Lavish Lifestyle Called Undoing of Hernandezes : Fraud case: Couple’s heavy spending prompted a tip to IRS. Otherwise they might not have been arrested.

Danny and Susie Hernandez’s penchant for the very best in designer clothing, luxury automobiles and lavish parties led to their arrests on fraud charges last week, and they might have never been caught if they had chosen to live more modestly, the prosecutor in the federal case said Wednesday.

Assistant U.S. Atty. Stephen Wolfe said “someone in the community” who questioned the Hernandezes’ extravagant lifestyle tipped off the Internal Revenue Service, which launched a yearlong investigation that culminated in conspiracy charges against the couple in connection with nearly $8 million missing from the precious metals firm where Danny Hernandez was employed.

“Someone suggested that Mr. Hernandez had more money than he could have acquired honestly,” Wolfe said. “It started with a phone call to the IRS and just went from there.”

The Mission Viejo couple, known for their charitable contributions and frequent appearances in Orange County’s society pages, surrendered to authorities last Friday morning after they learned that IRS agents had been looking for them at home.

They have been released on $100,000 bond each, despite Wolfe’s argument to a federal judge last week that they might flee the country if they were released from jail. Their case goes before a federal grand jury next week in Los Angeles. Neither of their attorneys, James Duff and Eugene Albertini, returned calls for comment Wednesday.

A criminal complaint alleges that the couple conspired to commit bank fraud, wire fraud and money laundering over a four-year period, fabricating transfers of nearly $8 million worth of precious metals, payments for which were ultimately traced to a bank account jointly controlled by the high-living husband and wife.

The payments came from PGP Industries, the Santa Fe Springs precious metals firm where Hernandez worked as a salesman from 1981 until December, 1992, when an audit sparked by another anonymous tip revealed the discrepancies.

Wolfe and others familiar with the case suggested this week that the couple might have escaped detection had they not flaunted their riches in such a way that others began to notice.

“If they had done this for a year and taken, say $2 million, and bought one car instead of 15 and given $1,000 to the Heart Assn. instead of a lot more, they might have gotten away with it,” Wolfe said. “If they had lived in a nice but unremarkable house in Orange County, who knows if anyone would have noticed?”

Instead, the government alleges, the couple accumulated millions of dollars worth of property, 15 luxury cars and $400,000 worth of jewelry and took frequent trips to Europe even though Danny Hernandez never made more than $57,000 in any one year and the couple filed for bankruptcy in 1985.

One source close to the investigation said the Hernandezes’ desire for the finest in material wealth--the freshest floral arrangements, the fanciest cars and the most fashionable clothes, including one dozen men’s tuxedos--caused their downfall.

“Everything was top of the line, always. It had to be the best or it wasn’t good enough,” the source said. “It was like they were living the typical life of a Miami drug dealer, only they weren’t dealing drugs. It was their greed that gave them away.”

Since 1987, the government alleges, Danny Hernandez has owned or leased at least 15 cars, including five Mercedes-Benzes, three Rolls-Royces, three Ferraris, one Jaguar, one Aston Martin, one Porsche and one Jeep. The cost of the cars and leases totaled $1.65 million.

Investigators have traced $7 million to the Hernandezes’ joint bank account from PGP Industries through a series of phony transfers between customers. During that time, the couple filed income tax returns showing they had earned $330,000.

Since news broke of the couple’s arrest, neighbors have been recalling instances in which they wondered about the couple’s wealth.

“Every week, it was these elaborate floral arrangements and limos, all sorts of expensive cars, every few weeks workers would be coming in with new artwork,” said a neighbor who asked not to be named.

The Hernandezes’ hilltop home in Mission Viejo, listed for sale at $900,000, is on a quiet cul-de-sac where its landscaping and three-car garage make it a standout. It has five bedrooms and 4 1/2 baths.

“They had too much wealth for this neighborhood, and this is not a poor neighborhood,” said another resident.

A third neighbor added: “I don’t think many people suspected them of doing something illegal, but it sure answers a lot of questions.”