Gottschalks to Plead Guilty, Pay Fine in Tax Case

The Gottschalks department store chain on Thursday announced an agreement “to settle all criminal charges” against the corporation involving an illegal federal income tax deduction.

The chain of 25 department stores and 22 specialty shops in California, Oregon and Washington will plead guilty to three counts and will pay a $1.5-million fine, Gottschalks said in a press release.

John Frank, an attorney for Gottschalks, said the agreement applies only to the corporation and does not end an investigation of Chairman Joe Levy and President Gerald Blum as individuals.

“That’s ongoing; that’s not part of this agreement,” Frank said.

Levy denied that he or Blum had any knowledge of the improper deduction.

“Not only did we not know, but our CPAs (certified public accountants) did not know either, supposedly,” Levy said.

A federal prosecutor declined to comment on the agreement.

“I’m not in a position to discuss it at this point,” Assistant U.S. Atty. Carl Faller said.

The government charged that documents were backdated so Gottschalks could claim a $3.7-million deduction in 1986. The company had failed to make a tax-deductible contribution to an employee insurance plan before a deadline.

A federal grand jury indicted former Chief Financial Officer Robert E. Lawson, former Controller Jack Farnesi and two consultants on charges of conspiring to falsify documents. Lawson and Farnesi were fired during the investigation.