Pflueger Acquitted of Tax Fraud Charges; Financial and Legal Woes Far From Over

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James Pflueger
James Pflueger

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

Ala Pflueger, in addition to running the family auto business, is a winning race car driver like his father was

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

Dennis Duban, the accountant for James Pflueger, who testified against his client

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

Aurora Fehring Dingwall, Alan Dingwall and their son Rowan were killed in the dam breach on March 14, 2006, along with four other people and an unborn child.

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.

Comments

comments

23 COMMENTS

  1. Great article telling how bad this person is. He destroyed our aina and our people and hasn't paid his debts yet.

  2. I am a retired attorney who attended about half of the Pflueger tax trial. I also examined many of the exhibits and submissions made to the Court during the trial. For approximately nine years while I was still practicing, I defended pro bono an individual who I thought was wrongly convicted largely because of biased and prejudicial press coverage. By way of full disclosure, my wife’s mother and aunt (both now deceased) grew up with Mr. Pflueger’s until they moved to the Mainland after World War II. I was interested to see what the government’s case was against him.

    First, your headline is incorrect. The charges against Mr. Pflueger were not “vacated.” Judge Leslie Kobayashi expressly found Mr. Pflueger to be not guilty on all counts after her thorough and extensive review of the evidence (or lack thereof). Quite simply, the government presented absolutely no evidence that Mr. Pflueger committed tax fraud; and the real question that should now be asked is why the government wasted so much time and taxpayer money on a prosecution that they should have known had no chance to succeed. The accountants who did commit the fraud pleaded guilty to the crimes, and not one of them testified that Mr. Pflueger had any knowledge of or participated in it. The government must have known this to be the case prior to the trial. A balanced report by you of Judge Kobayashi’s decision today (like the one that appeared in the Honolulu Star Advertiser’s web site today) might have at least included some of these facts.

    Second, you refer to Mr. Pflueger’s “extensive defense team” yet fail to make any mention of the government’s larger prosecution team, including a prosecuting attorney brought in from Washington D. C. for the entire trial, and numerous, completely unnecessary witnesses from both the East and West Coast of the mainland the government flew in and put up in Honolulu hotels at taxpayer expense. Presumably you are trying to create the false impression in the minds of your readers that Mr. Pflueger somehow bought his acquittal. Nothing could be further from the truth as any fair reading of the evidence showed and as Judge Kobayashi properly concluded. There simply was no evidence to support the government’s case and all it did was to waste precious government resources.

    Your prior incorrect statements about the evidence and testimony in the trial also appear to be an attempt to advance the false impression that Mr. Pflueger was obviously guilty and could only be acquitted using high priced attorneys. For example, on February 18, 2013 in an article on your web site your reporter stated incorrectly that “To make up the difference [in the sale price of the Hacienda property], Duban said he and Pflueger agreed manipulate [sic] the financial records.” I was in the courtroom that day and there was no evidence or testimony at the trial to support this statement. The testimony to which you do refer does not support that assertion, and there is no reasonable basis to draw that strained inference as Judge Kobayashi concluded. Indeed, the government in its closing argument did not even make the contention that you incorrectly state as fact in your article. Were you not trying to convict Mr. Pflueger with your reporting, and were you concerned with a balanced reporting of the evidence at trial, you might have pointed out to your readers that the referenced testimony of this accountant (who had already plead guilty to the fraud) was also simply not credible in this area. First, it was shown that he had blatantly forged (and had other individuals in his office notarize) Mr. Pflueger’s signature to key documents regarding the sale and closing of the Hacienda property, and regularly forged Mr. Pflueger’s signature to other financial documents. Second, the same accountant testified on direct that his purported meeting with Mr. Pflueger at which this testimony allegedly took place happened before the sale closed, yet he then testified on cross examination that it took place in Honolulu after the sale. Third, and perhaps most significantly, the accountant’s purported statements to Mr. Pflueger about withholding the FRPTA tax (Foreign Investment and Real Property Tax Act) in the Fake Closing Statement (Ex. 3-13) the accountant prepared (which you incorrectly state they agreed to “manipulate”) simply made no sense whatsoever because the seller of the property was not a foreign person, and thus the transaction was not subject to such withholding. How do you “manipulate” a withholding that does not apply to the subject transaction?

  3. I could go on and on about your biased and flawed reporting about the tax trail. For example, you continue to make reference to the government’s disproved allegations that Mr. Pflueger “hid” the proceeds of the sale of the Hacienda property despite the unchallenged evidence that a Federal Taxpayer Identification Number was obtained from the IRS for the trust into which the funds were placed, that Brown Brothers Harriman in New York, the custodian for the bank holding the funds, issued a Form 1099 reporting to the IRS the income on the funds in the account, and that other documents filed with the IRS clearly showed that Mr. Pflueger was the person who placed the funds into the account. In other words, nothing was hidden from the government and everything was properly and legally reported to the IRS.

    In view of what to me seems your clearly biased and inaccurate reporting regarding Mr. Pflueger’s tax case, I have to question the accuracy of anything else you are reporting about him; and I think any of your fair-minded readers should do the same.

    • Seems you prsented these "facts " John….you really are retired? As for this largely biased and prejudicial press coverage charge, you disclos your wife’s mother and aunt (both now deceased) grew up with Mr. Pflueger’s family. So you know of the secret of his autistic brothers Jimmy hides from the world?
      Even if he's innocent of these charges, his statement in the Star-Advertiser; "Whom do I call to claim my innocence" reeks of arrogance, pride, & prejudice…..like Mufi, Neil, & other men who think the world revolves around them.

  4. I don't agree with you at all " John " . I give Hawaii Reporter not only credit for telling the true story but also allowing " johns " like you all the freedom in the world to rant on against them on their own website. If you want to be taken seriously please post your picture and full name. If you are not willing to do that than the Hawaii Reporter should just delete your comments right off this page.

  5. Malia is the only reporter who is brave enough to tell the truth about the things Jimmy pflueger has done. He got off because he threw everyone around him under the bus. He is a COWARD If JP would do something positive for a change I am sure the Hawaii Reporter would cover it. Please no one buy a car from pflueger Honda. Let's show the 1% that the 99% of us have POWER too…if we stick together

  6. our US Justice System has a lot to be desired.and the wealthy does benefit from some inequality that comes out of the system. and sometimes the government prosecuters have a political agenda for doing high profile cases,like getting name recognition so they can run for office somewhere.

  7. a disgrace what pfleuger has gotten away with. 3 cheers to malia, keep up the good work. The victims of Pilaa and Ka Loko should be compensated for all their sufferings. I repeat, a disgrace what is allowed to go on in our legal system.

  8. The Ka Loko victims were living in a flood zone when the dam broke. What's up with that Malia Zimmerman?

    • A flood zone is designated by potential areas of water rising from rivers, streams, etc. The dam is a holding area for water at a higher elevation. The dam broke as a result of HUMAN ERROR due to Jimmy Pflueger ILLEGALLY GRADING the area. those people would still be alive if it weren't for his arrogance and negligence. HE should be held fully accountable for his actions not his company. HIM.

      • The facts seem to be, that it is not established the Pflueger blocked the spillway to any degree, that the state was negligent in not inspecting the dam–so Pflueger would not have known from the authority having approval of the condition of the dam–and that the county had a habit of issuing stop worker orders to cover their butts without any engineering reason to do so and without enforcing their baseless orders so there doesn't seem to be any evidence Pflueger had any reason to think the grading should not be done.

        This happens with one party rule, which necessarily becomes corrupt. Hawaii is the Democratic party's Detroit of the Pacific.

      • Agree that Hawaii is the Democratic party's Detroit of the Pacific." yet your post conflicts with what's going on. Why is the state's Mark Bennet prosecuting when your post blames the county, which the prosecutors office would handle? The state seems proactive on water related cases per KHON2 report at: http://www.khon2.com/mostpopular/story/Action-tak

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