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Strip Club Owner Tells Judge He Can’t Go to Prison Because He Has Chores to Do

from www.twincities.com – In a letter to a federal judge on the eve of his sentencing, millionaire former strip-club owner Larry Kladek listed reason upon reason why it would be a hardship for him and others if he were sent to prison for tax evasion.

Among his worries: If he’s behind bars, who will prune the 11 crabapple trees outside his former Inver Grove Heights strip club, the King of Diamonds Gentlemen’s Club, now owned by his wife?

U.S. District Judge Patrick Schiltz was unmoved. In a hearing at which he chided Kladek for his “sheer greed,” the judge sentenced him to 20 months in prison, fined him the maximum $40,000 and ordered him to square up with the IRS.

Kladek, 66, with a net worth of more than $10.5 million, had sought to avoid prison. He argued that paying a stiff fine, repaying the IRS and serving 3,000 hours of community service would be punishment enough.

Federal prosecutors had sought a sentence of 18 to 24 months.

As he walked out of the courtroom after sentencing, the ponytailed Kladek was philosophical.

“What he said, he said,” he remarked, referring to the judge’s sentence. “There’s nothing I can do about it.”

He must surrender to federal marshals by Sept. 22.

The federal courtroom in St. Paul had been filled with diverse supporters, from women who may have worked at the King of Diamonds to Hmong farmers who work plots on the 77 acres where Kladek’s $1.8 million, 14,660-square-foot home is located.

“This is a significant contribution, not only to a minority community but also to the people of the state of Minnesota,” Patrick Ledray, addressing the judge as Kladek’s lawyer, said of the farming operation. “He has served in this community and to his family as a bright beacon.”

But the IRS claims that beacon was dimmed by Kladek’s tax evasion. Last September, a federal grand jury indicted him on nine counts alleging he engineered a complex scheme involving the ATM in his strip club to avoid taxes.

The government claimed that between 2000 and 2003, Kladek underreported his income by more than $2.4 million.

In December, Kladek agreed to a plea bargain. In return for his guilty plea to a felony charge of filing a false tax return in 2000 — when he underreported his taxable income by $170,000 — the government agreed to dismiss the other charges.

The guilty plea had originally been scheduled for November, but both sides asked that it be postponed a month. At the time, the Inver Grove Heights City Council was reviewing the town’s liquor licenses and officials had said they wouldn’t renew the club’s license if Kladek had a criminal conviction.

Prosecutors and the defense agreed that if Kladek lost his liquor license, he’d have trouble repaying taxes he owed. The city granted the license Dec. 8, and three days later, Kladek entered his guilty plea.

He later sold the strip club to his wife, Susan Marie Kladek, 42.

Kladek was a railway switchman who got injured on the job in the mid-1960s. He used the settlement for the injury to open a polka bar.

The polka bar morphed into a club featuring go-go dancers in 1966, then topless dancers in 1971. Two decades later, the dancers went totally nude. King of Diamonds now bills itself as the only Twin Cities club serving alcohol with nude dancers.

The IRS claims that after Kladek installed a private ATM in the club, he hit upon a scheme to cheat on his taxes.

Automated tellers must be linked to a financial institution, so Kladek set up an account for his ATM at Rosemount National Bank. When a customer withdrew cash from the ATM, his bank would electronically transfer funds to the ATM’s bank.

Kladek should have been replenishing the ATM with cash from Rosemount National Bank. But the IRS determined he was replenishing it with money from the King of Diamonds’ business income. In essence, the account at Rosemount National had become another business account for the club, but Kladek never reported the money that flowed through the ATM account on his taxes.

The indictment claimed that between 2001 and 2003, Kladek used $1.2 million from the account to build his house, another $748,000 to buy Xcel Energy stock and $40,000 for four college investment plan accounts “for the children of his girlfriend.”

When Schiltz gave him a chance to speak before sentencing, Kladek said he had a “deep, sincere sorrow” and was truly remorseful. But he also said he wanted to avoid going to prison.

“I would like to do the community service for the Hmong people,” he said. Papers his lawyer filed claimed that Kladek works 40 to 50 hours a week on the land and that as many as 60 Hmong families “directly benefit from Mr. Kladek’s work.”

But Assistant U.S. Attorney David MacLaughlin said, “He stole almost a million bucks from the national purse.”

He called Kladek’s escalating theft — failing to report $170,000 in 2000, growing to more than $1.2 million in 2003 — “a fairly aggressive, accelerating theft.”

He also said the work with Hmong farmers “has a self-serving flavor,” noting it was “started after he got jammed up in this case.”

In sentencing Kladek, the judge said Kladek’s crime “was motivated by sheer greed.” Schiltz noted that if Kladek had reported his income accurately and paid his taxes, he still would have been pocketing more than $1 million a year, “more than most people will earn in a lifetime.”

He saved his harshest criticism for Kladek’s reasons for wanting to stay out of prison, the supposed “chores” that people depend on him to do. The judge said courts often sentence people to prison who are a family’s only breadwinner or the only parent caring for a child.

“The hardships cited by Mr. Kladek are trivial,” the judge said.

He noted the man’s net worth and said, “He can afford to pay someone to prune his crabapple trees and spray weed killer for him.”

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