The founder of the risque "Girls Gone Wild" empire was indicted Wednesday on two counts of tax evasion by a federal grand jury, the latest in a series of legal woes for the Santa Monica entrepreneur.
The indictment in Reno of Joe Francis, 34, follows his arrest by federal marshals Tuesday on a contempt-of-court citation stemming from a civil case in Florida, where he is being held without bail.
Wednesday's charges alleged that Francis deducted more than $20 million in false business expenses on corporate income tax returns filed in 2002 and 2003 by two of his companies, Mantra Films Inc. and Sands Media Inc.
Alleged improper deductions included $3.78 million that was counted as a business cost when it was actually spent to build a residence in Punta Mita, Mexico. In addition, $10.4 million in "false consulting services" was deducted, as was a $500,000 false insurance expense, according to the indictment.
The indictment also alleged that Francis used offshore bank accounts to conceal income earned in 2002 and 2003 through his companies. At the time, the indictment said, Francis was a legal resident of Incline Village, Nev.
Francis was unavailable for comment. His attorney, Jan L. Handzlik, said the indictment was unwarranted.
"The government has chosen to make a criminal case out of what we believe to be, at most, a civil tax dispute," Handzlik said. "We are also disappointed about the timing of these charges in light of Joe's difficulties in Florida. This is turning into a litigation dog pile."
Francis made a fortune selling videos, advertised heavily on late-night infomercials, that featured scantily clad coeds and other young women cavorting at resorts and in nightclubs.
The Nevada indictment is potentially the most serious legal trouble that Francis has faced to date. If convicted, he faces as many as 10 years in prison and fines of as much as $500,000, Justice Department officials said.
"This is a case that will get a lot of attention, and that's what the government wants," said Peter Henning, a law professor and white-collar crime specialist at Wayne State University in Detroit. "Everyone's heard of 'Girls Gone Wild.' "
The indictment alleges an elaborate tax evasion scheme in which Francis transferred more than $15 million from a bank account in Bermuda to a Morgan Stanley brokerage account in Irvine. The account was held in the name of Rothwell Limited, a Cayman Islands corporation that the indictment said Francis controlled.
The inflated deductions listed in the indictment involved Mantra Films in Santa Monica and Sands Media in Nevada.
Mantra Films, which produced, marketed and sold the "Girls Gone Wild" videos, is listed in the indictment as a so-called S corporation, an entity that generally pays no taxes. Instead, it funnels profit to shareholders, who then report the income or losses. Sands Media, also an S corporation, performed marketing, media buying and promotions for Mantra, the indictment said.
"There's a level of sophistication here that you don't normally see with a regular tax evasion case," Henning said.
Ultimately, Francis reported $13.9 million in taxable income for 2002 and said he owed $3.5 million in taxes "when in truth and fact, he then and there knew well and believed that he had omitted additional income," the indictment said.
Francis is scheduled to appear before U.S. Magistrate Judge Robert A. McQuaid Jr. in Reno on May 22 on the tax charges.
Today, Francis is scheduled to appear before a federal judge in Florida to face the contempt citation, issued last week after he failed to surrender after a breakdown in settlement talks in a lawsuit brought by seven young women. The plaintiffs alleged that they were victimized by Francis' film crews during filming in Florida in 2003.
Last year, Francis pleaded guilty to violating a law that aims to protects minors by requiring producers of pornography to document the ages of the models they hire. He was sentenced to probation and community service.
Two of Francis' companies, Mantra and MRA Holdings, also resolved Justice Department charges in connection with the record-keeping law, agreeing to pay $1.6 million in fines and restitution.