GEORGE F. LEE / GLEE@STARBULLETIN.COM Former union leader Tony Rutledge, right, appeared at the U.S. District Courthouse yesterday with his son Aaron, center.

---

Rutledge pleads
guilty to fraud

But a federal judge is concerned
about the ex-union leader's deal

Former union leader and Unity House Inc. President Tony Rutledge pleaded guilty to a tax fraud charge yesterday, but a federal judge says he has "grave and serious" concerns about the plea deal, which drops several other charges.

Rutledge and his son Aaron pleaded guilty in District Court under the deal with prosecutors that carried one count of tax fraud against Rutledge and a misdemeanor count of witness tampering against his son.

But it was unclear whether U.S. District Court Judge David Ezra will accept the agreement.

"On its face the court is going to require a considerable amount of justification before this court is going to be able to accept it," Ezra said, adding that he had seen "nothing in the agreement that would compel" him to do so.

"I have grave and serious reservations about the plea agreement," he added. "If I find that there is no justification for it, I will not hesitate to reject it."

Ezra made his comments about the deal at the start of the hearing, before the Rutledges had a chance to enter their pleas. Ezra then told the court he had recently had throat surgery and would not be able to speak for long, so he gave the defendants the option to postpone the proceeding or go before a different judge to make their pleas.

They chose the latter and entered their guilty pleas before U.S. District Court Magistrate Judge Barry Kurren. However, Ezra, as the presiding judge, has the power to reject the plea agreement.

"I take responsibility," Rutledge told Kurren. After the court proceedings, Rutledge told reporters that "nobody feels good about the plea, especially me."

Prosecutors declined to discuss why several charges of conspiracy and tax fraud had been dropped in the deal, but said in court that more information and evidence would be provided to Ezra. They also said the plea agreement was fair for all parties.

"We've considered the goals of sentencing," U.S. Department of Justice attorney Paul Cox said, adding that "this litigation has taxed the District of Hawaii and its resources."

In August 2003 a federal grand jury indictment alleged the Rutledges had skimmed $350,000 in earnings from Star-Beachboys Inc., the family's Waikiki Beach concession stand, from 1992 to 1997, hid the cash in at least four safe deposit boxes in Hawaii and used the money as a slush fund.

A superseding indictment, handed down in December, alleged that Tony Rutledge had tried to divert a portion of Unity House's $42.2 million in assets to overseas investments in an apparent attempt to circumvent an ongoing criminal investigation.

Yesterday, Rutledge pleaded guilty only to knowingly falsifying a tax return in October 1997.

Edmund Power, with the U.S. Attorney's Office, told the court Rutledge had misreported his earnings by $9,644.

Aaron Rutledge, who had also been facing tax fraud charges, pleaded guilty to witness tampering stemming from a Oct. 30, 1997, incident during which, he said, he phoned a secretary at Unity House and told her not to comply with a federal investigation.

The Rutledges' concession stand will also face fines under the plea deal, which holds it to one tax fraud charge for failing to report earnings in 1997.

Meanwhile, the plea deal allows Unity House's original board of directors, except for Tony Rutledge, to reclaim their seats and says Aaron Rutledge can return to the charity after serving a probation term.

That concerns Brook Hart, an attorney for Unity House, who said there are still a number of issues to settle. He said the outside receiver charged with controlling the charity's assets after the federal government seized them in December has at "least a dozen legal matters" pending.

"Aaron's apparent ability ... to (rejoin) Unity House, I think the receiver would be most concerned about this," Hart said.

After leaving the U.S. District Courthouse yesterday, Aaron Rutledge said he plans to return to Unity House as soon as he can. He declined to comment further.

Tony Rutledge's attorney, William McCorriston, said he will provide "explanations and reasons" to Ezra in hopes of getting him to accept the plea agreement.

McCorriston declined to comment on what kind of information he would be providing. "This is the best deal we can do," he told Ezra during the proceedings, to which the judge replied, "I was talking about justice."

The Rutledges' sentencing is set for April 10. It is unclear when Ezra would be making a decision on the deal.

Prosecutors recommended that the elder Rutledge be sentenced to five years' probation and be barred from being involved in Unity House's leadership. They said his son should get a year of probation and be allowed to return to the nonprofit after his term is completed, as long as he immediately resigns his post.

The maximum sentence for Tony Rutledge is three years in jail and a $250,000 fine. His son's maximum sentence is a one-year prison term and a $100,000 fine. The plea agreement recommends that the Rutledges' concession stand be fined $40,000, well below the maximum of $500,000.