What probably started as a by-the-book business relationship turned into a conspiracy between a business owner and a corporate-level auditor to allegedly defraud the company, the government, employees, and an insurance agent, investigators said on Wednesday.
Tarek Elkafrawi and Autumn Lee Tangas may have met in Decatur, Ill., in 2003, where he owned an IHOP. There Ms. Tangas, a franchise business consultant, was expected to monitor the restaurants.
Almost a decade of alleged criminal activity and a three-year investigation -- that included raids at seven IHOPs Sept. 20 -- culminated Wednesday when federal, state, and local law enforcement agencies arrested defendants in three states.
Mr. Elkafrawi, 54, who lives in Middleton Township near Perrysburg, and Ms. Tangas, 54, of Sylvania, were among 18 people indicted Tuesday in U.S. District Court in Toledo. They were arraigned Wednesday in federal court.
With the exception of Mr. Elkafrawi, the magistrate assigned to the case allowed the defendants to be released on their own recognizance. A detention hearing is scheduled Thursday for Mr. Elkafrawi.
"Elkafrawi's restaurants served up more than breakfast," Assistant U.S. Attorney Carole Rendon said. "They had a menu of various crime schemes."
The defendants face charges of money laundering, harboring illegal immigrants, wire fraud, mail fraud, arson, identity theft, making false statements, and misprision of a felony.
The restaurants raided on Sept. 20 were at 4045 Talmadge Rd. in Toledo, 6920 West Central Ave. in Sylvania Township, 10151 Fremont Pike in Perrysburg Township, 6535 Airport Hwy. in Springfield Township, and one each in Findlay, Lima, and Evansville, Ind.
Mr. Elkafrawi was listed in public documents as the president of the locations except that in Lima, which is owned by TE & KM Inc., a limited liability company owned by Mr. Elkafrawi.
Ms. Tangas has been fired, said Tanya Valenzuela, an IHOP spokesman. She was not sure how long the suspect had worked for the company.
Ralph Meczyk, a Chicago lawyer representing Ms. Tangas, said she is "absolutely and categorically innocent."
Ms. Valenzuela said it is the company's intention to keep the affected locations open, but it's unclear if they will be absorbed at the corporate level or sold to another franchise owner.
Those facing federal indictment charges are:
Tarek Elkafrawi, 54, of Toledo, money laundering, alien harboring, four counts of mail fraud, three counts of health-care fraud, two counts of use of fire or explosive to commit a felony, two counts of arson, two counts of aggravated identity theft, and two counts of identity theft;
Tarek Eid Omar, 36, of Newburgh, Ind., money laundering, alien harboring, two counts mail fraud, two counts of identity fraud, and health-care fraud;
Autumn Lee Tangas, 54, of Sylvania, money laundering, alien harboring, mail fraud, false statements, and misprision of a felony;
Kelly Elkafrawi, 49, of Toledo, money laundering and alien harboring;
Jose Leon-Gonzalez, 36, of Evansville, Ind., alien harboring, two counts of use of fire or explosive to commit a felony; two counts of arson;
Carlos Gamboa, 50, of Toledo, alien harboring, two counts of identity theft;
Khaled Yousef, 34, of Toledo, alien harboring, two counts of aggravated identity theft, two counts of identity theft, false statements, health-care fraud;
Jamil Mohammed Awwad, 37, of Ypslilanti, Mich., alien harboring, two counts of aggravated identity theft, two counts of identity theft, false statements, health-care fraud;
Ramiz Awwad, 33, of Ypslilanti, Mich., alien harboring, two counts of aggravated identity theft, two counts of identity theft, false statements, health-care fraud;
Khalil Aboudakka, 34, of Toledo, alien harboring, two counts of identity theft, false statements;
Ali Mahmoud, 23, of Toledo, alien harboring, two counts of identity theft, false statements;
Mohamed Hassan, 57, of Toledo, alien harboring, two counts of identity theft, false statements;
Donna J. Harriott, 49, of Lima, alien harboring, two of counts identity theft, false statements;
Lucky Williams, 30, of Fostoria, alien harboring, two counts of identity theft;
Sara Rinebolt, 46, of Arcadia, two counts of identity theft, false statements;
Cesar Avila, 37, of Toledo, alien harboring, two counts of identity theft;
Mark Anthony Turner, 47, of Toledo, two counts of identity theft, false statements;
Yoni Merida, 30, of Evansville, Ind., two counts of identity theft.
The IHOP on in Sylvania Township was closed Wednesday. It was not clear whether that was temporary or related to the indictment.
Federal prosecutors are seeking to seize the seven locations as well as an Indiana home purchased by one of the defendants, more than $37,000 in cash, a dozen bank accounts, and several vehicles.
The IHOP spokesman did not know of any additional charges that the corporation might file. She added that the company was cooperating with law enforcement and if the allegations are true, it's "contrary to our employment practices and inconsistent with our values."
The indictment, which was unsealed Wednesday, alleges that Mr. Elkafrawi employed more than 200 illegal immigrants to work in the restaurants and that he, Carlos Gamboa, Jose Leon-Gonzales, and others forged work papers for them. Managers reportedly were told to accept blatantly false documents and, if no documents were available, they were fabricated or another person's identity, often someone already in the system, was used.
Sometimes employees were given multiple identities so they could report lower earnings to qualify for welfare or other government assistance, the indictment states.
Kelly Elkafrawi, the wife of Mr. Elkafrawi, is charged with money laundering and harboring illegal immigrants. She said she didn't want to talk about the investigation Wednesday night when a reporter went to her Middleton Township home.
Mr. Elkafrawi's lawyer, Richard Kerger, said his client came from a foreign county more than 25 years ago and has been providing valuable services to the many people who dined at the restaurant while providing millions of dollars of income to the employees.
"We will respond to the charges as appropriate and present our defense to have the matter resolved in the court system where it is supposed to be," Mr. Kerger said.
Tom Harter, the resident agent in charge of the Cleveland Immigration and Customs Enforcement office, said most of the immigrants came from Mexico. It was not clear where all were on Wednesday.
"We allege that the pancake houses were a front for a much more sinister behind-the-scenes operation," Mr. Harter said. He added that four of the people arrested Wednesday are illegal immigrants.
Mr. Elkafrawi and Ms. Tangas allegedly manipulated sales figures, salaries, payroll, and losses to avoid paying taxes and royalties and to divert money from DineEquity, the corporate owner of IHOP, investigators said.
The indictment states that, as a result of the undocumented workers, Mr. Elkafrawi and Ms. Tangas generated more than $1.2 million in unreported income.
Ms. Tangas, because of her corporate position, was not eligible to own a franchise, but in 2004 she reportedly gave Mr. Elkafrawi $50,000 to purchase the Findlay location without telling corporate offices, according to the indictment. After the purchase, a friend of Ms. Tangas who is not named in the indictment was listed as a minority owner and received paychecks and health benefits, despite not working there.
After the loan, Mr. Elkafrawi paid Ms. Tangas a total of $65,000 in three installments as reimbursement, court documents state.
Ms. Tangas recommended to corporate officials that the Central Avenue IHOP be paid a weekly credit of $2,300, considered a "relief payment," stating the location was "underperforming," according to the indictment.
The payments continued for five years, allowing the franchise to collect about $500,000 from the corporation, documents state.
Much of the "underperforming" could be attributed to the manipulation of sales, including store managers being told to void cash transactions or entering coupons to lessen the amount owed on a receipt but still collecting the full amount from customers, the indictment states.
The computer system, monitored by corporate officials, was also often "paused," allowing for cash transactions not to be calculated at all.
The defendants were "basically cooking the books as well as cooking pancakes," said George Crouch, assistant special agent in charge of the FBI's Cleveland office.
Restaurant employees reportedly were cheated out of earnings when, starting in 2004, a period of 30 minutes was cut from each shift by adjusting their time cards in the computer system, the indictment states.
All of this allegedly was done for the financial gain of Mr. Elkafrawi and other key players, Ms. Rendon said.
Officials further allege the Findlay location was intentionally set on fire in August, 2008, by Jose Leon-Gonzalez, 36, of Evansville, Ind., at Mr. Elkafrawi's direction. Both men are charged with arson.
Contact Taylor Dungjen at: firstname.lastname@example.org, 419-724-6054, or on Twitter @tdungjen_Blade.