A financial advisor who didn't report $1.5 million to the Internal Revenue Service that he made from selling his company has pleaded guilty to criminal charges of filing a false tax return.
Thomas Pacilio of Westport, Connecticut-based Clapboard Hill Private Wealth
The buyer of Pacilio's firm, McGladrey Wealth Management, changed its name to RSM U.S. Wealth Management when it was still owned by accounting firm RSM. It has since spun off as
"I failed to include my income from the sale of my business to RSM on my tax return," Pacilio said in a statement sent through his attorney, Stan Twardy of Day Pitney. "I am responsible for this and am truly sorry. However, this had nothing to do with my work on behalf of my clients at Clapboard Hill."
Representatives for Choreo and B. Riley Wealth Management, the brokerage currently used by Pacilio's practice, didn't immediately respond to requests for comment on the case.
The case highlights one potential pitfall out of the many that can derail acquisitions, still at a record level in wealth management and
To avoid mistakes in complicated deals, advisors considering a sale should work closely with lawyers, accountants and investment bankers, according to John Langston, a managing partner of
"Every person we've helped with a transaction was completely capable of doing it on their own," Langston said, noting that sellers working with his team generally attract an offer that is 20% higher than an initial bid coming directly from a potential buyer. "Some of the largest financial institutions in the world hire investment bankers. They're not doing it because they're unsophisticated."
It's not clear what prompted Pacilio, an advisor with 30 years of experience in the industry, to leave out more than $1 million in earnings from his federal tax returns. Based on the structure of the deal as described in court papers, he likely consulted with tax and M&A professionals and thus knew the tax consequences of the transaction. He filed an amended return for 2017 after facing a lien of $120,000,
Pacilio transferred his partnership interest in Clapboard Hill Advisors to an S-corporation called Alcamo Holding a year before selling itto RSM, according to investigators.
None of the court documents state the overall price of Clapboard Hill Advisors, which Pacilio later said in a counterclaim to the RSM lawsuit was generating $1.35 million in gross annual revenue on $165 million in invested client assets at the time of the sale.
The acquisition included a lump sum payment from RSM Wealth and a stipulation that Pacilio become an employee there for at least three years, according to the plea agreement. On each anniversary of the sale for those three years, he would collect payments of $350,000 and additional so-called earnouts: portions of RSM Wealth's annual gross revenue totaling up to $150,000 for the first year; $350,000 for the second; and $450,000 for the third. Under those terms, Pacilio received $1.53 million between 2015 and 2018, all while paying $450,000 toward debt he owed during those years, the plea agreement stated.
In its 2018 lawsuit, RSM alleged that Pacilio and his business partner broke the terms of the asset purchase agreement, their employment agreements with the firm and "numerous federal and state laws." The firm accused the two of misappropriating proprietary data by accessing RSM's database after their termination that year, as well as competing directly against their former firm and using a brand "confusingly similar to the name of their previous business." The civil action "to protect trade secrets" sought $5 million in damages, according to court records.
Pacilio and his partner filed a counterclaim denying the allegations and accusing RSM's management of interfering with their business and defaming them to their clients. In July 2019, each side dismissed their cases "with prejudice," meaning that it was likely settled under a confidential agreement and it can't be tried again.
The judge in Pacilio's case released him on a bond of $350,000 and scheduled his sentencing for April 6.
