Scheme May Have Netted Man $6 Million Authorities Say Investors Expected Healthy Returns From Fixed Races

A federal income tax fraud case filed Monday is tied to a larger scheme in which Spokane residents may have been bilked out of as much as $6 million.

The money was given to James R. Isbey, who promised returns of 25 percent to 65 percent in a matter of days, authorities say.

Investors were told the money was being sent to California to illegally fix horse and dog races.

But a three-year federal investigation concluded the money probably never fixed anything. “From what we can tell, the money never made it past Mr. Isbey,” said Assistant U.S. Attorney Tom Rice.

“It was nothing more than a Ponzi scheme, and it all collapsed in July 1995 when Isbey was unable to repay investors,” Rice said.

Isbey left Spokane, and his current whereabouts aren’t known. Court records show that Isbey, 36, was convicted of drunken driving in Spokane in 1994.

Those who lost money to him were reluctant to talk with investigators or didn’t come forward because they thought their money was going for illegal activities, Rice said.

That makes it impossible to calculate the exact loss, but investigators said they do know Isbey paid a 5 percent commission to Irma Elaine Kilbourne.

The former Washington state Department of Agriculture employee helped Isbey convince investors and collect their cash from early 1994 through July 1995.

Most contacts were through friendships made at Spokane restaurants, where most of the cash transactions took place, Rice said.

Kilbourne was paid an estimated $300,000 from 1993 to 1995, Rice said.

Kilbourne, 56, and her husband, Joseph Kilbourne, 57, pleaded guilty Monday to under-reporting their 1994 federal income tax by five times.

The Kilbournes reported their 1994 joint income was $43,223, when they actually earned $223,223 that year, U.S. District Judge Fred Van Sickle was told.

The Kilbournes both pleaded guilty to subscribing to a false income tax return.

The charge was contained in information filed Monday, simultaneous with the couple’s court appearance. The couple waived presentment of the case to a grand jury, and immediately entered their guilty pleas.

In a plea agreement, the couple agree that they owe an additional $34,000 in federal income taxes for 1993-95, and must file amended returns for those years.

As part of the deal, prosecutors agreed not to bring other income tax fraud charges against the Kilbournes for the years involved.

Rice said 20 investors were identified and questioned during an IRS and grand jury investigation.

It revealed that the Kilbournes purchased a $164,000 condominium in Cabo San Lucas, Mexico, and made extensive improvements to their Spokane home.

The Kilbournes told the judge that they repaid investors an estimated $180,000 after Isbey’s scheme collapsed.

Rice said Isbey apparently didn’t break any federal laws in the scheme - unless he, too, under-reported his income.

It’s become routine for the U.S. attorney’s office to file a high-profile income tax case usually about two weeks before the April 15 income tax deadline.

, DataTimes