A federal judge sentenced the owner of two popular Annapolis restaurants yesterday to 18 months in prison for a $2 million tax-evasion scheme, one of the largest ever in Maryland.
In court and in an open letter to others in the restaurant industry, Joseph J. "Jerry" Hardesty said his "own stupidity and greed" made him think he could skim cash from his bustling waterfront bars for years without detection or consequence.
"I am truly sorry for the grave mistake that I made," Hardesty, 58, said in court, his voice breaking at times. "I know what I did was very wrong, and I know that I will pay."
The longtime owner of the Middleton Tavern and Fran O'Brien's Oyster Bar was charged in February 1999, when agents from the Internal Revenue Service raided his restaurants, seizing computers, paperwork and $475,000 in cash.
Hardesty immediately cooperated with federal investigators, even paying $50,000 for a forensic accountant who eventually reported to authorities that Hardesty had hid $2.06 million from the government from 1992 to 1998.
The scheme was straightforward: Hardesty would order his staff to delete cash receipts from the computerized bookkeeping system - sometimes as much as $5,000 a day - then store the money in an office safe or at home, according to court papers.
Investigators said Hardesty also skimmed cash from other ventures, including the Annapolis and Ocean City wine festivals he organized each summer.
Hardesty, whose attorneys said he was motivated by an intense fear of failure, reinvested most of the money in his businesses.
In April, Hardesty pleaded guilty to one charge of tax evasion for underreporting his 1997 income by about $400,000. He also agreed to pay back taxes owed on the full $2 million in unreported income.
At his sentencing hearing yesterday in U.S. District Court in Baltimore, defense attorney George Petros said that Hardesty has paid about $550,000 in back taxes and expects to pay another $1.2 million to the IRS in interest and fines. Petros said Hardesty had liquidated almost all of his assets but has kept the restaurants operating.
Hardesty faced a prison sentence of 18 to 24 months. Assistant U.S. Attorney Joseph L. Evans recommended the minimum time, noting Hardesty's cooperation and his voluntary writing of an open letter, published last month in the Maryland-Washington Beverage Journal, to others in the cash-intensive restaurant business.
In the warning letter, Hardesty wrote: "I spent six years in this nightmare, hoping that everything would be fine. ... Hope in the restaurant business is a standard characteristic. Without it, most of us would be working for someone else. Hope that you won't be caught is a sucker's bet.
"Be smarter than me," Hardesty wrote. "Know that you will get caught, and you will be disgraced."
In handing down the 18-month sentence, U.S. District Judge Andre M. Davis told Hardesty, "This is unquestionably one of the most good news/bad news stories I've encountered as a judge."
Davis reminded Hardesty that he had put his employees at risk of prosecution and had likely hurt other honest restaurants in the Annapolis market. But he also called Hardesty a good man and devoted father, who would be welcomed back to his businesses and community after his jail term.