Tax cheats are defended at home in Morris

To the U.S. attorney who prosecuted them and a federal judge in Minneapolis who sentenced them to prison Friday, the brothers who owned a road construction business in western Minnesota were the personification of greed, scheming tax cheats who ripped off the government.

But in Morris, Minn., where John and Joseph Riley owned one of the city's five largest businesses, many still revere them for their philanthropy and the way they treated employees.

"The Rileys have done an awful lot for the community," said Carol Wilcox, former Morris mayor. "Anytime something was needed, the Rileys were one of the first I would go to."

Even those who say the men should pay for their crimes also say it was wrong for the state to bar the company from working on state, county and city projects in Minnesota. It is doing business in North Dakota and South Dakota.

The brothers were each sentenced to 3 1/2 years by U.S. District Judge Patrick Schiltz, who said they committed "as serious a tax offense as one can imagine." He said cheating "was a way of life" for the defendants, "who got rich by the taxes paid by honest people."

U.S. Attorney B. Todd Jones said, "The Riley brothers not only defrauded the government; they harmed their own community, which relies on their companies for employment of a large segment of the local population. Because of their greed and its consequences, the town may be adversely affected economically for some time to come."

Joseph E. Riley, 64, and John T. Riley, 62, also were fined $250,000 each. Both pleaded guilty in November. Schiltz said the two men "sat in my courtroom under oath and lied."

"You helped make tax cheats out of many of your employees and helped them cheat the state of Minnesota," Schiltz said.

According to the U.S. attorney's office:

The brothers evaded income taxes, Social Security taxes, Medicare taxes and unemployment taxes.

They cashed checks made out to their company and spent the money themselves. Joseph Riley used company funds to buy four motorcycles and a time-share condo in Cancun, Mexico. The brothers paid $95,000 in cash to employees and never reported it to the IRS or state Department of Revenue.

They used $79,000 in company funds for personal expenses, prosecutors said, including children's wedding receptions, with information altered to make the expenses appear to be related to business meetings and events.

Generous with donations

At one time the company had 160 employees and still has 100, according to a manager of the firm who asked that his name not be used. Tom Larson, editor of the Morris Sun Tribune, said the brothers have distanced themselves from the company, which now is operated by one of their sons, Chris Riley, who did not return phone calls.

Wilcox, the former mayor, said the brothers donated company labor and resources to help construct four Habitat for Humanity homes. They raised funds for a fitness center, which carries a plaque with their names on it, next to an indoor walking track, she said.

"The community stands behind these much-respected businesspeople in Morris and realize it was not all their fault; there were other people involved," she said.

Ed Larson, who was city manager for 26 years, said he was "shocked" at the length of their sentences. "Over the years, they contributed a lot of projects," he said.

Blaine Hill, the current Morris city manager, said the brothers "did wrong, and they are going to suffer the consequences as they should." But he added that the state, by barring the company from bidding on road projects, is hurting local employees.

He said it was his understanding that by law, the company lost its right to bid on state, county and city projects for at least one year and no more than three years. He hopes the ban will soon be lifted.

Brian Giese, Stevens County engineer, said Riley Construction tended to be the low bidder on projects. With the company out of the bidding, bids seem to come in higher, he said.