Two top executives of Northwest Behavioral Healthcare Services, a Gladstone-based residential treatment center for adolescents with behavioral problems, stood before a federal judge Tuesday and apologized for concealing millions of dollars of income to avoid paying taxes.
Prosecutors asked for two-year prison terms, while defense lawyers for Daniel Mahler, president and chief executive officer, and Lyndon Fischer, vice president of marketing, argued that any prison time will hurt their clients’ abilities to pay back the money and will jeopardize the continued operation of their specialized and successful treatment center.
Mahler and Fischer began in 2002 to pay a promoter of an illegal tax scheme to help them hide their income from the Internal Revenue Service. They each paid the promoter about $20,000, according to court documents. Each created other companies and accounts and funneled their money into them.
They would meet frequently to divide the Northwest Behavioral Healthcare’s funds and direct the bookkeeper to issue checks to the other companies to avoid reporting payments to the IRS, prosecutors said.
Between 2008 and 2013, Mahler failed to report more than $2.1 million to the IRS, and Fischer failed to report more than $1.6 million. Another co-defendant, vice president of accounting for the company, Karl Brady, failed to report more than $3.3 million in income during that time, according to prosecutors.
Mahler, 66, of Happy Valley and Fischer, 52, of Battle Ground each pleaded guilty to conspiracy to defraud the United States and willful filing of a false federal income tax return. Federal prosecution is pending against Brady for his alleged part in the scheme.
“Incarceration is not warranted here,” said Mahler’s attorney, Cory L. Johnson. She argued that the community would be better served if her client was allowed to continue working and operating his business.
She and Mahler described it as a unique, secure, 55-bed center in the state that serves about 500 adolescents a year and provides treatment both for severe mental health problems, as well as drug and alcohol abuse. It employs about 100 people.
“Their profit wasn’t their motive,” Johnson argued. “They were about serving their patients.”
Assistant U.S. Attorney Donna Maddux countered that for Mahler and Fischer it, indeed, was about the profit.
“This is not a nonprofit. This is a successful business. The profit, a substantial profit they received from that business, was not enough,” Maddux said. “If this business wasn’t about profit, they would have paid those taxes, but they did not.”
She urged a two-year prison stint, arguing that the men are educated defendants who knew right from wrong and made deliberate choices. Since they would be eligible for good time shaved from the sentence and likely would be transitioned to home detention the last six months of the sentence, they would actually serve 18 months behind bars, Maddux said.
“This was not a single act. This was Betvakti an act that happened many times over many years. … There’s only one thing that caused these defendants to continue this criminal act and that’s greed,” she said. “Defendants are trying to use the company, which was the vehicle for their tax evasion, as a shield to keep themselves from going to prison.”
Further, Maddux argued that the two men should have made other arrangements for people to step in and run their center, knowing they faced a potential prison sentence.
The defense lawyers urged U.S. District Judge Robert E. Jones to consider that both men cooperated with prosecutors as soon as the IRS obtained a search warrant for their business, and they have started to pay back some of the money owed.
Mahler and Fischer have for the past year been making monthly payments of $10,000 toward restitution. Mahler must pay $743,662 and Fischer $566,788 to cover the taxes they owe.
Both men only cooperated once they were caught and shouldn’t face a reduced sentence for having the money to pay back the government, Maddux shot back.
“Mahler built his wealth on the back of taxpayers by avoiding taxes on substantial income for years,” Maddux and Assistant U.S. Attorney Scott Bradford wrote in a sentencing memo. “A reduction in his prison sentence because of his advance payments suggests that wealthy defendants can pay to reduce their prison sentence. This approach creates disparity and economic injustice in sentencing.”
After inquiring what each man’s day-to-day responsibilities were at the treatment center they run, Jones sentenced each to five years of home detention, allowed out only for work.
“You are totally isolated to your home or your work,” the judge ordered.
The judge said he didn’t want to punish the patients, their families and the employees for the crimes of the executives.
Calling Mahler and Fischer the “muscles and brains” behind the treatment center, Jones said he doubted anyone else could step in easily to run the business.
“If I punish you, I’m punishing 100 other people who are going to lose their jobs,” Jones said.
Instead, Jones said each man will suffer from being a convicted felon and “deprivation of any self-pleasures.”
“You’ll have no luxury, no vacations, no dinners out, no entertainment, no sports, nothing,” the judge told the men. “No luxuries of any kind.”
The conditions of the five-year home detention may change once all the restitution is paid, Jones said.
Moments earlier, with their families looking on, Mahler and Fischer took turns, apologizing to the court, to the IRS, to their families, patients and employees.
“For the past 21/2 years, through every day, my thoughts have been consumed with deep regret for what I’ve done,” Mahler said.
Considering he and the treatment center’s employees work to persuade adolescents to make better choices in their lives, Fischer said he was embarrassed by the poor choices he’s made.
“It’s the most shameful, disgraceful thing I have ever done in my life,” Fischer said. “My mom is here, and she raised me way better than this. And I did let greed control my life and my actions. … I will never, ever again put money before morality.”
— Maxine Bernstein
mbernstein@oregonian.com
503-221-8212
@maxoregonian
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