POSTED: 1:30 a.m. HST, Sep 16, 2010
Retired car dealer James Pflueger and son Alan Pflueger, who took over the dealership, were indicted by a federal grand jury yesterday on conspiracy tax fraud charges of claiming personal expenses as deductible business expenses.
Also charged with conspiracy were Randall Ken Kurata, chief financial officer for Pflueger Inc.; Julie Ann Kam, Alan Pflueger's executive assistant; and Dennis Lawrence Duban, a Los Angeles accountant.
The indictment alleges the Pfluegers' personal expenses were reported as business expenses by Pflueger Inc. and Pacific Auto Distributors, which are owned by Alan Pflueger. They did not report the money as income as required, the charges said.
In addition, James Pflueger is charged with a second conspiracy involving the setting up of a Swiss bank account and not properly reporting the profit from a 2007 sale of California land.
Pfluegers' lawyers strongly disputed the allegations.
Alan Pflueger's attorney, Dave Scheper of Los Angeles, predicted that the Internal Revenue Service ultimately will have to refund money to his client.
He said the Pfluegers are "deeply disturbed" by the IRS's conduct and "disappointed" by the decision to prosecute. He said his client is a "proven businessperson who always acts in good faith, but is not, and has never pretended to be, a tax accountant."
He said if the tax professionals made any mistakes, "Alan is confident that they were unintentional" and not the result of "some far-flung conspiracy."
James Pflueger's attorney, Steven Toscher of Los Angeles, said it was "unfortunate" that the government decided to bring the criminal charges. His client, he said, "is innocent and we will vigorously defend the case."
The tax allegations are unrelated to a manslaughter case against James Pflueger, accused in the 2006 breach of Ka Loko Dam on Kauai, which killed seven people.
The indictment did not specify how much money was improperly claimed as business expenses, but said the conspiracy involved 26 checks, many signed by Alan Pflueger and CFO Kurata from 2003 to 2006 in amounts ranging from $277 to $15,490.
The checks totaled more than $80,000, according to the indictment.
Alan Pflueger, whose full name is Charles Alan Pflueger, is charged with reporting income of $198,213 for 2003, $241,114 for 2004 and $695,724 for 2005 when he knew he received additional income.
James Pflueger reported income of $707,871 for 2004 and $4.8 million for 2007 when he knew he received more income, the indictment said.
In a second conspiracy charge, James Pflueger and his accountant are accused of sending proceeds from a 2007 California land sale to a bank account in Switzerland. They sent $14 million to the account that year, the indictment said.
Kurata is accused of filing false returns for Pflueger Inc.
Kam, who handled Alan Pflueger's expenses and maintained the books and records of Pacific Auto Distributors, reported income of $43,401 for 2004 and $47,398 for 2005 when she knew she received additional income, the indictment charged.
In addition to being charged in the two conspiracies, Duban is charged with helping prepare false income returns for James and Alan Pflueger.
Honolulu attorney Michael Purpura, who represents Duban, the accountant said his client looks forward to his day in court.
"We are confident that after a jury hears all of the evidence, Dennis will be completely exonerated," he said.
The conspiracy charge carries a maximum sentence of five years in prison, while the false tax return counts carry a prison term of up to three years. James Pflueger also faces a charge of not reporting a foreign bank account, which carries a term of up to five years.
The arraignments were not immediately scheduled and will likely be held later this month. A trial date would be set at that time.
Attorneys for Kurata and Kam could not be reached for comment.
James Pflueger, 84, is charged in the deaths of seven people when the Ka Loko Dam breached and sent 400 million gallons of water downstream on Kauai's North Shore. The case is on hold pending a ruling by the Intermediate Court of Appeals.
Pflueger's attorneys appealed Kauai Circuit Judge Randal Valenciano's refusal in January to dismiss the manslaughter charges.
Pflueger owned the land that includes the Ka Loko Dam and Reservoir.
Pflueger's attorney, William McCorriston, said that if the appeal isn't successful, the earliest the trial could be held is in late 2011.