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Department Store Chain Reaches Plea Bargain in Tax Case

July 16, 1992

FRESNO Calif. (AP) _ The Gottschalks department store chain on Thursday announced an agreement to settle all criminal charges against the company involving an illegal federal income tax deduction.

The chain of 25 department stores and 22 specialty shops in California, Oregon and Washington will plead guilty to three counts and will pay a $1.5 million fine, Gottschalks said in a press release.

John Frank, an attorney for Gottschalks, said the agreement applies only to the corporation and does not end an investigation of chairman Joe Levy and president Gerald Blum.

″That’s ongoing; that’s not part of this agreement,″ Frank said.

Levy denied that he or Blum had any knowledge of the improper deduction.

″Not only did we not know, but our (certified public accountants) did not know either, supposedly,″ Levy said.

Assistant U.S. Attorney Carl Faller declined to comment on the agreement.

The government charged that documents were backdated so Gottschalks could claim a $3.7 million deduction in 1986. The company had failed to make a tax deductible contribution to an employee insurance plan before a deadline.

A federal grand jury indicted former chief financial officer Robert E. Lawson, former controller Jack Farnesi and two consultants on charges of conspiring to falsify documents. Lawson and Farnesi were fired during the investigation.

The corporation has agreed to plead guilty to one count each of conspiracy to defraud the Internal Revenue Service, conspiracy to file false statements with the Securities and Exchange Commission and filing false statements with the SEC for the second quarter of 1990.

″When you hire someone and make them an officer, they act on behalf of the company, and the company is responsible for what they do,″ Blum said during a break in Gottschalks annual meeting.

Gottschalks, founded in 1904 by a grandfather of Blum and Levy, was the largest privately owned department store chain in California before it went public in the mid-1980s.

Gottschalks stock on the New York Stock Exchange has fallen from about $22 per share in February to $8.50 at Wednesday’s close.

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