Beanie Babies Creator Ty Warner’s Sentence Is Upheld

The U.S. Court of Appeals for the Seventh Circuit on Friday upheld the probation sentence given to Ty Warner, the billionaire creator of Beanie Babies who evaded U.S. taxes.

Federal prosecutors last year appealed the sentence by U.S. District Judge Charles Kocoras, arguing that the suburban Chicago businessman should get prison time. Kocoras had said he was swayed by, among other things, letters detailing Warner’s acts of kindness in giving him probation instead of prison. Kocoras disclosed he had received 70 letters on behalf of Warner, and he relayed story after story of the toy designer’s largesse in a crowded courtroom in Chicago.

In 2013, Warner pleaded guilty to one count of tax evasion for failing to report more than $24 million in income and skirting nearly $5.6 million in federal taxes from millions he had hidden for more than a decade at two Swiss banks. Prosecutors had pushed for a sentence of at least one year and one day in prison, partly to deter others from committing the same crime. Sentencing guidelines had called for a prison sentence of up to 57 months.

Warner has already paid a civil penalty for not reporting the offshore accounts and restitution for what he owed in back taxes and interest.

“The court did not abuse its discretion,” the appellate court said in its 33-page ruling. “Rather, it fully explained and supported its decision and reached an outcome that is reasonable under the unique circumstances of this case.”

Therefore, it said it was affirming Warner’s sentence.

The U.S. Attorney’s Office declined to comment.

Gregory R. Scandaglia, a lawyer representing Warner, said in a statement:

“We’re gratified by the Seventh Circuit’s ruling. Judge Kocoras imposed a just and well-reasoned sentence, and the judges of the Seventh Circuit unanimously agreed. From the beginning, Mr. Warner accepted responsibility for his actions. 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.”

One appellate judge concurred with the judgment, but reluctantly.

Judge Joel Martin Flaum said he decided to write separately because of his “considerable unease” with the outcome of the appeal. Specifically, the judge said he was concerned about “the signal that it may send about how the criminal justice system treats wealthy tax evaders.”

The judge wrote that Warner’s commendable charitable spirit does not obviate the appropriateness of some period of incarceration. “He purposely sought to deprive the federal government of millions of dollars of tax revenue simply to amass more of his enormous wealth.”

Flaum noted that the government itself had decided to charge Warner with just one count. And he also pointed out that with sentencing guidelines of 46 to 57 months, the government had recommended a relatively modest period of incarceration (“in excess of a year and a day.”)

“For me, these two debatable acts of prosecutorial discretion point toward an affirmance in this case, as they provided a uniquely limited context for the district judge’s exceptional exercise of leniency.

“Without this backdrop, I would be inclined to vacate the sentence imposed and remain for resentencing. However, in light of a veteran jurist’s throughout and thorough consideration of the case, I am compelled to conclude that Warner’s sentence falls within a sentencing judge’s broad band of discretion.”