Charges of Income Tax Evasion Broaden UCI’s Fertility Scandal

SANTA ANA — Three former UC Irvine physicians, already charged with mail fraud in the university’s fertility scandal, have been indicted on income tax evasion counts, officials said Friday.

A federal grand jury indictment alleges that Drs. Ricardo Asch, Jose P. Balmaceda and Sergio C. Stone essentially kept patients’ cash payments off their books and filed fraudulent business and personal income tax returns with the Internal Revenue Service for 1991 and 1992.

The indictment is the latest development in a scandal that has plagued the university’s once-prestigious but now-defunct Center for Reproductive Health. The university and former patients have accused the doctors of stealing human eggs and embryos from women seeking treatment for infertility, then transplanting them into other women. The UC system also has accused the doctors of research and financial improprieties.

About 90 lawsuits have been filed against the doctors, who have repeatedly denied the allegations against them.

The criminal case against the doctors had been restricted to mail fraud--previously 35 counts that were consolidated to 20 in the latest indictment. The new indictment added one count of conspiracy against all three, and two counts of income tax evasion against each.

The conspiracy count charges that the doctors “took steps to conceal from the IRS cash payments received from CRH [Center for Reproductive Health] patients” by having the clerical staff record each transaction as an “adjustment” rather than a payment.

The cash was collected in an envelope, and the clerical staff was instructed to not deposit it in the clinic bank account where other payments were kept, the indictment alleges. At the end of each day, one of the doctors would collect the cash and sign an “internal record” for the amount, it states.

At the end of the month, the three physicians would use the internal records “to divide up the cash income that had been kept off of the partnership books,” according to the indictment.

The indictment does not state how much cash was involved.

An attorney for Dr. Stone--the only one of the three physicians who has remained in the United States to face charges--called the new charges “an accounting matter.”

“There may have been some accounting errors, but Dr. Stone, while he is a world-renowned physician, is not an accountant,” attorney John D. Barnett said.

Stone signed his income tax returns without knowing that the cash was not being reported, Barnett said. He said the office staff put the cash in an envelope “to keep it separate, so it would not get stolen. . . . There is nothing sinister about it.”

He said the amount of cash involved, for Stone’s part, was about $25,000 a year, “a small amount compared to the amount [of income] declared.” According to the indictment, Stone declared income of $320,809 in 1991 and $482,792 in 1992.

Barnett said Stone’s share of the cash was about half that of the other two doctors. The indictment reveals that Asch reported income of $572,654 in 1991 and $644,246 in 1992; Balmaceda declared $595,569 in 1991 and $723,225 in 1992.

The conspiracy count further charges that the doctors had their staff submit copies of the “falsified partnership books” to their accountant for tax preparation. After one of the employees told the accountant that the clinic was keeping cash payments off the books, the accountant met with Stone on Aug. 2, 1993, it states. Stone “agreed that the understatement of income posed significant problems for the physicians,” indicated that he would confer with Asch and Balmaceda, “and claimed he would follow up on the matter with the tax accountant,” the indictment states. The three failed to authorize the accountant to file amended tax returns, the indictment says.

Stone’s attorney said the indictment shows that Stone did not know that his income figure was incorrect at the time he signed his tax returns. “In other words, it was done innocently,” he said.

Barnett would not say whether Stone ever filed amended tax returns.