BY MALIA ZIMMERMAN – “Happiness.” That is what retired auto dealer Jimmy Pflueger told reporters he felt as he left the U.S.District Court House today, just after U.S. District Judge Leslie Kobayashi found him “not guilty” on four federal tax fraud charges.
The 87-year-old retired automobile dealer – who founded the Pflueger dealerships – had been charged with filing false tax returns after the U.S. Justice Department said he hid nearly $15 million in a Swiss bank account without paying taxes on the $27.5 million sale of the Hacienda Corporate Plaza in California.
Pflueger’s accountant, Dennis Duban, who has already pled guilty to a related tax fraud charge, testified Pflueger sent his money overseas to protect his assets after he was sued over the breach of his Ka Loko Dam in 2006. The breach killed 7 people and an unborn child.
Pflueger’s extensive defense team, made up of former law enforcement including a former IRS acting chief and the state tax director, claimed Pflueger’s signature was forged on key documents, that he was unaware of the tax fraud; and that his California accountant, Dennis Duban, took more than $2 million from him.
The defense team, headed by Steven Toscher, a Beverly Hills attorney from Hochman Salkin Rettig Toscher & Perez PC, and Edward M. Robbins Jr., called just three witnesses including the former IRS acting chief as a summary witnesses and a handwriting expert who claimed Pflueger’s signatures were forged. Pflueger did not testify in his own defense.
Although the judge said Leslie Osborne, chief of the Fraud and Financial Crimes division for the U.S. Attorney and Special IRS attorneys Timothy Stockwell and Dennis Kihm did not prove beyond a reasonable doubt that Pflueger knowingly conspired to defraud the United States of taxes he owed, the IRS will pursue a civil case against Pflueger to settle some $4.5 million in unpaid taxes from the sale of his California investment property, the Hacienda Corporate Plaza.
The IRS and state of Hawaii may also seek back taxes, fees and fines as a result of Pflueger filing inaccurate tax returns, in which his personal expenses were charged to the dealership after he sold it.
The IRS and U.S. Attorney spent three years on Pflueger’s criminal case and have a room full of thousands of documents at the federal building that were used as evidence against him.
Pflueger’s defense attorney would not say whether Pflueger will seek to have his legal fees paid by the federal government, which could exceed $20,000 a day for the 9-day trial.
Four Others Await Sentencing in Pflueger Tax Fraud Case
Charles Alan Pflueger, Pflueger’s son who now owns the Pflueger Auto dealerships, two of the dealership employees, Randall Kurata and Julie Kam, and the Pfluegers’ accountant Dennis Duban, were also indicted in 2010 on related tax fraud charges. In May 2012, Charles Alan Pflueger, Kurata and Kam pleaded guilty to filing false tax returns for Pflueger Inc. and another entity and agreed to testify on the prosecutors’ behalf against James Pflueger.
Duban was the accountant for Pflueger, his businesses, his son Charles Alan Pflueger and the dealership, as well as Pflueger’s girl friend Cindy Foster and several of her relatives.
Prosecutors said Duban knew Pflueger’s personal expenses and that of Charles Alan Pflueger were deducted illegally on corporate income tax returns as business expenses; prosecutors also said Duban conspired with Pflueger to falsely report the tax on the sale of the Hacienda Corporate Plaza by falsely increasing the land cost basis by some $7 million.
The proceeds from the sale, nearly $15 million, were sent to a Cook Islands trust and subsequently wired to the Wegelin Bank in Switzerland under the account name “Southpac Trustee International Inc., as Trustee of the Vista Pacifica Trust.”
As part of the plea agreement, Duban testified against Pflueger, admitted the tax loss to the government caused by his criminal conduct is $1 million, and will pay a 50 percent penalty on his personal undisclosed accounts in New Zealand. On April 13, 2013, Duban will be sentenced by U.S. District Judge Leslie Kobayashi and could face up to five years in prison and $500,000 in fines.
Charles Alan Pflueger will be sentenced April 4 on one conviction for filing a 2005 false income tax return that improperly categorized personal and family expenses charged to the dealership. He faces up to three years in prison, $250,000 fine and mandatory restitution.
Pflueger’s Legal and Financial Troubles Far From Over
Pflueger, who has assets of $71 million, is one of Hawaii’s wealthiest residents, but the tax fraud verdict is not the end of his legal or financial troubles.
Pflueger still owes the state of Hawaii $5 million in fines for polluting Pilaa Bay, a spectacular beach and bay on the North Shore of Kauai where he owns more than 300 acres.
Pflueger was convicted on 10 felony counts in 2006 for the 1,000-ton mudslide he caused in November 2001 through his illegal grading and grubbing on land above the bay that went into the ocean and destroyed the reef.
Besides the back taxes and fines that could exceed $5 million and the $5 million Pflueger owes the state for the Pilaa pollution, Pflueger still owes his own family trust $4.5 million on the purchase of Pilaa, which he made several years ago.
In addition, Pflueger owes another $4 million to the victims of the Ka Loko dam breach for the civil settlement he is more than a year overdue in paying.
During the federal tax fraud trial, prosecutors also showed financials that detailed Pflueger’s extensive legal bills that have been in the millions of dollars.
According to Kauai residents, Pflueger’s realtor has been showing his Pilaa property to prospective buyers. If Pflueger sells the property for what some estimate could be as much as $20 million, he could use the money to pay off his debts.
Pflueger and his relatives inherited considerable sums of land from the matriarch of the family, Pflueger’s grandmother, Mary Lucas. While much of the land has been developed and sold, Pilaa has remained undeveloped beachfront property.
Manslaughter Charges Still Pending
Pflueger still faces 7 counts of manslaughter for his role in the March 14, 2006, dam breach, which occurred just days after he pleaded guilty to the pollution charges at Pilaa.
The powerful waves that witnesses say reached more than 40 feet high in the early morning hours of March 14, 2006, swept Aurora Solveig Fehring, her husband Alan Gareth Dingwall, and their 2-year-old son Rowan Grey Makana Fehring-Dingwall, to their death.
The roaring, raging wall of water also killed Christina Michelle McNees, who was 7 months pregnant, and Daniel Jay Arroyo, her fiancé, who she was set to marry just hours later; Timothy Wendell Noonan, Jr., a friend who Aurora invited to stay with them after he lost his home; and Wayne Carl Rotstein, the Fehring’s caretaker and business partner.
On November 2008, Pflueger was indicted on seven counts of manslaughter and one count of reckless endangerment in the first degree by a secret grand jury convened by then State Attorney General Mark Bennett.
Witnesses testified Pflueger knowingly covered the dam’s main safety feature, its spillway, when without permits, he illegally flattened a hillside and placed dirt around the reservoir to prepare for home construction. Pflueger blamed the state and county for the breach.
In the Ka Loko Dam breach case, the attorney general who took over the case in 2010 with the election of a new governor, has reportedly offered Pflueger a deal that still must be finalized that would allow Pflueger to plead guilty to a felony reckless endangerment count, while his company would plead guilty to the seven counts of manslaughter.
Pflueger was scheduled to change his plea and accept the deal on March 14, 2013, exactly 7 years after the breach, but he postponed the court date until April 18, so the federal tax fraud case verdict could be behind him. Lawyers close to the case speculated that since Pflueger beat the federal tax fraud charges, he may also continue to fight the manslaughter charges. He has already delayed his trial for several years since being indicted in 2008 through appeals filed by his legal team.