LITTLE ROCK — Craig A. Hagerty, 46, of Russellville agreed Friday to pay $1.4 million in back federal taxes, admitting to running a "sophisticated scheme" to disguise his income, in exchange for federal prosecutors dropping six of the eight tax-evasion charges against him.
But a federal judge rejected an attempt by his wife, Angela Lynn Hagerty, 39, described by authorities as a "passive partner" in the scam, to take advantage of a plea deal that would have resulted in all of the tax charges against her being dropped.
Prosecutors offered Angela Hagerty the opportunity to plead guilty to misprision of a felony - knowing about her husband's crimes but failing to report them - with prosecutors promising not to oppose her request for probation. The felony misprision count carries a maximum penalty of three years in prison, while Craig Hagerty faces a maximum of 10 years.
Assistant U.S. Attorney Michael Johnson told U.S.District Judge Susan Webber Wright that Angela Hagerty knowingly signed off on the couple's fraudulent tax returns. He told the judge the couple earned almost $4 million between 1999 and 2004 and lived a lifestyle that reflected that income, but they reported earning only a "small pittance" on their taxes, claiming at times to be earning at or near the poverty level.
Asked by the judge if the allegations were true, Angela Hagerty said, "Craig is the one who took care of everything. He brought home the tax returns and said sign here and that's what I did."
Wright said that claim wasn't a sufficient admission of guilt, saying to be guilty Hagerty had to be aware of her husband's crimes and that she knew she was signing false returns. The judge then asked Hagerty again if the allegations were " substantially" true.
"My attorney looked at the papers," Hagerty said, nodding toward her counsel, Jason Files. "And we think this is the best way."
But the judge responded that Hagerty hadn't admitted to doing anything wrong.
"That is not misprision of a felony," Wright said. "If you just signed the tax returns your husband brings to you and says, 'This is the truth,' and you believe him ... that is not a crime."
Wright said she would give Hagerty and Files about 10 minutes to discuss how to proceed, but the delay stretched to 32 minutes as sheand the attorney whispered in the courtroom, with Files briefly meeting with prosecutors and IRS investigators, who also held their own closed meetings.
Files told the judge the sides would need more time to "iron some things out," with Wright agreeing to set aside the plea agreement and setting a Nov. 2 trial for Hagerty on the eight-count indictment.
"Anyone who wants a trial is entitled to a trial," the judge said. "That's why I'm here."
Craig Hagerty remains in federal custody until sentencing, although no sentencing date has been set. He pleaded guilty to conspiracy to defraud the United States and evasion of payment, representing five years of trying to evade paying income taxes, with prosecutors dropping six counts of tax evasion.
"He went to very elaborate lengths to create [business] entities to hide assets," Johnson said.
Craig Hagerty funneled all of the assets and his income from his Russellville multilevel marketing business through a series of business trusts in Belize to disguise his money as foreign income that was not subject to U.S. tax laws, Johnson said. Hagerty and his wife accessed their money primarily through foreign-issued credit cards and wire transfers from their offshore banks, he said.
In February 2006, the couple, learning about an IRS investigation into their dealings, turned over five years' worth of tax returns, including some they had never filed before, Johnson said. He told the judge that authorities believe those returns are substantially correct and that they showed Hagerty owed the government $1,441,057 in restitution.
But even after admitting he owed the money, the prosecutor said, Hagerty still tried to hide his income, creating another company in April 2006 and listing a former employee as the owner with Hagerty as an employee when, in reality, the reverse was true.
Hagerty learned the evasion techniques from the now-defunct Aegis Co. of Chicago, Johnson told the judge. Aegis-related scams nationwide have cost taxpayers $60 million and led to numerous prosecutions, he said.
In 2002, a federal grand jury in Chicago that was investigating the company subpoenaed Hagerty to testify, but he refused, writing a letter to the grand jury foreman claiming that he wasn't subject to the jury's jurisdiction and threatening to sue for libel and slander, Johnson said.
The plea agreement also opens Hagerty to more severe sanctions for obstruction of justice, but his attorney, Omar F. Greene II, told the judge his client is truly remorseful.
"He's contrite," Greene said. "He's been recalcitrant, but I don't think he's that way anymore."
In a whispered exchange with Johnson and IRS investigator Lee Stovall just as the judge entered the courtroomto begin the proceeding, Greene told the men that his client was grateful.
"He wanted me to tell you he appreciated both of you being so nice to him," Greene said.
Arkansas, Pages 11, 17 on 09/26/2009