Convicted tax evader seeking house arrest, not prison

Jerry Holt, Star Tribune

Ly Vang chopped in her garden, as Larry Kladek of Inver Grove Heights looked on. Vang and her family members rent land from Kladek were they grow traditional Hmong vegetables.

The ex-King of Diamonds owner convicted of tax evasion says he has a good reason to stay home: Hmong farmers using his land.

By JAMES WALSH, Star Tribune

Last update: July 9, 2009 - 10:28 PM

It should surprise no one that Larry Kladek, the former strip club owner who pleaded guilty to tax charges, wants to avoid time behind bars. What is unusual is one of his reasons: According to papers filed in federal court, putting Kladek in prison would harm the Hmong community.

Kladek is helping 30 to 60 Hmong families raise vegetables on his gated 78-acre Inver Grove Heights estate, according to his attorney, Patrick Ledray.

For the past two summers, Kladek has leased about 30 farm plots on his land to area Hmong families, Ledray said. He spends 40 to 50 hours a week tilling the land, clearing boulders and brush and bringing water to the farm sites, Ledray said. Kladek was inspired to provide the land after reading newspaper stories in 2007 in which Hmong farmers lamented the loss of metro farmland to development.

"He charges them pretty minimal rent and he loses money doing it," Ledray said.

Ly Vang, who heads the Association for the Advancement of Hmong Women in Minnesota and farms a parcel of Kladek's land, said the embattled former owner of the King of Diamonds has been a godsend to her and other families. She said she pays only $25 a year for her plot of farmland.

"We depend on him to plow our land and get things going and make sure we have water and all these things," she said. "He has to be there every day."

A spokesman for the U.S. attorney's office in Minneapolis said Thursday that officials there would have no comment on Kladek's argument to stay out of prison.

Kladek pleaded guilty last December to filing a false tax return. But he has acknowledged owing the IRS more than $912,000 in unpaid taxes over several years through a scheme that funneled cash into a secret account every time a King of Diamonds customer made a withdrawal from an ATM that Kladek installed.

The 66-year-old businessman then used some of that money to make personal investments and to help pay for a multimillion-dollar home on his sprawling Inver Grove Heights property.

"He is so remorseful for tax evasion," Ledray said Wednesday.

He's also facing a full slate of litigation.

Kladek, who has since sold the strip club he owned for more than 40 years to his wife, Susan, faces a class-action lawsuit filed in Dakota County District Court by some former King of Diamonds dancers. The dancers claim that they were underpaid employees who were wrongly classified as independent contractors and were improperly forced to share tips they had received for dances.

Kladek also is suing his home builder for what he considers overbilling on his house, valued at nearly $6 million. And Kladek is suing the Minnesota Department of Revenue for what he considers the over-assessment of sales taxes on merchandise at the strip club.

Hoping for a fine, house arrest

In addition, Kladek's attorney said, he hopes to sell several of his homes -- some of which need extensive repair and maintenance -- to make restitution to the government. But that would require Kladek to remain out of prison, he said.

U.S. District Judge Patrick Schiltz is scheduled to sentence Kladek on Aug. 20 in St. Paul. The U.S. attorney's office is seeking a sentence of 24-30 months in prison.

Ledray said he hopes for a sentence that includes a fine, full restitution and house arrest. It is unlikely, he said, that Kladek's wife will continue doing the work the Hmong families need to farm the land if Kladek is locked up.

"Look, if there's ever been a compelling reason to sentence somebody to their own property, this is probably it," Ledray said.

James Walsh • 612-673-7428