Firm’s Owners Indicted on Tax Evasion : Courts: Sunrider International, a Torrance-based health food company, denies charges.

The owners of a Torrance-based health food company, whose opulent headquarters and gigantic home were renowned in the South Bay, were indicted Wednesday on charges they masterminded an elaborate money-laundering and customs fraud scheme to evade $38.1 million in taxes.

The 20-count indictment against Sunrider International and owners Tei Fu Chen, 45, and Oi Lin Chen, 44, is the largest individual tax-evasion case ever filed in Los Angeles federal court, according to Assistant U.S. Atty. George B. Newhouse Jr., who filed the indictment with Assistant U.S. Atty. Clare S. Phillips.

The company denied the charges.

The indictment alleges that the Chens used phony invoices from two shell corporations in Hong Kong to inflate the cost of raw materials and imported merchandise between 50% and 900%. In fact, the invoices were never paid, but the company still took deductions on the inflated cost of the goods, which included raw materials, herbs, cosmetics and health food products. The alleged scheme allowed the Chens and Sunrider to evade taxes on more than $126 million in income from 1987 to 1990, federal authorities say.

The Chens were charged with conspiracy, tax evasion, filing of false corporate tax returns and smuggling. They are expected to surrender to U.S. Magistrate Charles Eick on Friday.

In a statement, the company called the indictments “unnecessary, unwarranted and unjust.” General Counsel Richard Richards said the company has cooperated with authorities and has “consistently acted in good faith.”

“The basis of this case is, simply stated, a legitimate tax dispute complicated by the fact that Sunrider does business in over 20 countries,” Richards said.

If convicted on all charges, Tei Fu Chen faces a possible sentence of 87 years in prison and a maximum fine of $5 million. Oi Lin Chen faces a maximum sentence of 37 years in prison and a fine of $2.25 million. Sunrider faces $1 million in fines. The Internal Revenue Service has filed a civil case against the Chens seeking payment of back taxes, interest and penalties of more than $100 million.

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Times staff writer Deborah Schoch contributed to this report.