ST. THOMAS - A federal probe into a property tax refund scheme that stole tens of millions of dollars from the District of Columbia government reached the Virgin Islands this week with law enforcement agents executing search warrants on two St. Thomas homes.

On Wednesday, agents from the Federal Bureau of Investigation, U.S. Marshals and V.I. Police searched residences at 5-1 Estate Sorgenfri and at 295 Hillside Drive in Anna's Retreat, FBI spokesman Harry Rodriguez said on Friday.

According to property records, the residence in Estate Sorgenfri is owned by 48-year-old Richard Walters, who is one of five people arrested by law enforcement agents in the District of Columbia and Maryland on Nov. 7 in connection with the scheme that fraudulently approved and issued property tax refunds from the District of Columbia's Office of Tax and Revenue.

The other four people arrested are Diane Gustus, 54, a Real Property Program specialist with the D.C. Office of Tax and Revenue; Connie Alexander, 52; Jayrece Turnbull, 33; and Harriette Walters, 51, manager of the D.C. Real Property Tax Administration Adjustments Unit.

Harriette Walters' family members own the Anna's Retreat property searched by federal agents on Wednesday. Family members reached by The Daily News declined to comment.

Prosecutors said the elaborate scheme was designed to steal millions of dollars in public funds.

"The arrest warrants and felony complaints charge the participants in the scheme with several felony offenses, including mail fraud, bank fraud, money laundering, interstate transportation of stolen property, and conspiracy. If convicted of bank fraud alone, the defendants face a maximum sentence of 30 years in prison," according to a statement by the U.S. Attorney for the District of Maryland released on Nov. 7.

The cases will be prosecuted jointly by the U.S. Attorneys' Offices for the Districts of Columbia and Maryland.

According to court documents, the defendants abused a District of Columbia tax code mechanism that allows property owners to recoup money if they overpaid real estate taxes.

"The conspirators in this scheme obtained millions of dollars in fraudulent property tax refunds by submitting applications for property tax refunds with false information, including false applicant names and false property information," FBI agent Matthew Walsh said in an affidavit filed in Maryland District Court. "The scheme succeeded because corrupt District of Columbia government employees knowingly approved fraudulent property tax refund applications."

The scheme bilked more than $16 million out of the District of Columbia's coffers between January 2001 and September 2007, he said.

Prosecutors say the defendants deposited most of the stolen funds into sham corporate accounts controlled by Harriette Walters' relatives, such as Chappa Home Services and Legna Home Services, which were overseen by Jayrece Turnbull, and Helmet Plumbing and Heating, an account controlled by Richard Walters.

"The fraudulently obtained funds then allegedly were distributed through cash, cashier's checks, and wire transfers to the co-conspirators and family members, who used the funds to purchase homes, vehicles, jewelry, luxury clothing and houseware items, and other real and personal property, among other things," according to a U.S. Attorney for the District of Maryland.

According to court documents, Harriette Walters - who made an annual salary of about $80,000 - bought several expensive homes, deposited $8 million into her bank account over seven years, spent more than $1.4 million at Neiman Marcus luxury department store, and spent several hundred thousand dollars at other retailers such as Saks 5th Ave., Macy's and Louis Vuitton.

In a Nov. 7 search of Harriette Walters' home in Washington D.C. federal agents seized a Faberge egg, 113 pieces of jewelry, 25 watches, a pair of silver-plated iguana figuerines, collections of stemware, luggage, 414 articles of clothing, 88 designer purses, 68 pairs of shoes and a mink coat.

Some of the stolen money was sent to off-shore accounts and a money-exchange institution in the Dominican Republic that has no bank branches in the United States, according to a U.S. Attorney for the District of Maryland.

"Public officials serve the public, and those who abuse the public's trust by treating the District's tax coffer as a private cash trough will be rooted out and held accountable for their actions," U.S. Attorney for the District of Columbia Jeffrey Taylor said in a Nov. 7 statement.

U.S. Attorney for Maryland Rod Rosenstein said that "Corrupt government employees can cause tremendous harm when they abuse their authority and line their pockets with taxpayer dollars. This expeditious, effective, and coordinated investigation demonstrates our commitment to ensure that any government employee who betrays the public trust and steals from the taxpayers is held accountable."

- Contact Tim Fields at 774-8772 ext. 364 or e-mail tfields@dailynews.vi.