02-03-05 -- Hersch, Gary -- Guilty Plea -- News Release

Former Senior V.P. of Pet Supply Company Pleads Guilty in Scheme to Shield Income from IRS

TRENTON - The former senior vice-president of a Neptune City business that distributed pet products and published pet care books and materials pleaded guilty today to conspiracy in a scheme with the company's chairman and major shareholder, Herbert Axelrod, to defraud the United States by concealing income that was paid into Swiss bank accounts and filing a false tax return, U.S. Attorney Christopher J. Christie announced.

Gary Hersch, 59, of Colts Neck, entered his plea to a one-count Information charging him with conspiracy before U.S. District Judge Garrett E. Brown, Jr., who scheduled sentencing for May 9 at 1 p.m.

According to the Information to which Hersch pleaded guilty, while employed with T.F.H. Publications, Inc. in the late 1960's, Hersch was in charge of the wholesale divisions. Hersch left the company in 1971, but returned in 1980 as a sales assistant and was later promoted to senior vice-president.

At his plea hearing, Hersch admitted that he and Axelrod traveled to Switzerland in the early 1980's to establish Swiss bank accounts for the purpose of avoiding payment of taxes on a portion of his income. Hersch admitted that his employment contract with T.F.H. entitled him to a salary and yearly sales-based bonuses. In addition, the employment contract entitled Hersch to severance payments totaling $1.5 million, paid over several years, in the event he was terminated.

Hersch admitted that beginning in 1984, Axelrod and T.F.H. paid his annual bonuses through deposits into his Swiss account. Furthermore, Hersch admitted that T.F.H. did not issue W-2 forms or 1099's to him for the bonuses and that he did not pay taxes on the bonuses.

Hersch admitted that he was terminated in 1996 and thereafter was told by Axelrod that he would be paid only $950,000 of the $1.5 million severance package. Hersch also admitted that approximately $775,000 of the amount was paid by T.F.H. through the deposit of checks into Hersch's Swiss account in 1997. Hersch admitted that his U.S. Individual Income Tax Return, Form 1040, was false and fraudulent because he failed to disclose the payment of at least $775,000 in severance pay made by T.F.H.

Hersch pleaded guilty to a one-count Information, charging conspiracy to file a false tax return and to defrauding the United States and the IRS, according to Assistant U.S. Attorney Michael Guadagno.

The charge carries a maximum penalty of 5 years in federal prison and a fine of $250,000

Hersch was released pending sentencing on a $250,000 personal recognizance bond.

In the filing of a felony Information, a defendant waives the right to have his or her case presented to a federal grand jury and, instead, pleads guilty to charges presented by the government.

In determining an actual sentence, Judge Brown will consult the U.S. Sentencing Guidelines, which provide appropriate sentencing ranges that take into account the severity and characteristics of the offense, the defendant's criminal history, if any, and other factors. Judge Brown, however, is not bound by those guidelines in determining a sentence.

Parole has been abolished in the federal system. Defendants who are given custodial terms must serve nearly all that time

Christie credited Special Agents of the IRS Criminal Investigation section, under the direction of Special Agent in Charge Patricia J. Haynes; the FBI, under the direction of Special Agent in Charge Joseph Billy Jr., and Postal Inspectors of the Postal Inspection Service, under the direction of Postal Inspector in Charge Martin D. Phanco, with developing the investigation resulting in the charges.

The Government is represented by Assistant U.S. Attorney Michael Guadagno, of the U.S. Attorney's Criminal Division in Trenton.

Defense Attorney: Michael J. Pappa, Esq. Hazlet