Rutledges indicted in tax case
By Curtis Lum
Advertiser Staff Writer
A federal grand jury yesterday indicted longtime labor leader Anthony "Tony" Rutledge and his son, Aaron, on charges accusing them of skimming hundreds of thousands of dollars from a corporation they headed and filing false tax returns on behalf of the company.
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Also named in the indictment was Star-Beachboys Inc., which was formed in 1972 to rent surfboards and other beach equipment in Waikiki. The company, which is headed by the Rutledges, is charged with aiding and assisting in filing a false tax return.
Tony Rutledge faces up to eight years in prison and $500,000 in fines if convicted.
The Rutledges are accused of taking more than $350,000 in receipts from the beach concession and concealing the income from the federal government. They also are charged with filing false corporate tax returns that understated the company's earnings.
Tony Rutledge was charged with one count each of conspiracy to defraud the U.S. Treasury and Internal Revenue Service, and aiding and assisting in filing a false tax return. Aaron Rutledge was charged with conspiracy to defraud the U.S. Treasury and IRS, and subscribing to a false income tax return. Aaron Rutledge also was reindicted on a witness tampering charge that was filed in October 2002.
If convicted, Tony Rutledge, 57, faces up to eight years in prison and $500,000 in fines. Aaron Rutledge, 33, could be sentenced to 13 years in prison and fined $750,000.
Star-Beachboys faces maximum penalties of $1 million in fines and 10 years of probation. The company held a license to operate a beach concession in Waikiki until 1999.
The two are scheduled to be arraigned in U.S. District Court Sept. 4.
Jim Boersema, a spokesman for Tony Rutledge, said Rutledge's California attorney has not reviewed the indictment and declined to comment. Michael Green, attorney for Aaron Rutledge, could not be reached for comment.
According to the indictment, the defendants and the late Arthur Rutledge "skimmed" more than $350,000 in daily cash receipts from the beach concession from 1992 to 1997 and put the cash in four safe deposit boxes. Arthur Rutledge, Tony's father and a powerful labor leader, died in September 1997 at age 90.
By using the safe deposit boxes, the indictment stated, the Rutledges were able to deposit and withdraw money without generating a record. The scheme continued up until yesterday's indictment, the court document said.
"As part of the conspiracy," the indictment said, "defendants and the late Arthur A. Rutledge maintained complete control over the safe deposit boxes and used the skimmed cash as a slush fund, having unrestricted access to the cash."
But once federal investigators became aware of the scheme, the defendants are accused of concealing their participation from their accountants, tax preparers and federal government, by not reporting the existence of the stolen money, according to the indictment.
The two surviving Rutledges even went as far as to blame the cash-skim scheme on Art Rutledge, the indictment said.
In court pleadings filed in February 1999, Star-Beachboys said the scheme "is really about an infirm, 91-year-old man, who for a reason none involved will ever be certain, determined to divert this cash, over a five-year period, from the hands of a legitimate business," the indictment said.
After federal search warrants were issued in October 1997, Tony and Aaron Rutledge deposited $589,214 in cash at a local bank and told a bank employee that the money was found at Art Rutledge's Kahala home, the indictment said.
Federal investigators armed with subpoenas searched offices of Unity House and Local 5 of the Hotel Employees and Restaurant Union in October 1997 and examined computer files. They later reported finding bundles of cash stored at Art Rutledge's home.
Tony and Aaron Rutledge also are charged with filing false tax returns on behalf of Star-Beachboys from 1993 through 1997. The indictment said the two men understated gross receipts and failed to report the money skimmed from the company.
The indictment also accused Tony Rutledge of withdrawing thousands of dollars from Star-Beachboys under the guise of a loan, but never intended on repaying it.
As head of the Local 5 and Unity House, Tony Rutledge is accused of conducting administrative activities of Star-Beachboys out of his union office and using union employees to perform services that benefitted himself, his son and Art Rutledge.
Local 5 was founded in 1938 by Art Rutledge and represents about 10,000 employees. Rutledge served as union president for 40 years.
From 1986 until 2000, Tony Rutledge was the financial secretary and treasurer of Local 5. He also heads Unity House, which was formed by his father in 1951 to provide assistance to union members and retirees.
