Michael P. Carlow, the former Kittinger Co. owner who served six years in prison for masterminding a $31 million check-kiting scheme that victimized PNC Bank, pleaded guilty this week to obstructing IRS efforts to collect about $6.4 million in unpaid taxes after the government agreed to drop more serious charges against him.
Carlow, who bought Kittinger in 1990 and presided over its near-demise within five years as his legal problems mounted, entered his plea during a 40-minute hearing before U.S. District Judge David S. Cercone.
As part of the plea agreement, new federal prosecutors assigned to the case agreed to dismiss charges brought against Carlow, 61, in a six-count federal indictment filed in April 2011.
Those charges, based on much of the evidence prosecutors cited in justifying the obstruction charge, could have put Carlow in prison for as long as 22 years. He faces a maximum sentence of three years for pleading guilty to a lesser charge.
Cercone honored Carlow’s request not to be sentenced before October, setting the sentencing hearing for Oct. 4. Prosecutors did not object to the delay.
The plea agreement comes after Carlow sought to have the indictment dropped because of a conflict over a former white-collar defense attorney who took a job as a federal prosecutor in Pittsburgh and was assigned to Carlow’s case.
“It’s a far cry from putting him in jail for the rest of his life,” said Martin A. Dietz, one of Carlow’s attorneys. “It’s pretty clear the government made a pretty big concession in this case.”
Carlow burst upon the Buffalo Niagara business community more than two decades ago with a reputation for acquiring downtrodden companies and turning them around.
At the time he bought Kittinger, the upscale furniture maker had 180 employees at its Elmwood Avenue factory and a reputation as one of the finest furniture makers in the country.
But Carlow quickly raised eyebrows among Kittinger’s workers when, less than a year after taking over, the company wasn’t able to pay its workers’ health insurance premiums because the company didn’t have enough money. Kittinger then had to drop a new furniture line it developed to replace a line of Colonial Williamsburg products it had lost when it appeared Kittinger’s owner before Carlow might close the business. A court ruled the new Kittinger line was too similar to the Colonial Williamsburg furniture.
After that, Kittinger workers began predicting that Carlow would close Kittinger and sell off its assets to squeeze as much cash as he could out of the furniture maker.
By February 1995, as Carlow’s check-kiting scheme was uncovered, Kittinger was down to 17 workers and on its way to a shutdown.
The company was revived a year later by a former Kittinger master cabinet maker, Raymond Bialkowski, and now employs about 20 people.
Jeffrey A. McLellan, one of the federal prosecutors present at this week’s hearing, declined to comment on why the government agreed to accept a plea on a lesser charge.
A court document prosecutors filed late last Wednesday accused Carlow of obstructing IRS efforts to collect federal income and payroll taxes, interest and penalties he owed dating back to 1990 and of concealing income and assets from the IRS. It said Carlow underreported his income on federal tax returns for 2003 through 2006.
According to the document, Carlow diverted income he earned at a series of companies he formed to his long-time girl friend, Elizabeth Jones of Upper St. Clair.
Jones was also indicted in April 2011 for conspiracy and two counts of filing false tax returns.
She pled guilty to the conspiracy charge in August 2011 and faces up to a five-year prison sentence.
Jones has not been sentenced and remains free on $25,000 bond.
Carlow also has been free on bond since his indictment. Cercone continued terms of the bond at today’s hearing.
Prosecutors said Carlow failed in 2004, 2005 and 2007 to disclose that he was a president of Marie Corp., a company named after his mother; that he owned Endura Corp., which had interests in oil and gas leases in Stark County, Ohio; and income from a string of businesses he started after being released from prison in 2002.
The businesses failed a short time after Carlow took control, leaving a string of unpaid bills reminiscent of the damage done at companies Carlow owned prior to pleading guilty to bank and tax fraud charges in 1996.
The $6.4 million in unpaid taxes cited by prosecutors relates to Carlow’s enterprises from the 1990s, ventures that included Kittinger, Pittsburgh Brewing, Clark bar maker D.L. Clark, and City Pride Bakery.
News Business Reporter David Robinson contributed to this report.