A former U.S. citizen who managed a cryptocurrency-focused hedge fund has been sentenced to over three years in federal prison following a DOJ investigation into a multi-year tax evasion scheme involving unreported income, undisclosed offshore bank accounts, and false expatriation filings.
According to Department of Justice records, Justin Ryan Schmidt, formerly of Austin, Texas, and now residing in the Cayman Islands, renounced his U.S. citizenship in March 2022. U.S. District Judge Robert Pitman for the Western District of Texas sentenced Schmidt on Monday to 37 months in prison, 3 years of supervised release, and $3.4 million in restitution.
Unreported millions and offshore accounts
According to court records, Schmidt managed a hedge fund specializing in cryptocurrency investments and earned at least $7 million between 2020 and 2022. Despite generating millions in income, prosecutors said Schmidt reported earning $5,000 or less on each of his U.S. tax returns during those three years. Authorities also said he failed to disclose millions of dollars held in foreign bank accounts, which U.S. taxpayers are generally required to report to the IRS.
Assistant Attorney General Colin M. McDonald said the sentence sends a clear message that renouncing U.S. citizenship does not place individuals beyond the reach of U.S. law. He said Schmidt deliberately concealed millions of dollars in income and assets from the IRS, filed false statements, and attempted to evade the Justice Department, but will now face the consequences of his actions.
Investigators said the false tax filings and undisclosed offshore accounts were part of a broader effort to hide Schmidt’s true wealth and avoid paying taxes on his investment income.
Citizenship exit didn’t end taxes
Schmidt formally renounced his U.S. citizenship in March 2022, but prosecutors said that did not end his tax reporting obligations.
Under U.S. law, individuals who expatriate must report their net worth, assets, liabilities, and tax compliance to the IRS. Prosecutors said Schmidt falsely declared his net worth at $25,000, despite it exceeding $2 million at the time. He also falsely certified that he had complied with his U.S. tax obligations during the previous five years.
According to the Justice Department, the case underscores that renouncing U.S. citizenship does not shield individuals from prosecution for violating U.S. tax laws before or during the expatriation process.
Colorado home flip
The case extended beyond Schmidt’s hedge fund earnings. In 2023, he purchased a home in Snowmass Village, Colorado, for approximately $5.8 million and sold it just three months later for about $9 million.
Because the profit qualified as U.S.-source income, Schmidt was required to report the gains and pay applicable taxes. Instead, prosecutors said he submitted false documents designed to prevent taxes from being withheld during the sale, allowing him to evade additional tax payments. That transaction became another key element of the government’s tax evasion case.
Why the case matters
The case shows that U.S. authorities are continuing to crack down on tax evasion involving cryptocurrency income, even when people move overseas or renounce their U.S. citizenship.
Although the case was not about investor fraud, it highlights that income from cryptocurrency investments must still be reported and taxed under U.S. law.
The IRS Criminal Investigation division investigated the case, while prosecutors from the Justice Department handled it. Schmidt has now been sentenced and must also pay about $3.4 million in restitution to the U.S. government.
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