Charles Phelps, Jr., a business associate of adult entrepreneur John Kenneth Coil, pled guilty last Friday to one count of conspiracy to defraud the Internal Revenue Service, an unexpected development that paved the way for the federal government to shut down over 20 adult retail stores in Texas.
John K. Coil and seven of his associates, including Phelps, Jr., were named in a federal grand jury indictment last September that included 15 obscenity charges and even more charges related to tax evasion.
According to court documents, from 1997 to 2002 Phelps, Jr. concealed over $400,000 in income derived from AVE, Inc. and Adjust, Inc., companies that he co-owned with John K. Coil.
Last Friday, Coil pleaded guilty to an obscenity charge for transporting a hardcore German video entitled Nympho Bride across state lines and also pleaded guilty to mail fraud for mailing a fraudulent 1040 tax return as part of a scheme to defraud the IRS. He agreed to forfeit all his business properties in Texas, amounting to over 30 pieces of realty and 20 adult video stores, an estimated $9.7 million.
AVN.com reported last week that Phelps, Jr. and John A. Coil, the son of John K. Coil, were business partners in the adult video stores that Coil forfeited; that appears to have been part of an elaborate tax evasion scheme that led to downfall of Coil’s adult empire – the federal government maintains that John K. Coil was the co-owner alongside Phelps, Jr.
On Friday, John K. Coil's lawyer John Fahle, apparently unaware that his client was believed to be the co-owner of the adult retail stores with Charles Phelps, Jr. , predicted that Phelps, Jr. would never plead guilty. “Charles Phelps absolutely refused to plead because most of the stores that Phelps has any interest in are in Texas, so he’d essentially be giving up everything,” Fahle told AVN.com in a previous interview. “And not only that; the evidence in this case was pretty well directed at Coil, and so, the only time Phelps’ name came up was in ownership documents, and when you get to a tax case, when they have to prove a willful violation, it’s got to be an intentional violation of a known legal duty, so they can’t get there by just proving that he should have known. They have to prove that he actually did know about any tax violations, etc.”
Department of Justice Senior Counsel Bruce Taylor was given credit as one of the prosecutors of the case, alongside Assistant U.S. Attorney Mark Marshall and Special Assistant U.S Attorney N. T. Gallagher of the Dallas County District Attorney’s Office, and the D.O.J Child Exploitation and Obscenity Division Attorney Ben Vernia
Sentencing for John K. Coil and Charles Phelps, Jr. is scheduled for August 26, 2004. John K. Coil faces ten years in federal prison and Phelps, Jr. faces five.
