A Sour End to Dairy Scam : Retailing Genius Stew Leonard May Face Jail for Hiding $17.1 Million From the IRS in a Tax Fraud Case
Across the country, Stew Leonard is known as the kind of entrepreneur whom other American business people ought to emulate--a humble milkman whose retailing genius made him a big success.
For years, Leonard has lived by the slogan “the customer is always right,” going to extreme lengths to attract patrons to his massive, high-volume dairy store in nearby Norwalk, Conn.
He dresses his sales force in funny costumes and provides a free petting zoo for children--the sort of offbeat innovations that prompted visits by executives of Wal-Mart and other top retailing chains curious to find out why Leonard’s store is so profitable.
But there was a surprise behind his success.
While Leonard was collecting accolades, he also was skimming $17.1 million from the store’s sales using an ingenious computer program that deprived the Internal Revenue Service of an estimated $6.7 million in taxes.
IRS officials describe it as the largest criminal tax fraud case in the country in which a computer was used to hide the evidence.
On Thursday, the 63-year-old Leonard pleaded guilty to conspiring to defraud the federal government. To settle the case, he agreed to pay $15 million in taxes, penalties and interest. On Oct. 20, he and three co-defendants face sentencing. Each could go to jail for as along as five years.
Nor is the criminal case the last of Leonard’s problems. Connecticut consumer protection officials accused the store Friday of short-weighting or mislabeling thousands of items.
News of Leonard’s fall stunned the New England business community. Former President Ronald Reagan had given Leonard an award for entrepreneurial excellence. He was profiled in management guru Tom Peters’ book, “The Passion for Excellence,” about successful business strategies. And he was nominated for the Commerce Department’s prestigious Malcolm Baldridge Award.
So far, Leonard has declined to explain why someone with his flair for success--a man who clearly had won the admiration of his peers--would risk so much.
“I made a mistake,” he said as he left the New Haven federal courthouse after entering his guilty plea. “I’m very sorry.” He refused to comment further.
Company officials said Leonard no longer runs the store, which sells about $90 million worth of dairy goods and groceries each year. The business was listed in the 1992 Guinness Book of World Records as selling $3,470 of merchandise per square foot of floor space--the highest sales volume in the nation.
According to court documents, Leonard and his two brothers-in-law--Frank and Stephen Guthman, both vice presidents--began skimming the receipts in 1981. They had the help of Tiberio Belardinelli, a longtime employee.
The IRS apparently uncovered the scheme after Leonard was stopped by U.S. customs agents in June, 1991, while he was boarding a flight to St. Maarten, where he has a second home. Authorities said he was carrying $80,000 in cash that he had failed to declare.
About a month later, IRS agents searched Stew Leonard’s dairy and the basement of Frank Guthman’s home for evidence.
Officials said they found $484,000 in cash in a hidden safe in Guthman’s home.
The computer program used in the skimming operation was discovered in the company office--inside a hollowed-out book, Business Directory for New England, 1982-83.
