Larry Kladek, owner of the King of Diamonds strip club, pleaded guilty Thursday in federal court in St. Paul to one count of filing a false individual tax return.

He also acknowledged owing the IRS more than $912,000 in unpaid taxes through a scheme that funneled cash into a secret account every time a customer made a withdrawal from an ATM Kladek installed at the Inver Grove Heights club.

In all, he admitted to receiving about $1.2 million in unreported income between 2000 and 2004.

As part of his plea agreement, Kladek agreed to help the IRS recover the unpaid taxes.

That was made a little easier when prosecutors agreed to delay Kladek's guilty plea to Thursday. On Monday, the Inver Grove Heights City Council met to review liquor license renewals for 2009.

A federal conviction likely would have meant the loss of the King of Diamond's liquor license, city officials said.

The King of Diamonds bills itself as the only club featuring totally nude dancers and a full bar. Federal officials acknowledged that the business could be in jeopardy if it cannot sell liquor.

So on Monday, with no conviction to cloud Kladek's record, the Inver Grove Heights City Council renewed the license.

On Thursday, Kladek admitted his guilt.

In exchange for the guilty plea, federal prosecutors agreed to dismiss a heavier indictment against him. But the deal he cut still carries the possibility of up to 30 months in prison and a $250,000 fine.

Kladek had rigged the club's ATM to serve as kind of a personal money-maker.

Usually, when a customer makes a withdrawal, the customer's bank electronically transfers that amount into a business account that is used to replenish the ATM.

In Kladek's case, the customer's bank sent money to an account he kept secret from the IRS and his accountants.

He used some of that money to make personal investments and help build a multi-million-dollar home. He replenished the ATM with money from the King of Diamonds' business account.

Neither Kladek nor his attorney would comment on the case as they left the courtroom Thursday.

U.S. District Judge Patrick Schiltz will sentence Kladek at a later date.

James Walsh • 612-673-7428