Feds: Fraud ‘assembly line’ found in Tony Hu’s living room

Celebrity Chef Tony Hu grew his business empire out of Chinatown.

But the feds say he committed fraud from the comfort of his own living room.

Agents searched Hu’s home in October 2014 and discovered “what can best be described as an assembly line for the doctoring of records,” prosecutors claim. On Hu’s couch, they found piles of falsified restaurant receipts, as well as receipts waiting to be altered. On the floor were piles of records waiting to be destroyed.

“[Hu] built a world-renowned restaurant empire and came to be known as ‘the Mayor of Chinatown’ for his business and political prowess,” Assistant U.S. Attorney William Ridgway wrote in a memo filed in federal court on Monday. “But beneath that business success — and the political clout that came with it — was a deeply rooted fraud.”

Hu, 49, pleaded guilty last May to wire fraud and money laundering. He is likely to face between 41 and 51 months in prison under the terms of his plea agreement when he is sentenced. However, Hu’s attorney is asking the judge for probation and community service. He said Hu simply got caught up in a pervasive Chinatown culture of cash and tax dodging.

“Tony created a line of restaurants that brought comfort to immigrants and opened the eyes of others,” defense attorney Sheldon Zenner wrote in his own memo. “He then gave back: to charitable causes, to civic organizations, and to friends, family, and the community. Tony failed, however, to reject the way of doing business that surrounded him.”

The famous restaurateur has admitted he cooked the books, underreporting gross sales by more than $9 million and dodging more than $1 million in Illinois taxes while routinely glad-handing with politicians trying to run a cash-strapped state. Politicians of all stripes have posed for photographs with Hu, including Republican Gov. Bruce Rauner and his Democratic predecessor, Pat Quinn. Mayor Rahm Emanuel once appointed him to the Commission on Chicago Landmarks, but he is no longer a member.

Since Hu pleaded guilty, his attorney says his client “sold a handful of his cherished restaurants to help him pay” $1,087,674 in restitution owed to the Illinois Department of Revenue.

The feds publicly raided Hu’s restaurants, as well as his South Michigan Avenue condo, in October 2014. Six months later, the Chicago Sun-Times first reported authorities’ suspicions that Hu was cheating on his taxes. The feds had tailed Hu in his black Mercedes-Benz as he drove from his condo to Chinatown, and they even dined at his restaurants to get a closer look at the computer systems and receipts.

Agents left Hu’s condo with three damaged hard drives that forensic examiners determined had visible hammer marks and “damaged controller cards for the hard drive circuit boards,” according to court records. They also took about 100 ripped and torn bags full of receipts, the records show.

Now a naturalized U.S. citizen, Hu was born to a poor family in Meishan, Sichuan Province, China. After underperforming on a national higher education entrance exam, Hu pursued culinary school, graduated and became head chef at a hotel restaurant in Chengdu. When he was 25, he left his wife and newborn daughter behind in China and set out to build a better life in the United States.

Hu found a mentor in Cleveland. Later, he was offered a minority partnership in a struggling Chinatown restaurant named Mandarin Chef. Hu transformed it into Lao Sze Chuan — “the premier Chinese restaurant in Chicago,” according to Hu’s attorney. Hu’s wife and daughter joined him in the United States in 1999, and he opened a dozen restaurants around Chicago.

But Zenner wrote in his memo that businesses frequently avoid taxes in China, and “that culture permeates most Chinatowns today, including Chicago’s.” Zenner wrote that a former business partner of Hu’s taught him the basic scheme:

Restaurants collect cash-payment receipts nightly and arbitrarily discard them until they amount to 20 percent of the day’s credit-card sales. The cash from receipts they keep is used to pay taxes. The cash from the discarded receipts is used to pay employees and vendors. The reduced sum of cash sales is sent to accountants, and the day’s total sales reports are destroyed.

Zenner said Hu and his business partners used this scheme at some of his restaurants, but not all. In fact, Zenner said Hu “had begun to extricate himself from Chinatown’s way of doing business” before the feds’ investigation surfaced.

Once it did, Zenner said Hu “accepted full responsibility” so the feds would not prosecute his business partners and restaurant managers “some of whom are his family.”