Court agrees with probation only sentence for Beanie Babies creator in tax evasion case



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FILE - In this Jan. 14, 2014, file photo, H. Ty Warner, the billionaire creator of Beanie Babies, arrives at federal court for sentencing in Chicago. On Friday, July 10, 2015, a federal appeals court upheld the probation sentence for the Warner, rejecting arguments by federal prosecutors that he deserved prison time for hiding millions of dollars in a Swiss bank account. (AP Photo/Andrew A. Nelles, File)


CHICAGO — A U.S. appeals court on Friday agreed with a sentence of probation for the billionaire creator of Beanie Babies stuffed toys, rejecting arguments by federal prosecutors that he deserved prison time for hiding millions of dollars in a Swiss bank account.

H. Ty Warner was accused of evading $5.6 million in U.S. taxes by concealing assets. He pleaded guilty, made full restitution — and paid a nearly $54 million civil penalty.

But when the trial judge sentenced him to two years' probation, prosecutors — who were pushing for at least a year in prison — took the rare move of appealing the sentence. They argued that the toy-maker got off too easy given the lengths to which he went to conceal his crime.

The 7th U.S. Circuit Court of Appeals said the district court did not abuse its considerable discretion with the sentence.

"While incarcerating Warner undoubtedly would have sent a stronger message, the message sent by his existing sentence is, in our view, strong enough," the judges wrote in the Friday ruling. "Even without a prison sentence, Warner's payment of a $53.6 million penalty already provides a measure of deterrence."

The judges added that "probation is a common sentence in offshore tax evasion cases," citing a statistic that roughly half of defendants convicted since 2008 have received probation instead of prison time.

The U.S. attorney's office in Chicago refused to comment on Friday's ruling.

Warner's attorney, Gregory R. Scandaglia, said in a statement that his client is gratified by the court's ruling.

"Judge (Charles) Kocoras imposed a just and well-reasoned sentence, and the judges of the Seventh Circuit unanimously agreed," Scandaglia said, adding Warner accepted responsibility for his actions from the beginning. "Since this case began, he has paid over $80 million in penalties, fines and taxes to the federal government. He has also eagerly fulfilled his community service program and looks forward to continuing his work with students in the City of Chicago."

Beanie Babies first appeared in the mid-1990s, triggering a craze that generated hundreds of millions of dollars for Westmont, Illinois-based TY Inc. The small, plush toys have heart-shaped name tags and are made to resemble bears and other animals. Some of the more recent ones are designed to look like cartoon or comic book characters.

Prosecutors have said the sentence threatened to erode the judicial system's ability to deter other tax evaders. They also argued that the judge inadvertently sent the message that there are different standards of justice for the rich and the poor.

In handing down the lighter sentence, the trial judge cited Warner's "overwhelming" charitable works and essentially deemed his misdeeds to be out of character.

A judge on the panel, Joel M. Flaum, wrote that he went along with the decision reluctantly. He said he was concerned about the message the decision may send about how the criminal justice system treats wealthy tax evaders.

"In my view, Warner's commendable charitable sprit does not obviate the appropriateness of some period of incarceration," Flaum said. "He purposely sought to deprive the federal government of millions of dollars of tax revenue simply to amass more of his enormous wealth."

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