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A.G. Schneiderman & Acting Tax Commissioner Manion Announce Indictment Of Spa Castle Operators For Allegedly Failing To Pay $1.5 Million In Taxes

News from Attorney General Eric T. Schneiderman

FOR IMMEDIATE RELEASE
March 22, 2017

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A.G. SCHNEIDERMAN & ACTING TAX COMMISSIONER MANION ANNOUNCE INDICTMENT OF SPA CASTLE OPERATORS FOR ALLEGEDLY FAILING TO PAY $1.5 MILLION IN TAXES 

Owners Of Spa Castle Inc. Charged With Grand Larceny And Criminal Tax Fraud For Allegedly Failing To Remit Taxes

NEW YORK - Attorney General Eric T. Schneiderman and Acting Commissioner of Taxation and Finance Nonie Manion announced today the indictment of Steve Chon, Daniel Chon, Victor Chon, Stephanie Chon and Spa Castle Inc. on eleven felony charges each, stemming from their alleged theft or failure to remit over $1.5 million in sales and other taxes owed by Spa Castle Inc. Steve Chon (57), his brothers Daniel Chon (54) and Victor Chon (50), and his daughter Stephanie Chon (29), own and operate Spa Castle Inc., a 100,000-square foot spa facility located at 131-10 11th Avenue in College Point, Queens.  According to the charges, the Chon family failed to report millions of dollars in revenues collected by Spa Castle, Inc. from 2010 through 2013, thereby failing to remit to New York State a total of over $621,000 in sales taxes, $207,000 in withholding taxes, $610,000 in corporate taxes, and $131,000 in Metropolitan Transportation Authority Surcharge taxes.

“Companies that fail to pay their fair share of taxes leave ordinary New Yorkers to foot the bill,” said Attorney General Schneiderman. “We will not tolerate irresponsible business owners who cheat the system and undermine our tax laws.”

“The scale of theft alleged in this case is staggering,” said Acting Commissioner Nonie Manion. “If proven, these felony crimes show a blatant disregard for New York State law and all law-abiding New Yorkers and business owners, who shoulder the added tax burden and suffer the loss of revenue used for vital programs and services. We’ll continue to work with Attorney General Schneiderman and all our partners in law enforcement to prosecute these cases and ensure a level playing field.”

This case was the result of a joint investigation by the New York State Attorney General’s Office and the Department of Taxation and Finance, Criminal Investigations Division.

The indictment, unsealed today in Queens County Supreme Court, charges each of the defendants with two counts of Grand Larceny in the Second Degree, a Class C Felony, in violation of New York State Penal Law §155.40(1), eight counts of Criminal Tax Fraud in the Second Degree, a Class C felony, in violation of Tax Law § 1805, and one count of Criminal Tax Fraud in the Third Degree in violation of Tax Law § 1804.   

According to statements made by the prosecutor at arraignment, Spa Castle Inc. is a spa facility in College Point, Queens that offers a variety of services, including massages, facials, saunas, swimming pools, restaurants, bars, and other amenities.  Spa Castle Inc. generates revenues by charging admission to the facility and also by charging additional fees for the other services offered at the location.   According to the prosecutor, between 2010 and 2013, Spa Castle Inc.’s College Point location generated over $22 million per year in revenues. 

In August of 2015, investigators from the New York State Attorney General’s Office and the New York State Department of Taxation and Finance executed a search warrant at Spa Castle Inc.  According to statements made by the prosecutor, records seized during the execution of a search warrant allegedly showed that the defendants avoided paying required taxes by underreporting the amount of money earned at the facility and by paying employees and vendors in cash. Between 2010 and 2013, the Chon family allegedly underreported millions of dollars in income for Spa Castle Inc. and failed to pay over $621,000 in New York State sales taxes from March 2010 through August 2013.  The Chon family and Spa Castle also allegedly withheld but failed to remit to New York State a total of over $207,000 in withholding taxes between January 2010 and September 2013, and failed to remit to New York State a total of over $610,000 in corporate taxes and $131,000 in Metropolitan Transportation Authority Surcharge taxes for the period of January 2011 through December 2012.

If convicted, each of the individual defendants face up to 5 to 15 years in prison.

The defendants were arraigned today before the Honorable Robert Kohm in Queens County Supreme Court. Bail was set at $100,000 bond for all the defendants.  

The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

The Attorney General thanks the New York State Department of Taxation and Finance for their valuable assistance in this investigation.

Investigator Michael Leahy of the Attorney General’s Investigations Bureau led the investigation. The Investigations Bureau is led by Chief Dominick Zarrella. Forensic auditing analysis was provided by Forensic Auditor Kristina Kojamanian under the supervision of Deputy Chief Sandy Bizzarro of the Forensic Audit Section, which is led by Chief Edward J. Keegan, Jr.

The case is being prosecuted by Assistant Attorney General Hugh L. McLean of the Criminal Enforcement and Financial Crimes Bureau of the Attorney General’s Office, assisted by Legal Analyst Adam Sperry. The Criminal Enforcement and Financial Crimes Bureau is led by Acting Bureau Chief Stephanie Swenton.