O.C. Socialite Pleads Guilty to Fraud, Money Laundering

Orange County socialite Daniel Hernandez pleaded guilty Thursday to single counts of money laundering and mail fraud, agreeing to pay the government the $7.8 million he stole from a precious-metals firm to finance his lavish, philanthropic lifestyle.

Under the plea agreement, which was sealed but read in part by U.S. District Court Judge Alicemarie H. Stotler, Hernandez will help federal prosecutors with their ongoing investigation of PGP Industries, the precious-metals company at the center of the case.

In exchange, prosecutors said they will ask that the 40-year-old Mission Viejo man receive a reduced sentence and will dismiss eight other charges of mail fraud, money laundering and bank fraud.

Hernandez has alleged that the Santa Fe Springs company knew that its employees doctored bookkeeping, falsified metal samples and skimmed precious metals from customer accounts. He has also claimed that the company encouraged the practices. At least three other former company employees have buttressed Hernandez’s claims with similar allegations.

Hernandez has claimed that his former employer also profited from the money-skimming operation, estimating that as much as $250 million had been improperly diverted over the past two decades.

PGP officials, however, have denied any wrongdoing.

Hernandez, his attorney and prosecutors declined to discuss the plea agreement Thursday, but both emphasized to Stotler that it was contingent upon the government’s promise to ask for a reduced prison sentence in return for “substantial assistance” from Hernandez.

Hernandez faces a possible 25-year prison sentence when he returns to court Oct. 4. Attorneys would not say how many years he is likely to serve in return for cooperating with authorities.

The arrests in February of Hernandez and his wife, Susie, shocked Orange County social circles where the couple were well-known.

The federal case against Susie Hernandez on similar charges is still pending. No plea agreement has been discussed, prosecutors said. Susie and Daniel Hernandez, who have two young children, were released from custody after posting $100,000 property bonds each.

While the government can confiscate any of the couple’s assets purchased with the stolen funds, much of the money has already been spent, said Assistant U.S. Atty. Stephen Wolfe.

Hernandez “is liable for as much as $7.8 million, but I don’t know if the government will ever find all of it,” Wolfe said. “We think it’s probably all gone.”

In an interview with The Times last month, Hernandez admitted to methodically stealing from PGP during his 12 years with the company, but said he acted on the firm’s behalf. He was fired last year when the allegations first surfaced.

Hernandez said he purposely shortchanged companies of metals worth about $8 million to $12 million a year and claimed that in some instances customers were aware of the skimming and paid him not to steal from them.

Hernandez said he channeled the money to bank accounts in California and Texas that were controlled by his wife. He insisted that the $7,856,327.47 the government traced back to the couple’s personal accounts were “commissions” he earned.

Hernandez has maintained that his wife was ignorant of his scheme and only followed his instructions in opening the accounts.

The couple used the money to buy a five-bedroom house in Mission Viejo and, since 1987, have either owned or leased 15 luxury cars, including five Mercedes-Benzes, three Rolls-Royces, three Ferraris, one Jaguar, one Aston-Martin and one Porsche, at a total cost of about $1.65 million.

The couple also bought hundreds of thousands of dollars worth of expensive clothing and jewelry.

In the interview, Hernandez estimated that he has given away about $1 million in recent years.

It was the couple’s opulent lifestyle that first attracted the attention of federal investigators. According to court records, tax returns showed that the couple grossed $410,500 between 1985 and 1990.

The cost of their society lifestyle, which included grand parties with Newport Beach socialites and generous donations to charities, far exceeds what the couple officially claimed they earned, investigators said.