News

Owners of Men’s Club and Adult Theater Plead Guilty to Tax Fraud


Under-reported the Income of the Two Businesses by Over $315,000

FOR IMMEDIATE RELEASE
December 12, 2008

Baltimore, Maryland - Isa Mufareh, age 66, of Baldwin, Maryland, and Khalid Darraj, age 38, of Parkville, Maryland, pleaded guilty today to conspiracy to defraud the United States by evading the payment of income taxes and filing false tax returns in connection with two businesses owned by the defendants, announced United States Attorney for the District of Maryland Rod J. Rosenstein. Maurice Mufareh, age 37, of Bel Air, Maryland, pleaded guilty to the same charge on December 9, 2008.

“For honest taxpayers who work hard and play by the rules, it is reassuring to know that criminals who cheat the IRS will be held accountable,” said U.S. Attorney Rod J. Rosenstein.

“IRS-Criminal Investigation has the financial investigators and expertise that is critical to locating the money. The prosecution of individuals who intentionally conceal income from the IRS is a vital element in maintaining public confidence in our tax system. We should not expect the honest taxpayer to foot the bill for those who hide income from the IRS,” stated C. Andre' Martin, Internal Revenue Service-Criminal Investigation Special Agent in Charge.

According to their plea agreements, beginning in 2002, Isa Mufareh, Khalid Darraj and Maurice Mufareh altered the accounting records of an adult-oriented men’s club called Christina’s and an adult movie theater called Apex Theater (“Apex”). The conspirators each owned a one third share of Christina’s and Apex through a corporation, KMI Enterprises and KMI Entertainment, respectively. Each of the conspirators received one third of the profits of each business and had knowledge of the operations and earnings of the businesses.

According to their plea agreements, during the operation of Christina’s, the conspirators minimized the income of the club in a variety of ways, including by: operating two cash registers at the bar but preserving only one cash register tape for records (thereby concealing all of the money paid at the other register); and maintaining two separate sets of books, one set which contained the actual earnings of the club, and a second set of books which contained false, lower earnings. The conspirators then provided their accountants with the false books, which were used to prepare the tax returns for KMI Enterprises.

From August to December 2004, agents of the Internal Revenue Service (“IRS”) Criminal Investigation conducted an investigation into Christina’s. An undercover agent tape-recorded a series of meetings with Isa Mufareh and Khalid Darraj, during which they described to the agent all of the operations of Christina’s, including the second cash register and false set of books. IRS agents executed a federal search warrant at Christina’s on January 13, 2005 and recovered two sets of books from the club, including what appeared to be the false books, as well as the secret, “real” books. Searches were also conducted at the defendants’ homes. At the residence of Maurice Mufareh, agents recovered a second set of books relating to Apex Theaters. Comparison between the second set of books recovered for Apex with the tax returns filed in 2003 for KMI Entertainment revealed that the conspirators had engaged in a similar pattern of underreporting the revenues of the theater.

From 2002 through 2003, the conspirators underreported the income of their businesses by a total of $315,362 with the result that they paid a total of $72,217 less in personal taxes.

The defendants each face a maximum sentence of five years in prison and a $250,000 fine. U.S. District Judge Catherine C. Blake has scheduled sentencing for Isa Mufareh for February 24, 2009 at 9:00 a..m.; Maurice Mufareh for March 6, 2009 at 9:00 a.m.; and Khalid Darraj for March 6, 2009 at 10:00 a.m.

United States Attorney Rod J. Rosenstein thanked the Internal Revenue Service - Criminal Investigation for its investigative work and commended Assistant United States Attorney Michael C. Hanlon, who is prosecuting the case.

 

 

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