Prosecutors seek
$1 million in bail
for Rutledge and son

Prosecutors say
an IRS investigation
jeopardizes Unity House

A federal prosecutor said the criminal investigation into labor leader Tony Rutledge's management of Unity House Inc. could result in the demise of the 53-year-old nonprofit organization set up to benefit local union members and retirees.

Since last week's seizure of Unity House, criminal investigators with the Internal Revenue Service have found new instances of "fraud, waste and abuse" at the $42.2 million charitable institution, said Assistant U.S. Attorney Ted Groves.

"There may not be a Unity House to operate once the IRS is done," Groves said.

Prosecutors asked yesterday that bail for Rutledge and his son Aaron be increased to $1 million, saying they committed new crimes after they were originally indicted on federal fraud and tax evasion charges in August 2003.

The Rutledges, who were previously released under a $50,000 unsecured bond, also should be confined to their homes, and their movements should be monitored electronically, prosecutors said. A hearing has been scheduled for Dec. 30.

Last week, a federal grand jury charged that both Rutledges squandered millions of dollars of Unity House's assets. The grand jury also alleged that Tony Rutledge tried to divert Unity House's assets to overseas banks in an apparent effort to circumvent the criminal investigation.

The allegations prompted Senior U.S. District Judge Sam King to issue a restraining order placing Unity House under the custody of an outside receiver, Anthony Pounders of EG&G Technical Services Inc. Yesterday, King extended the restraining order until Jan. 12.

The Rutledges, whose trial is scheduled for Jan. 11, pleaded not guilty to the new charges, and the elder Rutledge expressed concerns that the demise of Unity House has been a goal of the federal government.

"It's amazing. When you add it all up, they want to put us in jail for life without parole for nothing that we've done that I know of," he said.

Groves likened Unity House's plight to that of Kamehameha Schools during the late 1990s when the IRS threatened to revoke the educational charity's tax-exempt status over alleged mismanagement and self-dealing by the estate's board of trustees.

Kamehameha Schools settled with the IRS after trustees resigned from their $1 million-a-year posts and a state Probate Court-appointed interim board implemented major management reforms.

Brook Hart, an attorney for Pounders, said that one purpose of the receivership is to ensure that Unity House does not lose its tax-exempt status. It is also to preserve Unity House's assets for its beneficiaries and ensure that its money is available for the people who need its services, Hart said.

If Rutledge is convicted, the federal government will likely seek the forfeiture of Unity House's assets. But prosecutors hinted that third parties such as the local Teamsters union and the Local 5 Hotel Employees and Restaurant Employees union -- whose members and retirees are Unity House's beneficiaries -- could make a claim to the assets.

Tony Rutledge faces up to 93 years in jail, and his son faces up to 53 years if found guilty on all charges, prosecutors said.

"We support any actions by the federal government to stabilize the assets of Unity House until the full extent of these allegations are understood and the proper people are tried," said Anthony Gill, an attorney for Local 5.

In a related move, prosecutors said they plan to file a motion to disqualify the mainland law firm of Jones Day from representing Rutledge due to an undisclosed conflict.

Groves did not elaborate, but he noted that Jones Day holds about $500,000 of Unity House's money in its California offices. The money represents the unspent portion of the Rutledges' legal fees, according to Groves.

Pounders, Unity House's receiver, fired several of the organization's outside lawyers last week and asked them to return unspent retainers.

John Cline, a Jones Day partner and one of Rutledge's attorneys, disputed the $500,000 figure, saying the amount is closer to $50,000.

"Mr. Rutledge vigorously denies these charges. We look forward to defending these actions before the court," said Jeff Rawitz, Rutledge's main attorney and a lawyer with Jones Day.

"We feel confident that we will prevail, and the government will regret having brought these actions."