Tab in Scam At Tax Office In D.C. Nears $50 Million

Walters, 51, a 25-year tax office employee, remains jailed without bond on charges that she and others generated fraudulent property tax refund checks and used doctored paperwork and front companies to cash them. Her attorney, Steve Tabackman, declined to discuss the case.

"In the midst of an ongoing investigation, we're simply not in a position right now to comment on The Post's reporting," Tabackman said.

Only one other tax office employee has been charged in the case: Diane Gustus, 54, a tax specialist who worked under Walters. Gustus's attorney, A. Scott Bolden, said he has been independently researching who received things of value from Walters.

"The gift-giving and cash-giving was so prevalent, it should be embarrassing to the D.C. government that this culture was allowed to exist and expand," Bolden said.

Bolden confirmed that the Gustus family received cash and valuable gifts from Walters. He said that his clients weren't aware that the money and gifts were tainted and that Walters told co-workers she inherited considerable wealth from family in the Virgin Islands.

"The government says they got things," Bolden said. "My response is: Who didn't?"

The new details raise more questions about the level of supervision in the Office of the Chief Financial Officer, which failed to detect the fraud in the largest agency under its umbrella. In the past decade, mostly under the leadership of Natwar M. Gandhi, the office has spent more than $100 million on a new computer system for the tax office and at least $1 million a year on external city audits.

The potential penalties in the case are growing, even as lawyers say that some defendants are in plea negotiations. Those charged in a conspiracy to steal $20 million to $50 million would face an estimated 15 to 20 years in prison under federal sentencing guidelines. Those charged with helping to steal $50 million or more could face as much as 30 years.

Federal prosecutors in the District and Maryland, where many of the banking transactions took place, have said they are determined to get back as much of the missing money as possible.

Court records show that prosecutors are also trying to determine which city employees knew or should have known that they were close to a massive crime in progress.

William Sullivan, a criminal defense lawyer and former prosecutor, predicted that authorities will try to criminally charge some gift recipients under the legal theory of "willful blindness." In those cases, Sullivan said, prosecutors must show evidence that the defendants intentionally ignored "red flags" that would make a reasonable person suspect a crime.

Based on witness accounts, there were signs of trouble. Walters took young women in her office, even those she knew only casually, on four-figure shopping sprees at Saks and Neiman Marcus and picked up the tab, according to information provided to authorities. Witnesses have told investigators that Walters also gave hundreds of dollars, over time, to security guards outside the tax agency's North Capitol Street office, the sources familiar with the probe said.