Gottschalks Pleads Guilty to Tax Fraud

Gottschalks department stores, a Fresno-based company with 25 retail outlets in California, Oregon and Washington, pleaded guilty Thursday to three counts of tax and securities fraud.

Assistant U.S. Atty. Bob Twiss described the $1.5 million in criminal fines that Gottschalks has agreed to pay as “a real heavy hit,” the maximum amount the government can assess.

In addition, the company will pay more than $2 million in unpaid taxes, penalties and interest.

“These were not technical violations of the tax and securities law,” Twiss said. “This was carried out to defraud the public who would trade in the company’s stock.”

The plea in U.S. District Court here ends a 15-month investigation by the Internal Revenue Service that examined what role Gottschalks Chairman Joe Levy and President Gerald Blum may have played in the fraud.

Twiss said there was insufficient evidence to indict either man; both are related to store founder Emil Gottschalk. But a Securities and Exchange Commission investigation continues, and the company’s former chief financial officer and former controller still face tax fraud and conspiracy charges.

In the first count, Gottschalks backdated documents to illegally claim a $3.6-million tax deduction in 1986. In counts two and three, the company engaged in an elaborate scheme in 1990 to inflate sales figures to deceive stockholders, Twiss said.

Gottschalks, founded in 1904, was the largest privately owned department store chain in California before it went public in the mid-1980s. Company Chairman Levy is considered one of the most powerful men in Fresno. His wife, Sharon, is a longtime Fresno County supervisor.