The operator of six IHOP restaurants in Ohio and one in Indiana organized a scheme with the help of some employees to hide profits from IHOP's parent company, federal investigators said Wednesday.
The plan involved hiring illegal immigrants, manipulating sales figures and underreporting wages in order to avoid paying taxes along with royalties to the corporation, investigators said in an indictment.
In all, 18 people were taken into custody Wednesday in a scheme that led to losses of more than $3 million, the U.S. Attorney's Office said.
Tarek Elkafrawi, who owned or operated six IHOP restaurants in northwest Ohio and one in Evansville, Ind., was accused of money laundering, mail fraud and identity theft. He's also accused of hiring illegal immigrants who used fake or stolen identities.
His attorney, Richard Kerger, said that Elkafrawi has been aware of the investigation for months and had met with the government. "We will respond accordingly," he said.
The FBI raided the seven IHOP restaurants last September. Federal authorities carried away boxes of documents, but would not say at the time what led to the searches.
Elkafrawi and others were able to generate $1.2 million in unreported income by manipulating wages and underreporting income of illegal immigrants, according to the indictment.
He employed about 200 illegal immigrants to work at his restaurants after he and others arranged for other people to supply the workers, the U.S. Attorney's Office said.
The workers were not paid overtime, and managers cashed pay checks for them, allowing the restaurants to underreport their income and reduce payments to the state for workers compensation, the government said.
Investigators also said Elkafrawi and another man, who was not charged, arranged for someone else to burn down their IHOP restaurant in Findlay in 2008, and that Elkafrawi made a $1.3 million fraudulent insurance claim.
Tanya Valenzuela, a spokeswoman for IHOP's parent company, DineEquity Inc., based in Glendale, Calif., said the allegations run counter to the company's employment practice and values. The company has been cooperating with the authorities, she said.