Published: April 02, 2008 09:27 pm      

Former area nightclub owner sentenced on tax evasion charge

BLUEFIELD — A most unusual three-day sentencing hearing came to an emotional close Wednesday afternoon as a former southern West Virginia nightclub owner received a 37-month prison sentence and was fined $75,000 for failing to report more than $200,000 he skimmed from the door charge at one or more of the nightclubs he owned.

Timothy Ray Cline, 51, of Mercer County, pleaded guilty on March 6, 2007 to a two-count federal information that was filed July 20, 2006, charging him with receiving $274,158 in taxable income during 2001, but failing to file an income tax return on the money he received — money that he should have paid $84,306 in taxes on, according to the information. Count one alleged that Cline filed a delinquent tax return in 2003, but failed to report $51,165 of the money he received through pocketing the door or “cover” charge.

Count two of the information alleged that in September 1991, the Social Security Administration granted Cline Disability Insurance Benefits based on the finding that he was emotionally and physically unable to work. The government alleged in its complaint that from February 1995 until March of 2003, “Cline owned, worked in and actively managed several businesses and business interests in the Southern District of West Virginia, including certain adult night clubs from which and as a result of which he received income.”

Assistant U.S. Attorney Larry R. Ellis, said at the conclusion of Cline’s sentencing hearing that the names of the adult night clubs were not material to the nature of the charges and as a result, were never made public during the course of the three-day sentencing.

Cline’s co-counsel, Dwane L. Tinsley and J. Miles Morgan, both of the Hendrickson & Long firm, argued for a downward departure from the sentencing guidelines based on Cline’s borderline diminished capacity because of his low IQ and mental impairment, and also argued for a downward departure based on his cooperation with the government on the charges.

“Corporate fraud is complex and he has an eighth grade reading level,” Morgan said during his portion of the closing arguments. “His inconsistency (on psychological testing) shows a lack of judgment.”

Faber denied Cline’s motion for a downward departure and found for the government on all but one of the outstanding issues concerning Cline’s tax obligations, acceptance of responsibility and obstruction enhancement. The court denied the government’s request to recover court costs from the defendant.

Ellis called Cline’s behavior “an egregious manipulation of the tests” and said that the manipulation amounted to obstruction. Morgan countered that the testimony revealed that the defense expert witnesses disagreed on the test findings with the government’s expert witness. “It’s not obstructing justice for (Cline) to stand on his rights,” Morgan said.

Tinsley said that Cline “accepted his guilty plea and has cooperated with the government” but added that the defense “thought the court needed to know” the evidence presented by the expert witnesses.

Ellis referred to the entire proceeding as being “a big bag of malingering” on Cline’s part that forced the parties to go through “this mini-trial” since Monday. “All of this comes into play after we have an agreement,” Ellis said. “It’s basically one big fraud,” Ellis said. “Please, please, stop this fraud.”

Faber said that he did not have a problem with the defense counsel. “We have a big problem with the good faith of your client,” Faber said. He added that the American system relies on the truth of people who testify under oath. “It seems to me that there is ample evidence in the record that Mr. Cline set out to manipulate the system.” The 37-months in prison was at the low end of the federal sentencing guidelines, but the $75,000 fine was at the top of the scale. Faber also ordered Cline to repay the $35,622 he received from his disability claim, and ruled that the loss to the IRS was $266,772.

Speaking from prepared remarks, Cline apologized to his family saying that “it has been very stressful for the last five years.” He also apologized “to the people of West Virginia and the U.S. government.” He said that he “made some very bad decisions” and apologized to the federal court.

Ellis addressed the court as to the matter of bond for Cline. Ellis said that he was concerned by some of the answers Cline gave on some of the psychological examinations, including one response that he “got angry about the federal prosecutor trying to ruin (Cline’s) name” and read a checklist of positive responses to questions related to behavioral matters.

“This is scary,” Ellis said. “I think he should be immediately detained.”

Tinsley argued that he had not heard about the responses earlier and pointed out that the government indicated the tests were not valid in earlier arguments. “Mr. Cline has been very diligent,” Tinsley said.

Faber ordered Cline detained “today,” but told Tinsley he could make a motion. “At this point, I’m not eligible to find by clear and convincing evidence he’s not a danger,” Faber said.

— Contact Bill Archer at barcher@bdtonline.com