Federal officials are investigating whether hundreds of thousands of unreported dollars have been siphoned from two prominent Annapolis restaurants and the Maryland Wine Festival and funneled into real estate investments in Costa Rica, say sources familiar with the investigation.
Internal Revenue Service agents are looking at records of daily food and beverage sales at Middleton Tavern and O'Brien's Oyster Bar and Restaurant -- both owned by Annapolis businessman Jerome Hardesty -- say the sources, who spoke on the condition of anonymity. They say agents suspect records have been doctored for more than a decade to under-report large amounts of cash.
Two weeks ago, Hardesty bought a large estate called the "House of Flowers" on a golf course in Costa Rica, staffing it with armed guards and servants, sources say. A handful of acquaintances, who did not want to be identified talking about the prominent businessman, said Hardesty's plans were to travel to Central America once a month. They said he had visited the country three times in the past six months.
No charges have been filed in the case.
A two-year federal investigation led to an early morning raid Feb. 23, in which agents searched the restaurants, Hardesty's house and the home of his longtime assistant, Christina L. Nokes. The agents closed both restaurants for most of the day and seized computers, files and about $100,000 in cash, sources said.
Hardesty, 56, did not return repeated phone calls to his home and restaurants. Restaurant employees said he told his staff the IRS search was a "routine audit." Nokes, reached at her home yesterday evening, declined to comment.
The investigation has stunned the city's business community, where Hardesty is known as a visionary who bought Middleton Tavern in 1968, a time when downtown Annapolis was little more than a rundown shipping dock. As his two restaurants flourished, so did the controversies surrounding his growing business empire.
Hardesty, who lives in a half-million-dollar home on a secluded Annapolis peninsula with a sweeping view of the Severn River, has frequently traveled to the town of Quepos in Costa Rica, near where he and former Anne Arundel County Executive Bob Pascal have owned a condo since the early 1990s, sources said.
A State Department official said Costa Rica is known as a "tax haven" for American business executives. With a strong economy, stable political structure and little government oversight, it has become an increasingly popular investment and retirement destination, the official said.
Some of the investigation has centered around the Maryland Wine Festival, an increasingly lucrative cash business, sources said. Hardesty began the festival in 1988 as a small, low-key affair to promote local wineries after the General Assembly gave him the go-ahead. As the festival grew to 12,000 visitors a year, paying $16 a person, Hardesty earned the enmity of winery owners who wanted a bigger share of the profits.
Hardesty said in 1992 that giving in to the wineries would sink the operation. But he found other ways to make money. He started selling beer he supplied and tightened control over food vendors, increasing costs for some vendors so much that they had trouble making a profit. In 1994, say festival regulars, Hardesty forced out the Big Cheese, an Annapolis company selling cheese and bread at the festival, and took that over.
Nokes has worked as Hardesty's assistant in an office across from Middleton Tavern since she graduated from high school almost 20 years ago. She and her husband, R. C. Nokes, who works for an Annapolis auto shop, own property in Frederick County and two homes in Anne Arundel worth more than $300,000 altogether. According to state records, they own at least five cars, including a Cadillac, a Lincoln Town Car and Chevrolet Monte Carlo.
Domenic J. LaPonzina, IRS spokesman, and Stephen Schenning, first assistant U.S. attorney for Maryland, both declined to comment on the investigation.
James Nolan, co-chair of the Annapolis and Anne Arundel Chamber of Commerce, said the Hardesty family is known as a pioneer in the state capital's restaurant industry.
"To have an upscale restaurant near the City Dock with a bar it really was kind of a new thing," Nolan said. "As a result of what they did, other restaurants and bars have come in behind them and have become the mainstay of the downtown area today."
Nolan called Hardesty, who bought Middleton Tavern from his family, "one of the leading restaurateurs in Annapolis."
These attributes have pitted Hardesty in the past against downtown residents who have protested that his businesses have encroached upon their lives and the historic community. Hardesty has clashed with residents over how late bars should remain open and placing tables on sidewalks for outdoor dining.
"Sometimes people underestimate the efforts of citizens in keeping up downtown and making it a nice place to visit," said W. Minor Carter, president ot the Ward 1 Residents Association. "Jerry at times underestimates that. He's been a controversial figure downtown. There has to be a partnership between business and the citizens, and that requires respect from both sides."
Nancy Johnson, who coordinated the wine festival for four years before quitting the job last year, said he treats his employees well.
"He's just a hard-nosed businessman," she said. "But he takes care of his people. He always took us out to dinner. There was nothing stingy about him that way. I liked the guy."
Pub Date: 3/02/99