Former Hawai'i labor leader Anthony "Tony" Rutledge Sr. and his son Aaron pleaded guilty yesterday to significantly reduced criminal charges under a plea agreement with the U.S. Justice Department arising from a long-running tax fraud and conspiracy investigation.

Federal Judge David Ezra raised concerns about the agreement, saying he may reject it, and the former prosecutor in charge of the case called the arrangement "a travesty of justice."

Tony Rutledge pleaded guilty to one count of helping to file a false tax return in 1997 for Star Beach Boys Inc., a corporation started by his father, Hawai'i labor union patriarch Arthur Rutledge.

Under terms of the plea agreement, Rutledge would be sentenced to five years of probation. Rutledge would have faced a maximum of 93 years in prison if convicted of fraud and conspiracy charges made against him in a 13-count grand jury indictment returned in December.

Aaron Rutledge pleaded guilty to a misdemeanor charge of witness tampering and would be sentenced to one year of probation. The original charges against him carried a maximum penalty of 53 years behind bars.

The plea agreement also called for the return of control over Unity House Inc., a nonprofit labor benefits organization seized by federal authorities in December, to its former board of directors. The two Rutledges, who were Unity House executives, cannot have anything to do with the nonprofit at least during the terms of the probations.

Judge Ezra said he had "grave and serious reservations" about the plea agreement and delayed its effect until April of next year when sentencing is scheduled.

Edward "Ted" Groves, a former U.S. Justice Department Tax Division attorney who headed the Rutledge prosecution team until he moved to private practice two months ago, last night sharply criticized the plea agreement.

"I am greatly disappointed that the federal government would put Judge Ezra in the position of perhaps having to accept a plea bargain that sells out the workers of Hawai'i," Groves said in telephone interview from his Washington, D.C.-area home.

Tony Rutledge's defense attorney Jeff Rawitz said last night, "My comment to Ted Groves is, good luck in private practice."

Ezra told prosecutors Ed Power and John Fox that the original charges in the indictment "were far more complex and serious" than those in the plea agreement.

"I have not determined that I will not accept the plea agreement," Ezra said, but added that the government will have to supply "a considerable amount of justification before this court is inclined to accept it."

The defendants were scheduled to enter guilty pleas before Ezra but he said he had undergone surgery this week for removal of a noncancerous nodule from his vocal cords and was under doctor's orders to rest his throat.

Ezra sent the defendants and attorneys in the case to the court of U.S. Magistrate Judge Barry Kurren, where they entered their guilty pleas. Kurren set sentencing for April 10 before Ezra.

Assistant U.S. Attorney John Fox told Kurren that "these global plea agreements are unusual" but he said the terms of this agreement had been approved by officials in the Justice Department's criminal and tax divisions.

The government approved the agreement "for a variety of reasons" that will be detailed and explained in written submissions to the court, Fox said.

"Sharpen your pencils," Kurren told the prosecutors.

William McCorriston, attorney for Tony Rutledge, told Ezra the plea agreement was the result of hard bargaining by both prosecutors and defense attorneys. Outside the court, McCorriston said he could not immediately discuss the reasons for the reduced sentences.

Former prosecutor Groves said he believes the agreement "violates Justice Department plea policies."

"I have the utmost respect for Judge Ezra and his decisions," Groves said. "It is unfortunate that the federal government and the Department of Justice have put him in a position where he may have to sacrifice the interests of the workers of Hawai'i whose money may already have been squandered by Tony Rutledge."

The criminal charges alleging misuse of Unity House assets by Rutledge would be dismissed under the plea agreement, Groves said.

"All the evidence and testimony will never see the light of day because of this travesty of justice," he said.

Reach Jim Dooley at jdooley@honoluluadvertiser.com.