Thus, the

Court must next consider whether Katholos’s failure to file was willful.

The parties agree that willfulness includes recklessness. Dkt. 83-1 at 9; Dkt.

98 at 25. In defining recklessness, courts in the Second Circuit employ an objective

Katholos admits that the Foundation owned Storchen Finance Ltd. See Dkt. 98 at

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standard and ask whether the individual “fail[ed] to act in the face of an

unjustifiably high risk of harm that is either known or so obvious that it should be

known.” United States v. Geniges, 531 F. Supp. 8d 731, 744 (S.D.N.Y. 2021)

(quoting United States v. Horowitz, 978 F.3d 80, 89 (4th Cir. 2020)); see also

Horowitz, 978 F.3d at 89 (noting that willfulness is established if “the defendant (1)

clearly ought to have known that (2) there was a grave risk that an accurate FBAR

was not being filed and if (3) he was in a position to find out for certain very easily”

(internal quotation marks and citation omitted)).

The Government argues that the evidence establishes, as a matter of law,

“key indicia of willfulness, including a pattern of concealment and a reckless

indifference toward [Katholos’s] obligations with respect to reporting foreign

accounts to the IRS.” Dkt. 83-1 at 10. Katholos argues that the facts are subject to

interpretation and that the Government has improperly drawn inferences in its

favor. Dkt. 98 at 29. The Court agrees with Katholos—willfulness is a matter for

the factfinder.

For example, the Government argues that Katholos demonstrated reckless

indifference toward her obligations by failing to communicate with her family’s

long-term accountant—Mr. Koelemeyer—about her foreign accounts, or to review

the returns prepared for her at the time. Dkt. 83-1 at 10. But Katholos argues that

these facts do not establish, as a matter of law, that she was easily able to

determine her obligations because Mr. Koelemeyer’s statements regarding his

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knowledge about FBAR reporting requirements are open to interpretation and

require assessment of his credibility. Dkt. 98 at 27-28.

Further, the Government argues that concealment is probative of willfulness,

Dkt. 88-1 at 10 (citing United States v. DeMauro, 483 F. Supp. 3d 68, 83 (D.N.H.

2020)), and that the facts indicate a long pattern of concealment. For example, the

Government notes that the first two UBS accounts were “numbered” accounts, mail

was held for at least one of those accounts, and Katholos misrepresented on opening

documents that she was not a United States citizen, :d. at 10-11 (citing caselaw to

argue that these facts show that she was “eliminat[ing] the paper trail associated

with the undeclared assets and income” she held in foreign accounts).

As to the Foundation Account, the Government notes that Katholos failed to

inform her siblings, living in the United States, about the Foundation Account even

though their passports were used in its opening, and that the Foundation itself was

formed in Liechtenstein, a known tax-haven country. See Dkt. 83-1 at 12-14.

Furthermore, the Government argues that Katholos directed the Foundation’s

board to create Storchen Finance Ltd., which served as a shell corporation to

further conceal her beneficial ownership of the Storchen Finance Account. Dkt. 83-

1 at 12-13 (citing caselaw referring to the creation of shell corporations to conceal

interests and evade United States tax regulations).

Katholos argues, however, that “the use of entities, numbered accounts, and

‘hold mail’ cannot be viewed in [a] vacuum when considering willfulness.” Dkt. 98

at 32. Katholos asserts that she was just a means of communication because of her

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father’s language barrier and that all of these facts were decisions made by her

father whose intent cannot be imputed to her. Jd. at 29-30. She also notes that she

provided UBS with her United States passport.

Finally, the Government notes that Katholos attempted to enter the IRS’s

Offshore Voluntary Disclosure Program in February 2009, but continued to conceal

her beneficial ownership of the Storchen Finance Account on the FBARs she

submitted for 2008 and 2009. Dkt. 83-1 at 14. Katholos responds that her attempt

to participate in voluntary disclosure, along with her attempt to discover her tax

obligations in Greece, indicates her good faith intent to be tax compliant. Dkt. 98 at

30, 32-83; see also Dkt. 98-1, | 198 (noting that, “as soon as [she] saw something

wasn't done right, [and] that there were problems,” Katholos attempted to obtain a

lawyer and participate in voluntary disclosure “right off the bat’).

Summary judgment here is inappropriate. See Anderson, 477 U.S. at 250-51

(concluding that summary judgment should not be granted “[i]f reasonable minds

could differ as to the import of the evidence”). “A jury could... conclude that

[Katholos’s conduct] reveal[s] willful blindness, or establish[es] a pattern of conduct

so unreasonable as to constitute reckless disregard. Still, ...a reasonable jury

[could] conclude otherwise. And that is enough to make summary judgment on the

issue of willfulness inappropriate.” Island Software and Computer Serv., Inc. v.

Microsoft Corp., 413 F.3d 257, 264 (2d Cir. 2005).

For this reason, the Government’s motion for summary judgment is denied

with respect to Katholos’s willful failure to file a 2007 FBAR. The Court reserves

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determination of the correctness of the penalty pending trial on the issue of

willfulness.

TiI. Motion to Amend the Answer

Katholos seeks to amend two responses contained in her amended answer to

the Complaint. Dkt. 96-1. Specifically, Katholos admitted paragraph 41 of the

Complaint, which states that she “had a financial interest in and signature

authority over UBS Account No. 65569 during the years 2006 through—at least—

2008.” Dkt. 32, 41 (“The allegations are admitted”). Katholos also seeks to

change language found in her affirmative defense, which currently reads: “In

dealings with the Swiss bank, Marika’s father Theodore Katholos was the primary

decision-maker. Marika had signatory authority because of Mr. Katholos’ limited

reading and writing skills and because she was the one member of the family

located in Europe.” Id., { 55. She wishes to replace “had signatory authority” with

language that she “communicated with the bank on behalf of Mr. Katholos.” Dkt.

96-1 at 5.

For the reasons stated above, this Court has concluded—without

consideration of Katholos’s responses to the Complaint—that Katholos had a

financial interest in and signature authority over the Storchen Finance Account.

Therefore, the Court denies as moot Katholos’s motion to amend her answer.

CONCLUSION

For the reasons stated above, the Court DENIES Katholos’s motion to strike,

Dkt. 81, GRANTS IN PART and DENIES IN PART the Government’s motion for

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summary judgment, Dkt. 83, and DENIES AS MOOT Katholos’s motion to amend,

Dkt. 96.7

SO ORDERED.

Dated: August 10, 2022

Buffalo, New York =

J L. SINATRA, J

JNITED STATES DISTRICT JUDGE

7 The Court has reached its conclusions without deciding several issues regarding

previously unproduced evidence. These issues can be resolved at the final pretrial

conference.

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