Lawrence developer Thomas Fritzel, associates plead not guilty to federal fraud, environmental charges

photo by: Nick Krug

Defendant Thomas S. Fritzel stands behind one of his attorneys as he leaves the Frank Carlson Federal Courthouse in Topeka, Kan. on Tuesday, Aug. 14, 2018.

TOPEKA – Lawrence developer Thomas Fritzel and a number of his business associates entered not guilty pleas Tuesday in federal court on charges of tax fraud and violations of U.S. environmental laws.

The tax fraud charges stem from the development of the Oread Hotel, 1200 Oread Ave., in Lawrence. Prosecutors allege Fritzel, 52, and his employee, Keela Lam, 46, who worked as a bookkeeper for Fritzel, defrauded the city of Lawrence out of more than $400,000 in sales tax refunds by exploiting two special taxing districts the city had set up as part of the financing of the development.

In the environmental case, prosecutors allege Fritzel and others improperly handled and disposed of roofing material containing asbestos during a 2016 renovation of the Alvamar Country Club, which changed its name to the Jayhawk Club in 2017.

During separate hearings before U.S. Magistrate Judge James Marschewski, Fritzel stood silent after hearing the charges read in both cases while his attorney, Thomas Lemon, asked the court to enter not-guilty pleas on his behalf.

Lam pleaded not guilty to the tax fraud charges.

In February 2008, the city of Lawrence reached a deal with Fritzel to build a seven-story mixed-use hotel with restaurants, bars and other amenities.

As part of the agreement, the city established a tax increment financing district and a transportation development district around the property. The agreement called on Fritzel to finance the development up front. The city, in turn, would refund to Fritzel any incremental increase in city and county sales taxes generated by the development, up to $11 million, plus interest, over 20 years.

According to federal indictments issued in June, prosecutors allege that Fritzel and Lam set up a shell corporation that supposedly was located within the hotel, but which they actually operated from their offices on Massachusetts Street.

The indictment further alleges that from 2009 to 2015, the two made hundreds of purchases for personal items, furniture, and items for other Fritzel development projects that were outside the district — including some that were outside of Kansas — and submitted those purchases to the city in order to receive fraudulent sales tax refunds.

Both Fritzel and Lam face up to five years in prison and a $250,000 fine for conspiracy to commit fraud, plus 10 years in prison and a $250,000 fine for transporting stolen funds through interstate commerce.

The indictment also charges a number of corporate entities that Fritzel and Lam controlled. Those corporate entities could be fined up to $500,000 each for their role in transporting stolen funds in interstate commerce.

In the asbestos disposal case, Fritzel is charged along with his 25-year-old son, Tucker Fritzel, and associates Casey Stewart and Wesley Lynch.

The indictment, which was issued simultaneously with the tax fraud indictment in June, alleges that in 2016, Fritzel purchased what was then the Alvamar Country Club. Several months later, Fritzel started a renovation project that involved replacing the roof of the clubhouse, which was already known at the time to be made out of asbestos-containing material.

Prosecutors allege that Fritzel and the others engaged in a conspiracy to circumvent environmental laws, and the cost of properly disposing of asbestos, by failing to notify the Environmental Protection Agency or the Kansas Department of Health and Environment of the project. They also allege that Tucker Fritzel submitted phony demolition samples to a testing lab to show there was no asbestos in the material, and that they improperly disposed of the material in a landfill without using leak-proof material.

Stewart, 38, acted as site manager on the project. Lynch, 60, is listed in the indictment as manager of the Jayhawk Club.

Fritzel and Stewart both remained silent on the charges, and the court entered not-guilty pleas on their behalf. Both Tucker Fritzel and Lynch pleaded not guilty.

If convicted on all counts, the defendants could face up to 17 years in prison and $1 million in fines.

As in the tax case, several corporate entities also are charged in the asbestos case and could face substantial fines if convicted.

Fritzel remains free on a $50,000 bond. The other defendants remain free, either on unsecured bonds or their own recognizance. The next court hearings are set for Sept. 24.

photo by: Nick Krug

Defendants Wesley Lynch, left, Tucker Fritzel and Casey Stewart leave the Frank Carlson Federal Courthouse in Topeka, Kan. on Tuesday, Aug. 14, 2018.


Timeline: Oread tax district dispute

● June 27, 2018 — Lawrence developer Thomas Fritzel and others indicted for alleged tax fraud scheme, illegal disposal of asbestos

● May 10, 2017 — Judge officially dismisses city’s lawsuit against The Oread in wake of settlement

● April 28, 2017 — All parties sign settlement in city’s lawsuit against Oread hotel

● April 19, 2017 — City leaders approve Oread hotel settlement that reduces incentives, removes Fritzel from management

● April 14, 2017 — Tentative settlement would reduce incentives to Oread hotel by millions, require Fritzel to resign management duties

● March 29, 2017 — Judge orders conclusion of mediation in Oread hotel lawsuit

● March 6, 2017 — After 10 hours of mediation and executive session, no public update in city’s lawsuit against The Oread hotel

● March 3, 2017 — City leaders to take part in second court-ordered mediation Monday for lawsuit against Oread hotel

● Feb. 22, 2017 — Mediation session does not resolve city’s suit against The Oread hotel; judge orders second session

● Jan. 20, 2017 — Judge orders mediation in city’s lawsuit against Oread hotel

● Dec. 9, 2016 — City’s lawsuit against Oread hotel moved to federal court

● Dec. 4, 2016 — City: Oread hotel developer admitted to much of alleged tax scheme

● Nov. 16, 2016 — Lawsuit against Oread group cites personal purchases, faked sales in alleged scheme to defraud city

● June 9, 2016 — Auditors continue to review Oread sales tax documents; timeline for resolution uncertain

● April 19, 2016 — After Oread kerfuffle, city suggests adding right to audit into future incentive deals

● April 6, 2016 — City awaiting findings from Oread sales tax documents; Fritzel sends letter to community

● March 15, 2016 — Oread developers agree to comply with city demands

● Feb. 22, 2016 — Developer-commissioned analysis: Oread Inn owes fraction of what city says

● Feb. 17, 2016 — Oread group willing to comply with some city demands, asks for meeting ‘immediately’

● Feb. 11, 2016 — Lawrence declares Oread Inn in default of redevelopment agreement; developer says city is in default

● Feb. 10, 2016 — Oread Wholesale submits report about city-ordered audit; record not released

● Jan. 22, 2016 — As deadline passes, city mum about next move on Oread hotel tax dispute; new questions about Oread tenants emerge

● Jan. 19, 2016 — Oread group again contests city’s demands, accuses city of violating state law

● Jan. 6, 2016 — City mum on action against Oread Inn, waiting on last deadline to comply with demands

● Dec. 31, 2015 — Oread group pays nearly $500,000 to city ‘under protest’

● Dec. 30, 2015 — City seeking more than money from Oread group as deadline nears

● Dec. 29, 2015 — Oread group has not yet responded to city letter demanding $500,000; city has discussed issue with law enforcement

● Dec. 16, 2015 — City seeks more than $500,000 from Oread group after audit finds possible violations of state sales tax law

● Dec. 16, 2015 — City overpaid Oread hotel’s development group, mayor says

● Nov. 22, 2015 — Lawrence hires firm to evaluate Oread tax district


Other recent stories about Thomas Fritzel

• June 29, 2018 — KU gave unique rights deal to Fritzel despite fraud investigation being underway

• May 22, 2018 — Rock Chalk Park started as $39 million deal for KU; now it may top $100 million

COMMENTS

Welcome to the new LJWorld.com. Our old commenting system has been replaced with Facebook Comments. There is no longer a separate username and password login step. If you are already signed into Facebook within your browser, you will be able to comment. If you do not have a Facebook account and do not wish to create one, you will not be able to comment on stories.