Tax Troubles for Kinder-Care Founder
The founder of Kinder-Care, the nation’s largest child day-care chain, pleaded guilty Friday to evading taxes on $482,500 that he received for pledging company money to deals by Drexel Burnham Lambert Inc.
Perry Mendel, 69, entered the plea in federal court after the case was transferred from New York, where he and former Kinder-Care President Richard Grassgreen were indicted in a spinoff from the Michael Milken prosecution.
Mendel was allowed to remain free on $25,000 bond after entering the plea. A sentencing date was not set.
Mendel was charged with failing to report $482,500 that he received in 1984 as a “commitment fee” for agreeing to buy another company’s junk bonds from Drexel.
Mendel faces a maximum five years in prison and $250,000 fine. The judge could fine him twice the gross loss to the victim or twice his gross gain.
Assistant U.S. Atty. Broward Segrest said Mendel agreed to repay the company, file amended tax returns for 1985-89 and pay past taxes and penalties before he is sentenced.
Grassgreen earlier pleaded guilty to two counts of securities fraud in the deal, and is to be sentenced Sept. 12 in New York.
Federal prosecutors said Mendel and Grassgreen split a $965,000 payment that was supposed to go to Kinder-Care. Prosecutors said the money was paid after the two, through an entity they created called Megra Partners, committed Kinder-Care to buying about $85 million in high-yielding junk bonds to help finance a series of corporate takeover bids.
Eventually they bought $25 million in bonds, transferring them from Megra Partners to Kinder-Care. Prosecutors said that when the $965,000 was paid to Megra Partners, Mendel and Grassgreen kept the money and did not pay taxes on it.
The actions of Mendel and Grassgreen surfaced in the New York prosecution of Milken, the onetime Beverly Hills junk bond wizard now serving a 10-year sentence after pleading guilty to securities and other frauds.
Mendel founded Kinder-Care with a group of investors in Montgomery in 1969. Over the next two decades, as the demand for child care grew, the company became a national chain with more than 1,100 child-care centers. Its revenue hit a record $231 million in 1986.
But with Grassgreen at the helm, the company moved into the retail and financial services industries in the 1980s, eventually splitting into separately owned firms--Kinder-Care Learning Centers, the child-care chain, and Enstar, the financial-retail dealer.
Both fell into financial trouble, with Enstar seeking protection in bankruptcy court earlier this year and Kinder-Care unable to meet payments on about $400 million in debts.
Mendel retired last year and soon will lose his seat on the Kinder-Care Learning Centers board. He is being sued by the company and by stockholders, partly over an exit package that was to have paid him $500,000 for 10 years, a company spokesman said.
