When developer Jeffrey Wirth pleaded guilty to tax fraud last week in U.S. District Court for failing to pay taxes on millions of dollars in income, a lot of people across the Twin Cities reacted with shock. One of them was Martin Goff, senior vice president of Unite Here, Local 17.
"I'm surprised that it took so long," said Goff.
Wirth, the guy who turned the old Minneapolis Athletic Club into a luxury hotel and developed hotels with large water parks, was charged with tax evasion in a scheme to hide millions of dollars from the IRS by building a garish home on an island on Lake Minnetonka.
From 2003 to 2010, Wirth funneled millions in profits from his various real estate companies into the island and villa without reporting the income. The house is 19,000 square feet, has six bathrooms and seven fireplaces.
During that time, Wirth and his then-wife reported incomes as low as $12,000 per year, obscuring much of their actual incomes by creating fake management fee entries on their income taxes, prosecutors say.
While the Wirths, now divorced, played paupers, they were living la vida loca. They used unclaimed company profits to buy apartments for their kids, pay tuition at Blake and Dartmouth, to obtain personal fitness training and on lavish trips to Hawaii, Tokyo and British Columbia.
None of this surprises Goff or Nancy Goldman, president of Local 17, which represented workers at the athletic club when Wirth purchased it. In fact, the union saw this all coming 12 years ago, when they put up a website named "Knowyourwirth.com," which highlighted Wirth's many lawsuits and suspect deals over the years. Predictably, Wirth sued the union and settled for $1.
"This is just deserts," said Goldman. "We were laughing all weekend."
Wirth fought the union into the ground. Even though he was found to have violated national labor laws, the union eventually gave up its fight against him. Ownership of the Grand Hotel eventually went back to the lender in lieu of foreclosure.
I interviewed Wirth back in 1998. It was not a pleasant experience. Tipped off by a St. Paul city employee that I had been asking for his records, he brought his new lawyer. I casually mentioned that Wirth had been sued by his previous attorney for nonpayment.
That was actually a bright moment in the interview.
Wirth told me he did his first real estate deal while in college, at age 19. It didn't take long for him to become a frequent flier in District Court. In 1998, he was the largest landlord for Section 8 housing in the Twin Cities, and his reviews were mixed, at best. Among Wirth's transgressions: St. Paul had prohibited him from dealing with the city after accusing him of underpaying employees and violating federal labor laws. He also battled many city agencies over his rental units.
Then, an attorney for the Minneapolis Community Development Agency, who fought Wirth over a condemned property, told me: "In 22 years as an attorney, I've never encountered the kinds of tactics used by Mr. Wirth. I had heard a lot of horror stories about him and they turned out to be true, in my experience."
Wirth was brutal in fighting the union. And, when workers rejected a contract with Wirth, "he accused me of fixing the vote," said Goldman.
"The big thing with him, there was a real lack of honor," said Goff. "A handshake was not a handshake. You couldn't trust what he said."
Wirth's current attorney, Chris Madel, said only: "Mr. Wirth accepted responsibility for his conduct and acknowledges his errors."
No date has been set for Wirth's sentencing. He faces a maximum of five years in federal prison, which some close to the case say is a bargain compared to other recent tax cases.
"If a black kid in north Minneapolis robbed a liquor store, he'd probably get seven to 10 years," said Goff. "[Wirth] stole millions from the government at a time that we really need it."
The delicious irony is that back when Wirth started his climb, people told me that he seemed to always be exaggerating his wealth to appear more successful than he was.
Now he's going to prison for pretending to be poor.