Defendant admits guilt in scheme to hide payments

Michael Afremov, a former co-owner of AGA Medical, pleaded guilty Wednesday to federal charges of cheating on his taxes in order to hide more than $1.8 million in kickbacks from a manufacturing vendor between 1998 and 2002.

When he sold his interest in the company in 2005, Afremov was paid $275 million as part of a negotiated end to a protracted civil court battle for control of the company between Afremov and the company's founder.

It was during those civil proceedings, between 2002 and 2005, that his former partners accused Afremov of misdeeds that attracted the attention of IRS and FBI investigators.

U.S. District Judge John Tunheim accepted the plea agreement from Afremov, who appeared contrite as he responded to questions from prosecutor Joe Dixon. A sentencing date, at which time Afremov will be allowed to make a statement, is pending. Afremov remains free on bond.

According to the plea agreement approved by Tunheim, Afremov has agreed to cooperate with the government in a probe of unspecified attorneys and accountants who assisted him in the preparation of amended tax returns that Afremov said were purposefully redrafted to escape taxation of the payments in question.

Hank Shea, a special assistant U.S. Attorney on the case, indicated that the government is investigating what could be a significant case of criminal conduct by at least one lawyer.

Afremov, 52, faces up to 37 months in federal prison, a fine of $1 million, forfeiture of $1.8 million and unspecified penalties and interest to the IRS.

Fischer, 59, faces a fine up to $30,000 and up to 18 months in prison.

"This case presents a special concern for this office in the way false tax returns were used as part of a coverup in civil litigation," said acting U.S. Attorney Frank Magill after the hearing. "Filing false tax returns is a crime and will be aggressively investigated."

Shea lauded the investigative work of Special Agent Kelly Petricka of the IRS in the case. Petricka also investigated Michael Clarke, the former CEO of Katun Corp. who was convicted several years ago of the largest single case of tax-dodging in Minnesota history.

Afremov, a Russian-born engineer, was vice president of operations at AGA and a half owner when he selected Fischer's Foremost Machining as the sole vendor for certain parts. Between August 1998 and August 2002, Fischer paid more than $1.8 million of the $6.2 million billed by Foremost to a corporation owned by Afremov and his wife, according to the charges. After the payments from Foremost to the Afremovs were uncovered by AGA Medical auditors, the government says, Afremov and Fischer attempted to cover up the fraud.

At Wednesday's pleading, Afremov was represented by Joseph Petrosinelli, a partner in the high-profile litigation firm of Williams & Connolly of Washington, D.C. The firm specializes in complex, white-collar cases and often finds itself opposite the Justice Department. Last August, Afremov dismissed Doug Kelley, his original defense lawyer and a former federal prosecutor.

Before the 2002 civil litigation, Amplatz sold his third of the company for $8.3 million to his now-former son-in-law, Frank Gougeon, who is the CEO. Afremov ran AGA's engineering and manufacturing operations.

Fast-growing AGA Medical employs 250 at its recently expanded facilities in Plymouth.