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The Honolulu Advertiser
Posted on: Wednesday, December 27, 2006

Feds' probe likely saved nonprofit

By Jim Dooley
Advertiser Columnist

There are many who argue that the federal government's nine-year investigation and prosecution of local labor leader Tony Rutledge was a huge waste of time and money.

Originally charged with multiple fraud and conspiracy offenses and facing up to 93 years in prison, Tony Rutledge pleaded guilty this year to a single felony charge of filing a false corporate tax return in 1997. He was sentenced to three years of probation.

Rutledge agreed to sever all ties with Unity House, the nonprofit founded by his father, Arthur Rutledge, which was seized by IRS agents in late 2004 amid allegations of mismanagement.

Sometimes, waste handlers like us find a diamond ring glinting in the sludge and that may be the case with Unity House.

U.S. District Judge David Ezra recently said in court that the federal intervention at Unity House appeared to have saved the institution.

"I quite frankly am amazed at how well this turned out in spite of the fact that it appeared the ship had gone belly-up and was heading for the bottom," Ezra said in late October.

Efforts by a court-appointed receiver and new board of directors at Unity House, coupled with restraint by the IRS, have turned things around at the nonprofit, Ezra said in an Oct. 23 hearing.

The IRS chose not to "crush" Unity House, which the agency could have done if it had "taken a different tack," Ezra said.

Instead, after an exhaustive audit, the IRS assessed Unity House $93,605 in back taxes and interest, but waived any penalties and allowed the organization to change its tax status from a labor organization to a "social welfare organization."

Unity House has recovered about $18 million owed to it and is now free from debt and court oversight, according to James Boersma, new chairman of the Unity House executive committee.

"We're financially stable, we have assets above $32 million," he said.

Last month, Tony Rutledge's son, Anthony Jr., resigned as Unity House president and board chairman in part because he didn't meet new leadership qualifications adopted by the board, Boersma said. The junior Rutledge still works at Unity House "in the beneficiary services area," Boersma said.

Still unresolved are claims by Tony Rutledge Sr. and another son, Aaron Rutledge, for Unity House to pay more than $1 million in legal bills the two incurred during the criminal case. Boersma said he hopes that issue will be settled soon.

Tony Rutledge Sr. is rehabilitating his public image. Last week came the rather startling news that the Republican National Congressional Committee had selected Rutledge as its Hawai'i "businessman of the year," citing among other things, his "personal commitment to good honest government."

The organization said nothing about Rutledge's felony tax conviction this year or that he's on probation for two more years. His company, Star-Beach Boys Inc., is still paying off a federal $40,000 fine related to the tax offense.

In a press release, Rutledge said he was pleased by the honor. "I have always supported such Republican ideas as tax reform and debt reduction," he said.

If you know that a particular money trail will lead to boondoggle, excessive spending or white elephants, reach Jim Dooley at 535-2447 or jdooley@honoluluadvertiser.com