Hernandezes Both Get Prison for Fraud : Trial: Mission Viejo high rollers appeal for leniency before he is sentenced to 71 months and she to 16.

Danny and Susie Hernandez, the Mission Viejo society couple who illegally amassed a $9-million fortune and flaunted a lifestyle that became the talk of Orange County, were each sentenced to prison terms Friday for their roles in a scheme to skim precious metals.

Danny Hernandez received a 71-month sentence, much less than prosecutors wanted. But his wife, Susie, who had sought to serve her sentence at home under a monitoring program, was given 16 months in federal prison and must surrender to authorities a month from today.

“I’m sorry,” said a pale and weeping Danny Hernandez as he kissed his wife goodby inside the Santa Ana courtroom after the sentences were pronounced.

The Hernandezes addressed the court separately, appealing for leniency.

Speaking first, Danny Hernandez told U.S. District Judge Alicemarie H. Stotler that “no amount of money is worth spending a day in jail for, and crime doesn’t pay.”

He apologized to his friends and family, especially to his children, ages 5 and 7, for his actions. “I hope Amanda and Nicholas can forgive their dad for not being the role model I should have been and for me not being with them,” he said.

His wife, meanwhile, pleaded with Stotler not to separate her from her children.

“I need my children as much as they need me and their father,” she said, barely able to speak between sobs.

Prosecutors had sought at least 10 years for Danny Hernandez, who pleaded guilty to mail fraud and money laundering in a complex scheme to steal precious metals from the company where he worked and divert them to bank accounts he and his wife controlled.

But Stotler gave him credit for making a “significant contribution” in cooperating with the government to help investigators bring criminal charges against his old company, and the judge said she believed he had taken full responsibility for his crimes. With good behavior, Hernandez is eligible to have nine months trimmed off his six-year sentence.

The government was less certain going into the hearing, however, that Susie Hernandez would receive any prison time because of her lesser role in the crimes. She had pleaded guilty to two counts of income-tax evasion. Stotler said Susie Hernandez probably knew “there was a criminal scheme underfoot” and the fact she has young children “should not carry the day.”

During a wild six-year spending spree that relied heavily on criminal profits, the government alleged, the couple spent freely on an $800,000 house in Mission Viejo, a $1-million house in Laguna Niguel, annual excursions to Paris and Milan, $400,000 worth of Neiman Marcus jewelry, a $30,000 country club membership, and a string of 15 luxury automobiles, including five Mercedes-Benzes and and three Rolls-Royces.

Their arrests in February, 1993, surprised their social set in Newport Beach, who knew the Hernandezes for their frequent charitable contributions and fund-raisers for countless worthy causes.

But investigators from the IRS, tipped to their flashy spending by “someone in the community,” scrutinized their tax returns and discovered that while they were reporting about $410,000 in income from 1985 to 1990, they had illegally gained some $7 million between 1987 and 1990 alone.

The couple had filed for Chapter 7 bankruptcy in 1985, listing assets of $188,440 and liabilities of $251,764.

Danny Hernandez had been an 11-year employee at PGP Industries, a precious metals company in Santa Fe Springs. He was fired in late 1992 when it was discovered that he had transferred precious metals between legitimate company clients, arranged for PGP to buy the transferred metals, and then had PGP issue a check or make a wire transfer into the customer’s account.

But it was Susie Hernandez who controlled the accounts and siphoned the money from the company, the government said.

Following their arrests, the couple was able to post bond.

But the couple continued to spend money, and Danny Hernandez, in particular, displayed a cocky and confident attitude, boasting that he might never serve jail time. One of his few regrets, he said, was that he might have hidden the money better.

In an interview with The Times one month after his arrest, Hernandez said he was entitled to the money, describing it as a kind of commission for a job well done. He also said that top PGP company officials were well aware of his scheme and condoned stealing from customers, considering the skimming part of the profits.

“What I did was not wrong,” he said at that time. “That was my percentage that I stole. . . . I was one hell of a good employee for my company. I did my job as well as you do yours. Do I feel guilty? Maybe in retrospect I do. But if they hadn’t given me a piece of the money for myself, it would have gone into someone else’s pocket.”

PGP officials have steadfastly denied the allegations, but federal officials have been investigating the claims to determine any criminal wrongdoing by the firm. And last month, a Salt Lake City manufacturer of explosives and detonators alleged in a civil lawsuit that PGP and its parent company, Gerald Metals Inc., committed fraud by taking $1.5 million of the company’s precious metals over a span of eight years. The lawsuit was detailed last week in the Advocate, a Stamford, Conn., newspaper.

The couple’s arrest did not keep them from embarking on a course to hide or dispose of their assets or continuing to spend money, government authorities said.

For instance, a month after his arrest, Danny Hernandez put $80,000 into an escrow account to buy actor Richard Gere’s $1.5-million home.

While declaring that all of her assets had been turned over to the government, including $315,000 worth of jewelry, Susie Hernandez tried to sell some of her jewelry back to Neiman Marcus at Fashion Island Newport Beach.

Though Neiman Marcus would not buy back the jewelry, Susie Hernandez admitted before FBI agents and during a lie detector test that she sold a $30,000 diamond Parve bracelet for $12,500 and a $30,000 matching pair of earrings sold for $7,500.

And two months after their arrest, while Susie Hernandez was pleading poverty and requested a federal public defender, her husband took off to see the Final Four basketball tournament in New Orleans because a favorite team was playing. When his commercial flight arrived late in Denver, he chartered a jet to take him and others the rest of the way, paying $5,000 in cash and charging the remainder of $2,800 on a credit card. The trips violated his bail agreement, which limited his travel to Southern California.

At the same time, he visited the Mirage Hotel in Las Vegas, paying $880 for his room and expenses. In June, he and his wife had a $3,000 reconciliation weekend in Napa Valley.

Still driving a Mercedes-Benz and escorting his children to a private school, neighbors complained that he was living better than ever.

But last September, Stotler placed Hernandez under house arrest and made him wear an electronic bracelet after learning of his travels. When he fell $400 behind in payments for the cost of the monitoring system last Thanksgiving, he was sent to federal prison in Los Angeles. He made a plea in January to be returned to home surveillance, but Stotler denied his bid, calling his assertion that he could not pay for the home detention “flagrant and foolish.”

The couple had become so desperate for money in recent months that Susie Hernandez began selling the palm trees and shrubbery from their Mission Viejo property to local landscapers at the time they were being evicted. The bank that owned the home has foreclosed.

In court papers filed before sentencing, Susie Hernandez said she had been duped by her husband, who told her that PGP was allowing him to invest in precious metals outside the company.

“He never told me he was embezzling from the company,” she said. “As our income began to increase, my husband told me that his investments were doing very well and that the company was now providing him with a compensation package which included bonuses.”

Susie Hernandez said she did not learn that her husband was involved in illegal activity until just before their arrests, although she did know that he was under an IRS investigation.

She admitted to selling jewelry but said it was done before the government requested a list of the couple’s assets last September.

In court on Friday, Assistant U.S. Atty. Stephen Wolfe rejected Susie Hernandez’s arguments, saying she played a larger role in the skimming scheme than she has acknowledged by having the illegal proceeds deposited into bank accounts in her name.

“She looks good only in relation to her co-defendant,” Wolfe said.

Danny Hernandez’s attorney, James T. Duff, maintained that Hernandez had contributed heavily to the government’s investigation of PGP and that his work might help officials recover $100 million to $150 million. But Wolfe minimized Hernandez’s role in the investigation, saying his “usefulness is all but nil” because of his pattern of deception.

“If charges are able to be brought, we cannot offer this defendant to a jury as a credible person to be believed,” Wolfe said. “If a case is brought, it will be in spite of this defendant.”

Danny Hernandez asked that he spend his prison time at a minimum-security prison in Boron in Kern County, while Susie asked that she serve her sentence at a women’s facility in either San Diego or Arizona. State officials are considering the requests.

Hernandez Case Chronology

* December, 1992: Danny Hernandez, sales representative at PGP Industries for 11 years, is fired for the alleged theft of $7.85 million from accounts held by the precious-metals firm.

* Feb. 19, 1993: Danny and his wife, Susie, are arrested. Authorities say Danny Hernandez fabricated transfers of precious metals among PGP customers and deposited some payments into accounts controlled by him and his wife. Both are released after each posts $100,000 bail.

* March 19, 1993: Federal officials formally charge the Hernandezes with money laundering, wire fraud and bank fraud.

* March 30, 1993: Danny and Susie Hernandez plead not guilty to federal charges.

* April 15, 1993: Danny Hernandez pleads guilty to one count of mail fraud and one count of money laundering.

* June 24, 1993: Susie Hernandez pleads guilty to income tax evasion.

* September, 1993: Federal judge determines Danny Hernandez violated bail terms by taking costly pleasure trips to New Orleans and Las Vegas and places him under house arrest. The court requires him to pay costs of an electronic ankle bracelet that alerts authorities when he leaves his house.

* Nov. 24, 1993: Danny Hernandez surrenders to federal authorities one day after U.S. District Judge Alicemarie H. Stotler issues a warrant for his arrest after he fails to pay the costs of the electronic monitoring bracelet.

* Jan. 14, 1994: U.S. attorney files a pre-sentencing report recommending that Danny Hernandez spend 12 1/2 to 15 1/2 years in federal prison. The same report recommends a 27- to 33-month sentence for Susie Hernandez.

* April 22, 1994: Danny Hernandez is sentenced to 71 months in prison; his wife is sentenced to 16 months.

Source: Los Angeles Times reports