Hedge-Fund Manager Thomas Sandell Pays $105 Million New York Tax Settlement

The office said that Mr. Sandell, through his now-defunct hedge-fund firm, Sandell Asset Management Corp., had dodged paying state and city taxes on more than $450 million in fees for investment-management services in New York.

“Thomas Sandell and his company bilked New York taxpayers out of tens of millions of dollars in a single year—placing a tremendous burden on our system and forcing ordinary New Yorkers to bear that cost,” New York Attorney General Letitia James said in a news release.

A lawyer for Mr. Sandell declined to comment. As part of the settlement, Mr. Sandell and his firm didn’t admit to or deny the allegations, the attorney general’s office said.

Forbes estimates Mr. Sandell’s net worth at $1.3 billion. The New York hedge fund that he founded had been an activist investor in companies including bookseller Barnes & Noble, furniture company

Ethan Allen Interiors Inc.

and restaurant-and-packaged-food company Bob Evans Farms Inc. Like many other hedge funds, it had seen a decline in its assets under management in recent years, from $4.5 billion in 2006 to about $1 billion in 2014. Sandell returned outside investors’ money and turned into a family office in 2019, according to Forbes.

In 2007, the SEC settled with Mr. Sandell’s firm for $8 million over allegedly improper short sales made after Hurricane Katrina.

In the New York case, Ms. James’s office said Mr. Sandell was required to pay taxes on about $450 million in deferred fee income in New York City and state in 2017. In order to avoid paying these taxes, Mr. Sandell left New York and lived in London from August 2016 to mid-2019, and made it appear as though his firm was no longer operating in New York City, the office said.

The New York attorney general said Mr. Sandell opened a shell office in Boca Raton, Fla., which he told New York tax authorities was the firm’s sole U.S. operation, even though he had told the U.S. Securities and Exchange Commission that the business was in New York City.

The attorney general’s office said the investigation began with a 2018 whistleblower lawsuit filed under New York’s False Claims Act, under which people who report potential violations of the law are entitled to receive a percentage of settlement proceeds. The whistleblower in this case will receive an award of $22.05 million, which is 21% of the government’s recovery, according to Kirby McInerney LLP, the firm that represented the whistleblower.

Mr. Sandell has already paid the $105 million in back taxes and damages, the attorney general’s office said.

—Juliet Chung contributed to this article.

Write to Corinne Ramey at Corinne.Ramey@wsj.com