U.S.

Department of Justice

United States Attorney

Eastern District of Pennsylvania

Paul L. Gray 615 Chestnut Street

Direct Dial: (215) 861-8257 Suite 1250
Facsimile: (215) 861-8618 Philadelphia, Pennsylvania 19106-4476
E-mail Address:paul.gray@usdoj.gov (215) 861-8200

January 28, 2019

Honorable Jeffrey L. Schmehl

Judge, United States District Court
The Madison Building
400 Washington Street
Reading, PA 196o1

Re: United States v. Peltz

Criminal No. 19-48

Dear Judge Schmehl:

Attached is a copy of the Government=s Guilty Plea Memorandum in the above

matter, the original of which will be filed at the conclusion of the guilty plea colloquy to be held
on Monday January 28th 10 a.m. A copy of the plea agreement signed by the parties is also
enclosed. The original plea agreement will be presented during the guilty plea colloquy.
Thank you for your consideration of this matter.

Respectfully submitted,

JENNIFER ARBITTIER WILLIAMS

Attorney for the United States, Acting Under Authority

Conferred by 28 U.S.C. § 515

/s/ Paul L. Gray

PAUL L. GRAY
FRANK R. COSTELLO
JOHN M. GALLAGHER
Assistant United States Attorneys

cc: Barry Gross (by e-mail)

 IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

UNITED STATES OF AMERICA :

v. : CRIMINAL NO. 19 - 48

GEORGE PELTZ :

GOVERNMENT=S GUILTY PLEA MEMORANDUM

1. Introduction - Plea Agreement

George Peltz has signed a non-cooperation plea agreement by which he will waive

indictment and plead guilty to the following counts: Count One, tax evasion for tax years 2012

through 2015, in violation of 26 U.S.C. § 7201; Count Two, failing to pay over federal payroll taxes

for tax years 2012 through 2015; Count Three, theft of employee welfare benefit funds, in violation

of 18 U.S.C. § 664; and Count Four, providing unlawful payments to a union official, in violation of

29 U.S.C. § 186(a)(2) & (d)(2).

The parties have stipulated to the applicable offense levels under the Sentencing Guidelines

for each offense and the grouping of offenses under the sentencing Guidelines, placing the defendant

at a combined offense level of 20. The parties have agreed that, to date, the defendant has

demonstrated acceptance of responsibility for his offenses and is eligible for a three-level downward

adjustment. The parties have also agreed that they will not seek either an upward departure or a

downward departure under the Sentencing Guidelines.

The agreement also contains an appellate waiver, which is set forth in detail in the

agreement.

2. Maximum Sentence

Peltz faces a maximum statutory sentence of 5 years’ incarceration, a $250,000 fine, a

three-year period of supervised release, and a $100 special assessment on each count of the
Information. The total maximum sentence that could be imposed on the four counts is 20 years’

incarceration, a $1,000,000 fine, a period of 3 years’ supervised release, and a $400 special

assessment. The costs of prosecution may be ordered on the tax counts, as well as full

restitution.

3. Elements of the Offenses

Tax evasion - 26 U.S.C. § 7201

1) The defendant owed substantially more federal income tax for the
calendar year than was declared due on his income tax return;

2) The defendant committed an affirmative act in an attempt to evade or

defeat the tax due; and

3) The defendant acted willfully.

Failure to collect and pay over payroll taxes - 26 U.S.C. § 7202

1) The defendant was a person required to file a return;

2) The defendant failed to pay the tax due at the time required by law; and

3) The failure to pay file was willful.

Theft of employee benefit funds - 18 U.S.C. § 664

1) That the defendant unlawfully and willfully stole/embezzled the property

described in the information;

2) That at the time alleged, such property belonged to or was connected with
the union benefit plans described in the information; and

3) That the benefit plan with s were employee welfare benefit plans or
employee pension benefit plans or funds connected therewith, subject to any
provision of Title I of the Employee Retirement Income Security Act of
1974.

The willful taking must be done with the specific intent to deprive the benefit plans of

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property with knowledge that the taking was wrong.

Unlawful payment to a union official – 29 U.S.C. § 186(a)(2)

1) The defendant was an employer, or a person acting in the interest of an

employer who paid, lent, or delivered, or agreed to pay, lend, or deliver money or
other thing of value, exceeding $1,000, to any officer or employee of a labor
organization;

2) The labor officer was employed in an industry affecting commerce;

3) The labor organization represented, or sought to represent, union members

who were employees of the defendant employer; and

4) The defendant acted willfully.

4. Factual Basis for Plea

Tax evasion, failing to pay payroll taxes - cash skim and cash payroll

The government is prepared to prove the following facts:

Defendant George Peltz is an owner of MJK Electric, an electrical contracting firm.

Peltz directed his bookkeeper to segregate MJK’s invoices seeking payment under $10,000, and

not enter the invoices in MJK’s accounting system, QuickBooks. When checks in payment of

the invoices arrived, the bookkeeper gave the checks and invoices to Peltz. Peltz also directed

her not to enter the payments received on the invoices into MJK’s QuickBooks system. 1

Peltz cashed the checks under $10,000, and used the skimmed funds to maintain a cash

payroll. Between 2012 and 2015, Peltz cashed $1,504,399 in checks to MJK at a check cashing

service in Morton, Pennsylvania. Peltz directed the bookkeeper to inform MJK’s payroll

service, Paychex, and its predecessor, ADP, only of employee work hours within MJK’s regular

1 If the bookkeeper needed to make a quick payment, she would enter a check under $10,000 into QuickBooks and
use the funds to pay the bill. Initially, Peltz deleted from QuickBooks invoices under $10,000 that had already been
entered into the system; but subsequently told the bookeeper not to enter the invoices into QuickBooks at all.
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40-hour workweek. The payroll processors cut checks to the employees. The bookkeeper

calculated all overtime and weekend work hours, which she knew would be paid in cash, and

wrote each employee’s extra work hours on a post-it note that she attached to an envelope

bearing the employee’s name. She placed each employee’s Paychex-created paycheck, usually

sealed in its own envelope with a clear window, inside the larger envelope in the employee’s

name and gave the envelope to Peltz. Peltz later returned the larger envelopes containing the

Paychex checks and cash to the bookkeeper, who sealed the envelopes and put them aside for

delivery to each employee. Peltz also supplied the bookkeeper with envelopes containing cash

only for MJK employees who were paid entirely off the books.

Immediately after the government executed search warrants on his offices in New Jersey

and Pennsylvania in August 2016, Peltz directed the bookkeeper to start reporting all employees’

full wages to the payroll service.

MJK employees were paid all overtime wages in cash, which was a condition of their

employment. The overtime rate was approximately half of the regular hourly rate, so the

employees’ union wages were undercut. One employee was initially paid entirely in cash, but

later was placed on the payroll. Another employee was paid partly in cash and partly by payroll

check.

MJK Electric is an S corporation, which reports its revenue and expenses on IRS Form

1120S corporate tax returns. As an S corporation, the company is supposed to pass those

income figures onto the shareholder’s personal IRS 1040 income tax returns. Neither the

bookkeeper nor Peltz, the shareholder, told the tax preparers who prepared MJK’s returns and

Peltz’s personal returns about the skimmed checks or the cash payroll. They prepared MJK’s

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annual 1120S returns, the IRS Form 941 corporate quarterly income tax returns, and Peltz’s

annual IRS Form 1040 personal returns, based upon the receipts and wage figures in MJK’s

QuickBooks, and the ones reported to the payroll service provider. Thus, none of the skimmed

cash was included as revenue on the corporate returns or as income on Peltz’s personal returns.

The cash payroll was not included on the IRS 941 quarterly returns; thus no withholding taxes,

Social Security or Medicare taxes, or the employer’s match of the Medicare taxes, were reported

or paid to the IRS.

The tax preparers were also unaware that Peltz used the MJK TD Bank credit card to

make approximately $101,099 in personal purchases during 2012 through 2015, which also

constituted unreported income. These purchases included college tuition for a family member,

golf fees, food and beverages, fitness club dues, pet care, hotel and travel expenditures, and retail

purchases, including $30,000 at Boyd’s in Philadelphia. Peltz directed the bookkeeper to pay

the company credit card bills with corporate funds.

The checks cashed by Peltz, minus the cash payroll, also constituted income to Peltz.

That income, added to the amount of income from the credit card purchases, totaled

approximately $1,014,916 in unreported income for the tax years 2012 through 2015. By

concealing this income from the company books and his tax preparers, Peltz evaded the payment

of approximately $336,807 in personal income taxes during 2012 through 2015, as charged in

Count One.

Peltz paid approximately $590,582 in cash payroll during 2012 through 2015, and owes

approximately $173,040 in payroll taxes on the cash payroll for the same period, as charged in

Count Two.

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 Theft of employee benefit plan funds

Peltz was required to follow the collective bargaining agreements and trust agreements of

IBEW Union Locals 98, 351, and 654, where his employees were members. The agreements

required Peltz to contribute to certain employee benefit funds based upon each hour worked by

his union employees. At Peltz’s direction, the MJK bookkeeper reported to the unions the

names and work hours of MJK employees only within the regular 40-hour workweek, as

reported to MJK’s payroll service. These monthly reports were supplied to the local unions’

employee benefit fund administrators. At Peltz’s direction, the bookkeeper paid MJK’s

mandated employer contributions to the administrators based upon the payroll that was identified

on the monthly payroll reports. Thus, no employee fund contributions were made to the

employee benefit funds for the unreported cash-paid work hours. The unpaid contributions

totaled approximately $468,234 for tax years 2012 through 2015, as charged in Count Three.

Unlawful payments to a union official

Peltz directed MJK employees to perform electrical work and installations of TV’s and

security systems at Union Official No. 1’s home, his business, and at his family members’ and

associates’ homes. Business records seized from MJK during the execution of search warrants

in August 2016 document the work, the costs, and the fact that no one was billed or paid for the

work. The unlawful gifts provided to Union Official No. 1. and his family are as follows:

1. In December 2015 and January 2016, MJK Electric purchased and installed large
screen televisions and a security system, with a retail value of $19,882, in the
home of a family member of Union Official No. 1.

2. In March 2014, MJK Electric purchased and installed large screen televisions,
with a retail value of $4,207, in the home of Union Official No. 1.

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3. In late 2012 and early 2013, MJK Electric purchased and installed a security
system, and LED displays, with a retail value of $29,537, in a business in which
Union Official No. 1 was a part owner.

4. Between 2012 and 2016, MJK Electric provided materials and maintenance and
repair work with a value of approximately $2,900, at the home of a family
member of Union Official No. 1.

5. Between April 2013 and April 2016, defendant GEORGE PELTZ gave Local 98
Official No. 1 gift cards and gift certificates worth $4,500 from Boyd’s, a clothing
store in Philadelphia.

Respectfully submitted,

JENNIFER ARBITTIER WILLIAMS

Attorney for the United States, Acting Under Authority
Conferred by 28 U.S.C. § 515

/s/ Paul L. Gray

PAUL L. GRAY
FRANK R. COSTELLO, JR.
JOHN M. GALLAGHER
Assistant United States Attorneys

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 CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the Government=s Guilty Plea

Memorandum has been served by e-mail upon:

Barry Gross
barry.gross@dbr.com

s/ Paul L. Gray
PAUL L. GRAY
Assistant United States Attorney

Dated: 1/24/19