September 29, 2003

OFFICE OF THE UNITED STATES ATTORNEY
SOUTHERN DISTRICT OF CALIFORNIA
San Diego, California

United States Attorney
Carol C. Lam

For Immediate Release

NEWS RELEASE SUMMARY

Carol C. Lam, United States Attorney for the Southern District of California, and Eileen J. O'Connor, Assistant Attorney General for the Tax Division, Department of Justice, announced that the Honorable Irma E. Gonzalez, United States District Court Judge, today sentenced Ken Appel to12 months and one day in custody for willfully filing a false 1998 U.S. Individual Income Tax Return. Ken Appel pled guilty to this offense on June 17, 2003. Ken Appel owns and operates KB Books, a college bookstore with locations at San Diego State University, Mesa College, and City College.

According to court documents, Ken Appel also filed U.S. Individual Tax Returns for 1996, 1997, 1999, and 2000 that falsely understated his total income for those years. Ken Appel admitted his conduct of understating his income from 1996 through 2000 resulted in his failing to pay over $324,000 in federal income taxes. Pursuant to his plea agreement, Appel has paid over $324,000 to the Department of Treasury as a deposit against his civil income tax liability. Appel admitted in court that he has paid to date approximately $1.2 million to the IRS for outstanding personal and corporate tax liability, penalties, and interest.

According to court documents, Ken Appel and his wife are the sole shareholders for Casken, Inc., doing business as KB Books, with defendant serving as the company's President and Chief Executive Officer. KB Books generated considerable cash receipts among the large sales the stores generated. Ken Appel transferred large amounts of funds from Casken, Inc.'s corporate accounts to his personal accounts, which were treated as loans on the corporate books and records. Appel transferred $400,000 in one loan transaction in 1998 and transferred $350,000 in another loan transaction in 1999. Appel would then "pay back" these loans using skimmed cash (unreported gross receipts) from the business. Appel also skimmed considerable cash from the business for personal use. Appel did not report this income on his U.S. Individual Income Tax returns for the tax years 1996 through 2000.

Denise Rubin, Special Agent in Charge of IRS - Criminal Investigation in San Diego said, "IRS Special Agents are committed to investigating individuals who willfully challenge the integrity of our tax system. Ken Appel profited from the business of education and intentionally devised a scheme to evade paying his fair share of taxes. This case serves as a means of educating the community, including students entering the workforce, that filing fraudulent tax returns can result in criminal prosecution."

DEFENDANT

Ken Appel

SUMMARY OF CHARGES

Title 26, United States Code, Section 7206(1): Subscribing and Filing a Materially False Income Tax Return. Maximum sentence: Three years in prison and fine not to exceed $250,000.

AGENCY

Internal Revenue Service, Criminal Investigation