PITTSBURGH (AP) — A high-profile entrepreneur once sentenced to eight years in prison for a landmark fraud case has pleaded guilty to obstructing efforts by the Internal Revenue Service to collect more than $6.2 million in unpaid taxes, penalties and interest.
Michael Carlow, of Upper St. Clair, was indicted in 2011 on charges he conspired with his girlfriend to defraud the IRS to avoid paying taxes and penalties associated with his 1996 conviction in a check-kiting scheme, which cost PNC Bank more than $31 million.
On Friday, he admitted to buying his way into several small businesses and then arranging to have his girlfriend paid either as a principle or consultant with the understanding that the money would be passed on to him.
He was accused of filing fraudulent tax returns for the years 2003 to 2006, or failing to file them altogether for other years.
Carlow's girlfriend, Elizabeth G. Jones, 52, previously pleaded guilty to her role in the conspiracy and had agreed to cooperate with federal prosecutors. She has yet to be sentenced.
Federal prosecutors said Carlow did so in order to shield his income from the IRS who wanted to seize it to repay the previous $6.2 million debt.
Carlow faces up to three years in prison when he's sentenced Oct. 4 and his defense lawyer says he still must make arrangements to pay his IRS debts.
Carlow and his attorneys have been fighting the tax fraud charges, and on Thursday had been scheduled for a hearing seeking to have them dismissed.
Instead, the Justice Department filed a new umbrella charge of corruptly impeding the administration of the IRS from 2000 to 2011, which carries only a three-year maximum prison sentence. That's a fraction of the 22 years in prison and $1.5 million fine federal prosecutors said Carlow faced had he been convicted of the more serious charges.
A Justice Department attorney who was brought into to handle the case declined to comment on why Carlow was offered such a lenient plea deal and a department spokesperson did not immediately return a call for comment.
However Carlow's attorney, Martin Dietz, suggested it had something to do with the motion to dismiss the case on the basis that a defense lawyer Carlow had contacted before his indictment later went to work with the U.S. Attorney's office in Pittsburgh and later become involved in the investigation.
Speaking about the plea agreement, Dietz said "It's a far cry from the threat of putting him in jail for the rest of his life." Asked why concessions were made, he said only that "concessions usually don't come on behalf of the government and it's pretty clear the government made a big concession in this case."
In the 1990s, Carlow gained fame by publicly buying into several iconic Pittsburgh-area businesses, including those that made Clark candy bars and Iron City Beer. He ran the businesses into the ground while using their bank accounts for a check-kiting scheme, writing bad checks on the accounts that were covered by deposits made with other bad checks in a cyclical fashion.
Carlow pleaded guilty to living lavishly on money he siphoned from the artificially inflated balances of the business accounts, which were kept current by underlings who monitored the balances via electronic banking and made bogus deposits to cover billions of dollars' worth of bad checks that kept the scheme afloat until some of the businesses were forced into bankruptcy.
The scheme was so complex that in the final three months of the multi-year scheme one Carlow employee floated 3,700 bad checks worth $1.9 billion to artificially inflate the balances of 57 business bank accounts in 19 states, federal prosecutors said.