STOCKTON -- The owners of the Mallard's Restaurant in Modesto failed to pay nearly $100,000 in payroll taxes over three years, according to a state Employment Development Department tax auditor who testified in a preliminary hearing Thursday against the Sang family.
Auditor Marjorie Ann Beatty said that from the time the Sangs bought Mallard's in late 2005, they failed to pay $96,496.19 in unemployment and disability taxes until the restaurant closed last month.
Beatty said the EDD also levied $138,569.75 in interest and penalties against the Sangs, who also own a closed Mallard's Restaurant in Stockton and two restaurants in Southern California.
The San Joaquin County district attorney's office has charged Richard Sang, sons Richie Sang and Brookes Sang, and wife, Amber Lao, each with 36 criminal counts of fraud and tax evasion.
The hearing before Judge Stephen Demetras in San Joaquin County Superior Court started Thursday and is expected to last at least a week. It will determine whether the defendants will be held for trial.
Beatty, who helped carry out the search warrant at Modesto's Mallard's last month before it closed, said when cross-examined that she hadn't had time to thoroughly audit payroll records for the other restaurants, but had double-checked her numbers for Modesto.
"That's where I spent most of my time," she said. "I feel very confident with those numbers."
But she also said under cross examination that it was possible an outside payroll company the Sangs hired to run their restaurant's payroll had made errors.
Attorneys for both sides said they cannot comment on the case, citing a gag order issued by the judge at the Sangs' arraignment hearing.
Defense attorneys for Richard Sang's two sons and Lao asked questions Thursday that suggested those defendants were unaware of possible lawbreaking related to payroll taxes, or weren't involved in the restaurants' operation.
Earlier in the hearing, the landlord for the Stockton Mallard's said he'd never seen Richie Sang sign any paperwork related to the restaurant's lease, though his signature was on some documents.
The landlord, Walter Koenig, also said he wasn't sure whether Brookes Sang or Lao were involved in the operation.
He added that the Sangs owed him about $100,000 in unpaid rent, and an additional $310,000 he invested in a venture Richard Sang had that related to the sale of liquor licenses.
Testimony on red Ferrari
But while being questioned by Sudha Rajender, San Joaquin County deputy district attorney, Koenig said he'd been driven by the Sangs in a red Ferrari and a relatively new BMW.
Koenig later said under questioning from Richie Sang's attorney, Allen Jose, that Richard Sang told Koenig that Sang owned 15 Ferraris.
"Did you ever see 14 others?" Jose asked. Koenig said that he had not.
Koenig also testified that he'd stayed at a Rancho Santa Fe home he described as large and luxurious that he believed Richard Sang and Lao owned.
Before hearing witness testimony, Demetras rejected a defense motion to dismiss the charges that were based on what happened at restaurants in Modesto and Southern California.
The prosecutors couldn't determine that San Joaquin County had jurisdiction for those charges, the defense attorneys said.
Demetras said the charges had been separated to make the case easier to understand.
"The fact that they were charged that way doesn't have anything to do with the jurisdiction, in my opinion," he said in his ruling.
Each felony count for the Sangs carries a potential three-year prison sentence upon conviction and fines of up to $20,000.
The Sangs also face several misdemeanor counts of failure to provide workers compensation insurance. The counts carry a 1-year county jail sentence and fines of $10,000 or more if the defendants are convicted.
Mallard's, at one time a centerpiece of fine dining in Modesto, closed in late November after 21 years at Briggsmore and McHenry avenues.
Employees said at the time that they worried they would be unable to collect unemployment benefits.
But according to an EDD official, those employees may be able to do so if they kept their pay stubs or W-2 tax forms and submit them to their local EDD office.
Such claims should be filed as soon as possible, according to the EDD.
The Sangs' preliminary hearing continues today at 8:30 a.m. in Stockton.
Bee staff writer Ben van der Meer can be reached at firstname.lastname@example.org or 578-2331.