Did Beanie Babies billionaire get off too easy? Court hears arguments on toy maker's sentence

FILE - In this Jan. 14, 2014 file photo, Ty Warner, the billionaire who created Beanie Babies, arrives at federal court where he was sentenced to community service but no prison time for hiding at least $25 million from U.S. tax authorities in Swiss bank accounts. On Wednesday, Sept. 17, 2014, a three-judge appellate panel at the U.S. 7th Circuit Court of Appeals in Chicago is scheduled to hear arguments from prosecutors who say Warner's punishment was way too lenient and from defense attorneys who say it was just right. (AP Photo/Andrew A. Nelles, File) (The Associated Press)

CHICAGO – Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the judicial system's ability to deter other tax evaders.

The hearing before the U.S. 7th Circuit Court of Appeals in Chicago delved into whether H. Ty Warner got off too easy given the lengths he went to conceal his crime, or whether the judge was right to essentially deem the misdeeds to be out of character for someone with a substantial record of charitable giving. While prosecutors rarely appeal sentences, they contend that the trial judge in this case inadvertently sent the message that there are different standards of justice for the rich and the poor.

Assistant U.S. Attorney Michelle Petersen rattled off the steps Warner took to conceal his wealth for more than a decade: lying to his own accountant, instructing the bank to destroy records and shifting money to another foreign bank when his came under scrutiny. He also warned the bank of "consequences" if his requests were not heeded, and only made efforts to come clean after learning his banker had been indicted, she said.

One of the appeals judges interrupted her, saying the trial judge, Charles Kocoras, considered all of that but acted within the bounds of the court's discretion by focusing heavily on Warner's character, in particular Warner's charitable work and private acts of generosity, which Kocoras described as "overwhelming."

The judge is "not some bleeding-heart Pollyanna," said Judge Ilana Diamond Rovner, adding that Kocoras must have agonized over the decision and likely knew it would be unpopular.

Warner pleaded guilty and was sentenced in January to two years of probation and 500 hours of community service for filing false tax returns and failing to report more than $24.4 million in income from the accounts. Prosecutors had sought at least a year in prison, arguing that at least some prison time was necessary to serve as a deterrent.

Warner also agreed to pay $27 million in back taxes, plus interest, and a civil penalty of more than $53 million.

That's nearly 10 times the $5.6 million tax loss his actions caused.

Warner's attorney, Paul Clement, said during Wednesday's hearing that those financial penalties were a "substantial deterrent" and that others guilty of the same offense could not expect to escape prison time, asserting that his client's record of good acts made the case unique.

"Any other judge looking at the sentencing transcript will realize this is a ticket good for one train only," Clement said.

Clement also noted that tens of thousands of others have avoided prosecution altogether through a tax amnesty program. Warner was unable to join the program because his undeclared account was already known to the government.