Monday, May 12, 2008

Two counties, state look into bookkeeping, payroll at the Modesto restaurant

By BEN van der MEER
bvandermeer@modbee.com

last updated: November 22, 2007 04:29:40 AM

The owners of Mallard's Restaurant in Modesto will have to pay a $100,000 state citation for failure to have workers compensation insurance, while an investigation into other restaurant practices continues.

The state labor commissioner's office issued the citation Tuesday while a team of investigators and law enforcement officers carried out a search warrant, looking for payroll information that could affect benefits for up to 50 workers at the Mallard's in Modesto.

"We've seized a lot of evidence, and we need to go through it and see," said San Joaquin County Deputy District Attorney Sudha Rajender, adding that it appears Mallard's owners may have failed to pay unemployment, disability and other payroll taxes.

Employees affected include those at the Modesto Mallard's, at 1700 McHenry Ave., and 50 at a closed Mallard's in Stockton.

Rajender said he was not sure how long it would take to examine the evidence, noting the amount of material taken and the shortened Thanksgiving week.

The Modesto restaurant was temporarily closed Tuesday when state officials determined employees there had no workers compensation insurance.

Dean Fryer, a spokesman for the state labor commissioner, said that resulted in a $100,000 citation against Mallard's, the maximum fine allowed. The restaurant's management got insurance in time to re-open Tuesday evening, he said.

"Slips and falls are common at a restaurant, and so are cuts from equipment," Fryer said. "It is a problem, and as soon as we learned of it, we took care of it."

Rajender said the investigation was prompted by employee complaints from Stockton's Mallard's Restaurant.

According to past reports, the restaurants are owned by Richard Sang and his sons Richie Sang and Brookes Sang, though Stan Dimond, Modesto Mallard's general manager, said the sons had sole ownership.

Richie and Brookes Sang did not return calls for comment Wednesday. There was no available phone number for Richard Sang, whose Stockton home was included in the search warrant.

Dimond said the Modesto restaurant's woes stem from the Stockton closure.

"We're just trying to work things out," he said, adding that the Modesto restaurant was open Wednesday and will stay open through December.

He said operations were difficult because investigators took computer equipment in carrying out the search warrant. "Right now, we're doing handwritten tickets, like in the days when we first opened," he said.

Taxes owed Stanislaus County

Stockton Mallard's employees told investigators that after the restaurant closed last month, they couldn't collect unemployment benefits, even though unemployment payments were deducted from their paychecks.

The district attorney's office then discovered similar problems for employees at the Modesto Mallard's, Rajender said.

District attorneys' offices in San Joaquin and Stanislaus counties, the state Employment Development Department, the state Department of Insurance and the state Department of Labor participated in Tuesday's search of the McHenry Village restaurant and other sites.

John Goold, Stanislaus County chief deputy district attorney, said he was unaware of his office's participation until Wednesday. EDD officials could not comment on the investigation Tuesday, citing state law.

In addition to the $100,000 state citation, Mallard's owners owe Stanislaus County more than $10,000 in unpaid property taxes. The county tax assessor's office issued a lien against the business in May over a portion of the unpaid amount.

The owners could face additional charges based on the evidence seized under Tuesday's search warrant.

Richard Sang was convicted 16 years ago of fraud related to his ownership of 16 restaurants in the Pacific Northwest.

In that case, according to 1991 Seattle newspaper stories, Sang pleaded guilty in federal court to four counts of bank fraud, wire fraud and making a false statement to a financial institution.

Prosecutors said Sang had conned restaurants and banks out of up to $4.3 million by forging financial statements and tax returns to obtain thousands of dollars in bank loans over six years. He was sentenced to 46 months in federal prison in connection with his plea, but it's unclear how much of that sentence he served.

A bad sign for survivability

An employee at the Modesto restaurant for the last three months said Tuesday that he'd only been able to cash two paychecks from Mallard's, and had to do so at liquor stores because no other businesses would honor the checks.

A Sacramento-based restaurant consultant said being unable to pay employees is a bad sign for an eatery's long-term survival.

"I would say if they're at the point where paychecks are bouncing, there's an 80 percent chance they're gone," said Tom Bruce, of Sacramento Food & Beverage.

He said some restaurant owners may skimp on paying payroll taxes to get through a tough patch, hoping to catch up later.

But if a market experiences an economic downturn, which Bruce pointed out Modesto is seeing with the mortgage crisis, it can wipe out a restaurant that's struggling, he said.

Mallard's opened in 1986 in McHenry Village under the ownership of entrepreneur Dan Costa. He opened the Stockton Mallard's in 1991, and sold them to the Sangs in 2005.

The Sangs also operated restaurants in Southern California, including one named Mallard's Bistro. Deputy District Attorney Rajender said he believed state investigators also were examining practices at those restaurants.

Bee staff writer Ben van der Meer can be reached at bvandermeer@modbee.com or 578-2331.