Couple Face Prison, Massive Fines in Gas Station Fraud : Crime: They’ll be sentenced today on 54 counts involving tax cheating, doctored fuel and other offenses.

An Anaheim Hills couple who once ran gas stations throughout Southern California are to be sentenced in Los Angeles today for a series of frauds that damaged thousands of cars with doctored gasoline, threatened ground water with leaking fuel tanks and cheated the state out of millions of dollars in taxes.

Prosecutors have asked for fines totaling as much as $652 million and sentences of up to eight years each for Gary and Divine Grace Lazar, who entered no-contest pleas last September to 54 felony counts.

The case constitutes the largest criminal conviction in the nation for violation of air pollution laws, as well as the biggest state gasoline tax fraud case in memory, according to California regulators.

The Lazars, who will be sentenced in Los Angeles County Superior Court, ran a web of companies that systematically cheated consumers and taxpayers for as long as a decade, according to court records, grand jury proceedings and interviews with prosecutors, investigators and bankruptcy attorneys.

Many of the criminal charges resulted because the Lazars increased their volume of fuel with illegal additives without paying any increases in state gasoline and sales taxes, according to Anthony G. Patchett, lead prosecutor in the case.

The Lazars secretly sold customers gasoline doctored with a stew of kerosene, diesel and gasoline--called transmix--and alcohol, a concoction that smelled sour and often looked like foul chocolate milk or sludge-streaked coffee, court and grand jury records show.

“The crooks call it cocktailing,” said James J. Morgester, chief of compliance for the California Air Resources Board. He said the practice began on the East Coast and “moved out here with the Russian mafia” about 10 years ago. These illegal fuel mixtures, which are cheaper than gasoline, are also serious violations of state air pollution rules.

In a phone interview, Morgester recalled his first visit from Grace Lazar after a routine sampling showed contaminated gasoline. “She came in, tears running down her face, (saying), ‘I really didn’t understand the regulations,’ ” Morgester said.

But ARB inspectors kept finding bad gas at different Lazar-operated stations. “And when we started talking to our friends in the Franchise Tax Board and the Water Resources Board . . . it was clear to me that this was not some little mom-and-pop service station that was being picked on,” Morgester said. “It was clearly an organized criminal effort that had a lot more tentacles to it than the air quality portion.”

Through most of the 1980s, the Lazars and their companies--many now in bankruptcy--operated as many as 200 Southern California gas stations. At one time, they had 70 Texaco stations, but they also sold gas under the Target, Fast Fuel, Quality Gas and Distrol brands.

“It’s pretty hard to find the entire Lazar empire, because of their devious means and the way that they have attempted to hide ownership. It was a very sophisticated scheme,” said Patchett, a deputy in the environmental crimes division of the district attorney’s office.

Patchett spent three years building the sprawling case from wide-ranging investigations by a team of local and state agencies.

Attorneys for the Lazars say that the damage to state tax coffers and the environment has been overstated by prosecutors and that their clients are not the consummate villains the prosecutors claim.

“When you have a business . . . having problems staying afloat, sometimes people step over the line and do things that are criminal,” said Pasadena attorney Richard A. Moss, representing Divine Grace Lazar.

The Lazars pleaded no-contest to state tax fraud and filing false inspection reports for underground fuel tanks, illegally disposing of hazardous waste and selling contaminated gasoline.

The pleas included charges of evading $10 million in sales taxes and $13 million in state gasoline taxes. They also pleaded no contest to non-payment of $1.6 million in state cigarette taxes by using duplicate books.

According to former employees, the Lazars told their station operators to ignore complaints from customers such as Jesse Wang, a Yorba Linda computer salesman whose brand-new, top-of-the-line Mazda died a few yards after filling up at a Lazar-controlled Target station. Wang said the damage to the engine cost him $6,000.

After the mechanics showed him what he remembers as “muddy” gasoline, he decided to sue. But “the case never got resolved,” Wang said recently. “They just went into bankruptcy.”

Robert James Harrington, who coordinated construction projects for the Lazars from 1986 to 1988, brought the first evidence of the Lazars’ faked underground tank tests and other crimes to the district attorney’s office.

His suspicions were raised by the neatly typed test results that never found leaks. In his 15 years of work in tank testing, Harrington said, he had only seen smudged originals, made by testers in the field, and plenty of leaky tanks.

It was “just extremely unusual, unbelievable,” Harrington told the grand jury in 1992. At the main office, Harrington also learned that each manager had two trash baskets, square and round, to separate telltale paperwork for shredding, he said in a recent interview.

One independent tank tester, Earl Anthony Ortloff, estimated in grand jury testimony that his company faked more than 600 tests in 1986 and ’87 alone--without ever visiting the stations.

“They just didn’t know when to stop,” Carl W. Sjoberg recently said. Sjoberg, chief of industrial waste planning and control in the waste management division of the Los Angeles County Department of Public Works, led the county’s investigation of leaking tanks.

The Lazars also operated service stations in Orange, San Bernardino and Riverside counties. Though there is no accurate estimate of the cars damaged by the illegal gas, government and law enforcement officials estimate the number to be in the thousands. The Lazars operated the stations from the early 1980s until the early ‘90s, when they were indicted.

Federal and state laws have forced thousands of service stations to replace older, leaking tanks because gasoline--including “cocktailed” blends--contain toxics that include benzene, a cancer-causing agent; toluene, which can cause birth defects, and xylene, which can harm the liver, other organs and the central nervous system.

The Lazars’ attorneys contend prosecutors have made too much of these leaking tanks.

But Patchett, the chief prosecutor, saw the schemes differently.

“This is greed to its highest level, and a total indifference to the pollution that they caused,” he said.