D.C. Tax Scam Mastermind Expanded Existing Ploy

Tax office employees never examined the documents, simply corrected spelling and grammatical errors and sending the checks on their way, prosecutors disclosed. At one point, an outside auditor examined one of her fraudulent checks and vouchers but didn't catch on to the scam, prosecutors wrote.

Starting in 1989, Walters issued small checks to friends, including one she met while taking classes at the University of the District of Columbia and another she met when she was working as a cook at a carryout restaurant in Northwest Washington in the late 1970s.

Within a few years, Walters realized that she could write far bigger checks to businesses and enlisted the help of the owner of a Southwest Washington hair salon. By 1991, with the hair salon owner's help, Walters cut her first big check for $37,639, prosecutors wrote.

In 2000, Walters obtained the help of Walter Jones, a Bank of America branch manager, who often cashed the checks, the statement of offenses said. Walters also began enlisting relatives, including her brother, a nephew and a niece, who created corporations that received stolen funds, the document stated.

Walters used code words to alert the various co-conspirators that she was about to issue a fraudulent check and then told them "the package was ready" when it was processed, the statement added.

At the scam's peak in 2004, Walters issued 26 checks worth $8.6 million. In 2007, she issued 17 checks for $4.8 million, prosecutors wrote.

Besides 45 gambling trips to Las Vegas and Atlantic City, Walters charged more than $2.3 million on credit cards during shopping sprees at such high-end stores as Nordstrom and Neiman Marcus, where she had a personal shopper, prosecutors said.

The scheme began to unravel when Jones lost his job in February 2007. Bank officials discovered that he had been making large withdrawals from Jayrece Turnbull's account when she wasn't present, prosecutors wrote.

Bank officials also learned that Jones received $145,000 from Turnbull, and he was fired for accepting that gift, prosecutors said.

Walters tried to deal with the manager's ouster in several ways, prosecutors wrote. She expanded the group of people involved in the scheme, and she decreased the refund check amounts, in an apparent effort to avoid detection by bank employees.

But the scheme was uncovered in July 2007 by a SunTrust Bank employee who questioned a large deposit made by Turnbull.

Walters tried to trick the bank into accepting the check by forging two tax office documents and having a friend doctor a third on a computer, prosecutors wrote. After a back-and-forth between Turnbull and the bank, Turnbull even had a lawyer write a letter to the bank demanding that it deposit the check.

"You have no legal reason to continue to refuse to release the funds you are holding in Ms. Turnbull's account," wrote the lawyer, who was not identified in the court papers.

SunTrust didn't budge and alerted the FBI to the scheme.

Staff writers Dan Keating and David Nakamura contributed to this report.