Fleiss’ Father Pleads Guilty to Tax Fraud : Courts: In deal with prosecutors, the doctor reveals that he had been told about his daughter’s call-girl ring, contradicting earlier statements.

Long before his daughter was arrested on pandering charges, Dr. Paul Fleiss was told that she was running a prostitution ring, according to a plea-bargain agreement signed by the prominent pediatrician.

Fleiss’ acknowledgments in the plea bargain--approved by a federal court judge Thursday--are sharply at odds with his previous contention that he had no idea of Hollywood madam Heidi Fleiss’ illegal activities.

Under the agreement, Paul Fleiss pleaded guilty to three felony counts of conspiring with his daughter to defraud the Internal Revenue Service by concealing her income over three years, and making false statements to federal banks. Although he faces a maximum prison sentence of 65 years and a fine of $2.2 million, with the agreement he is likely to receive a sentence of four to 10 months and a fine of $50,000, according to the U.S. attorney’s office.

U.S. District Judge Consuelo B. Marshall set sentencing for September. The issue of whether Fleiss serves time is critical to his future. If the 61-year-old physician is sent to jail, his license to practice medicine will automatically be suspended, said Candis Cohen, spokeswoman for the Medical Board of California. Fleiss has been a prominent pediatrician in Los Angeles for 30 years.

Thursday’s hourlong court proceeding, as well as the plea-bargain agreement, detail several admissions of lies Fleiss told to the government and banks in an effort to help his daughter financially. At best, his statement and other evidence showed, Fleiss turned a blind eye to his daughter’s wrongdoing; at worst, he knew exactly how the Hollywood madam earned her livelihood.

“I love Heidi; she is my daughter. I love her very much,” Fleiss said after his court appearance. “I’m still quite worried about my daughter.”

Heidi Fleiss, 29, convicted in Superior Court last year of pandering, is scheduled for sentencing today. She faces three to eight years in custody.

Asked about her reaction to her father’s plight after his plea, she answered: “I have my own problems. I have so many problems.”

The father and daughter were indicted last year by a federal grand jury on charges of money laundering, conspiring to defraud the IRS of thousands of dollars, and making false statements to banks. A trial is scheduled next month. Heidi Fleiss’ lawyer, Robert Bonner, was unavailable for comment on how Thursday’s proceedings would affect his client.

Assistant U.S. Atty. Mark C. Holscher said Paul Fleiss will not be compelled to testify against his daughter when the prosecution presents its case. But Holscher said the government was prepared to ask the elder Fleiss to testify, if necessary, as a rebuttal witness.

Paul Fleiss faced an almost certain prison sentence of up to three years if convicted of the original charges. In a statement he signed as part of his plea agreement, he admitted that:

* In 1992, he was told by third parties that his daughter worked as a madam. In that same year, she deposited about $70,000 in cash into two of his bank accounts.

According to interviews and a memorandum filed by the U.S. attorney’s office and obtained by The Times, Heidi’s youngest sister, Shana, was prepared to testify that she had discussed with her father the fact that Heidi Fleiss was running a classy call-girl ring. Shana was granted limited immunity in exchange for her testimony.

* In the fall of 1990 and early 1991, Paul Fleiss knew that Heidi Fleiss was illegally making money from a betting operation. (She was subsequently convicted of misdemeanor charges related to her bookmaking.)

* In December, 1990, the doctor lied to a bank to purchase a Corvette with Heidi’s money. Knowing that she would not qualify for a loan, he used $6,000 of her funds as a down payment, putting the loan in his name, and later accepted $21,000 in cash from his daughter to pay the loan off.

* In June, 1992, Paul Fleiss acted as the “straw” borrower in a $1-million loan for a $1.6-million Benedict Canyon home on Tower Grove Drive that his daughter had fancied. Fleiss knew the loan application was completed with false information and he also knew that had the truth been known, he would not have qualified for this loan.

* From August, 1992, to November, 1993, Heidi Fleiss deposited $8,000 a month into her father’s bank account. Even so, Fleiss’ accountant--with the knowledge of his boss--reported Heidi’s 1992 income as $33,000. Fleiss “knew that he was assisting Heidi Fleiss in hiding her income from the Internal Revenue Service.”

*

In court, Fleiss--clad in a gray pin-striped suit--grinned frequently and clutched his hands behind his back, constantly tapping his fingers. When the judge asked Fleiss why he agreed to put the sports car in his name, Fleiss replied: “It’s very difficult for a 25-year-old girl to get a loan or insurance on a Corvette.”

Marshall asked Fleiss whether he knew that the money being channeled into his bank accounts was from illegal sources. Fleiss responded: “I had no idea. I was aware that she had a misdemeanor gambling conviction, I was aware she had income, but I had no special knowledge.” Later during the proceedings, Fleiss’ attorney, Lee Michaelson, sought to downplay Fleiss’ awareness of his daughter’s prostitution business--despite his client’s signed statement indicating that he had been told about it by third parties.

Michaelson said the real issue was “whether he believed that information or whether any parent would believe that information.”

Exactly what Fleiss knew about his daughter’s illicit occupation is likely to play a role in determining his sentence in September. For the purposes of the plea agreement, it was unnecessary to delve into Fleiss’ knowledge Thursday, Holscher said.

“Fleiss has finally admitted his guilt in participating in a three-year conspiracy in which he actively assisted Heidi Fleiss in hiding substantial amounts of cash from the IRS,” Holscher said. “It’s clear today he’s directly contradicting his prior claim that he wasn’t guilty.”

Legal experts not involved with the case said they believed Fleiss’ plea agreement was fair.

“It’s taking a tremendous risk by going to trial,” said defense attorney Richard Hirsch. “By pleading to what he pled to, Fleiss is entitled to a probationary sentence, a halfway house, or electronic monitoring.”

USC law professor Charles Weisselberg said Fleiss will probably “avoid a prison sentence, avoid the experience and emotional trauma of a trial. And he does not have to testify against his daughter.”

Fleiss family members and friends say the doctor was guilty of nothing but good intentions.

Elissa Fleiss, Heidi’s mother, said her ex-husband had made a selfless sacrifice once again for his beloved family.

“This is just another example of Paul’s lovingness and his concern for the family,” Elissa Fleiss said. “Paul did nothing wrong. He was just doing the expedient thing for the sake of the family.”