BY MALIA ZIMMERMAN AND JIM DOOLEY – Charles Alan Pflueger, head of Pflueger Auto, one of the state’s largest auto dealerships, pleaded guilty on Friday in federal court to tax fraud after he cut a deal with prosecutors.
The IRS claimed Alan Pflueger owes up to $1 million in taxes. When he is sentenced in January, Alan Pflueger could receive up to three years in prison, and be ordered to pay restitution and a $250,000 fine.
In statement to the media, Alan Pflueger said: “I’m disappointed in myself that this occurred and I want to use this negative experience to make me a better person so I can continue to contribute in positive ways to my family, my community, and my employees.”
Alan Pflueger is an award-winning veteran Pro-truck driver, who on the web site Pflueger Forum, is categorized as “fearless.” He has competed in some of the toughest races in the world, and in a 2002 news article in Racing West, was deemed “one of the fastest rising drivers in off-roading.”
Pflueger’s racing talents and fearless attitude are reminiscent of his father, James Henry Pflueger, 85, also a successful race car driver. Both built their wealth from the dealership that James Pflueger opened, as well as family trust money inherited from Mary Lucas, James Pflueger’s grandmother. Both Alan and James Pflueger are star athletes, and well known in business, ocean sports and car racing circles.
Hawaii Business magazine recently ranked James Pflueger as one of the wealthiest individuals in Hawaii. About him, Hawaii Business said: “In 1989, James Pflueger was paid $33 million for the old lot at 1100 Alakea St. in downtown Honolulu. James Pflueger also owned the lot beneath Capitol Place, which he co-developed with The Kobayashi Group and The MacNaughton Group.”
On September 5, 2010, James Pflueger and Alan Pflueger were indicted on charges of “conspiracy to defraud the United States for the purpose of obstructing the Internal Revenue Service in its collection of taxes.” Also charged were two Pflueger employees, Julie Ann Kam and Randall Ken Kurata, and Los Angeles-based accountant Dennis Duban.
After the 2010 indictment, Dave Scheper, attorney for Alan Pflueger, said: “If these professionals made any mistakes, Alan is confident that they were unintentional and simply the product of human error, and not part of any criminal conspiracy. Moreover, we feel not only that we will win this case but are confident that at the end of the day the IRS will owe Alan a refund.”
Kurata, an employee of Alan Pflueger as chief financial officer of Pflueger Inc., also pleaded guilty on Friday to filing a false corporate income tax return for 2003.
Under the plea deasl, additional counts were dismissed, but Alan Pflueger and Kurata must cooperate in the prosecution of others charged in the case.
That could include James Pflueger, Duban, and Kam, Alan Pflueger’s personal assistant and bookkeeper.
In his plea deal, Alan Pflueger directly implicated Duban in wrongdoing, alleging that Duban helped arrange the use of a Pflueger company to pay personal expenses of James and Alan Pflueger.
In 2004, Duban warned Alan Pflueger “of the negative implications associated with running (his) racing activities and other personal expenses through the books and accounts of Pflueger, Inc., and other subsidiaries” the plea agreement said.
“Duban assured (Alan) that going forward, these expenses would be accounted for properly by the company and for tax purposes,” the plea deal said.
Alan Pflueger pleaded guilty to filing a false 2005 income tax return, “knowing it was materially false in that it failed to report taxable income.”
Duban has pleaded not guilty in the case.
Florence Nakakuni, U.S. Attorney in Hawaii, said in 2010, that according to the indictment, the defendants also caused the personal expenses of Charles Alan Pflueger and James Pflueger, and others, including Pflueger family members, to be paid by Pflueger, Inc.
The indictment alleged that personal expenses were deducted as business expenses on the Pflueger, Inc. corporate tax returns, which were signed by Kurata. The indictment also stated that additional personal expenses of Charles Alan Pflueger, as well as Kam, were paid for by Pacific Auto Distributors, a company owned by Charles Alan Pflueger, Nakakuni said.
The U.S. attorney added charges for James Pflueger and his accountant Dennis Duban in connection with James Pflueger’s sale of a property in California.
The U.S. Attorney said an estimated $14 million in proceeds “were sent to a bank account located in Switzerland” and that James Pflueger failed to disclose the existence of the foreign bank account to the IRS.
Specifically, the indictment alleges James Pflueger and Duban set up the Vista Pacifica Trust in the Cook Islands, and then opened a bank account in Switzerland under that name, but they did not disclose the foreign bank account or the $14 million profit from the sale on a James Pflueger’s 2007 federal income tax return.
Duban, a CPA, is charged with “aiding in the filing of false federal tax returns on behalf of Charles Alan Pflueger (two counts) and James Pflueger (one count).”
Those filing false tax returns can be sentenced to a maximum period of imprisonment of three years and a maximum fine of $250,000.
James Pflueger faces a maximum period of imprisonment of five years and a maximum fine of $250,000 for failing to report the foreign bank account.
The trial for all of the defendants in the federal tax fraud case was originally set for November 8, 2011, but it was delayed until May 2012.
U.S. District Judge Leslie Kobayashi decided to splinter the indictment into three separate trials. On April 20, U.S. Attorney’s office filed a motion asking Kobayashi to reconsider the ruling, which ordered James Pflueger and Duban to be tried on their own, and the other co-defendants tried separately from James Pflueger and Duban.
Originally, Alan Pflueger and his two Pflueger family’s auto dealerships employees were set to go to trial in May; Duban was scheduled to go to trial in September, and James Pflueger’s trial was set for early next year. In their April 20 motion, prosecutors asked Kobayashi to reconsider that schedule, arguing that Duban should stand trial in the case scheduled to begin in May.
“If the current order stands, the government will be forced to unnecessarily try the personal expense case three times: once against Charles Alan Pflueger, Kurata and Kam, once against Duban, and once against James Pflueger,” prosecutors said April 20.
A separate appeal is pending on another court decision that James Pflueger and Duban must be tried separately. The decision was based on a defense argument that Duban has information exonerating Pflueger but could not deliver such testimony if tried jointly with the Pflueger because of self-incrimination risks.
Prosecutors have protested that ruling, issued by U.S. Magistrate-Judge Barry Kurren, and asked that it be overturned. Alternatively, they have asked that James Pflueger’s trial be held before Duban’s.
James Pflueger has other litigation to contend with. He is still awaiting trial in state court on 7 counts of manslaughter for allegedly causing the deaths of 7 people when his dam breached in March 2006. That trial has been postponed numerous times at the request of Pflueger’s attorneys, and is now set for early 2013.