Nov 15, 2013 3 min read

PITTSBURGH (AP) – A Pittsburgh-area businessman once sentenced to more than eight years in a massive check-kiting scheme that cost PNC Bank more than $31 million is returning to federal prison for nearly three years for obstructing Internal Revenue Service efforts to collect more than $6.2 million in unpaid taxes, penalties and interest owed from that first prosecution.

But Michael Carlow, 62, also won an important victory when a federal judge determined he didn’t have to pay $5 million of that total because it stems from tax debts rung up before 2003, putting it beyond the reach of the IRS’s 10-year statute of limitations.

“We’re happy about the financial side of it,” defense attorney Martin Dietz told the Associated Press. “To a certain extent, it’s always sad when someone’s going to jail. But on the financial side, we love it.”

Had it not been for that debt, Carlow would not have returned to federal court for sentencing Friday.

Carlow pleaded guilty in January to buying his way into several businesses and then having money from those businesses routed to him through his girlfriend, Elizabeth G. Jones, 53, so he could avoid having that income seized by the IRS to pay the tax debts from the earlier conviction. Jones will be sentenced next month.

The earlier conviction stemmed from Carlow’s abuse of several businesses that brought him to prominence in the early 1990s.

Carlow gained fame – and a fleeting reputation as a financial white knight – when he publicly bought out several iconic Pittsburgh-area businesses, including those that made Clark candy bars and Iron City Beer. He ran the businesses into the ground while using their bank accounts for a check-kiting scheme, writing bad checks on the accounts that were covered by deposits made with other bad checks in a cyclical fashion.

Carlow pleaded guilty to living lavishly on money he siphoned from the artificially inflated business accounts, which were kept current by underlings who monitored the balances via electronic banking. Those underlings made reams of bogus deposits to cover billions of dollars’ worth of bad checks until some of the businesses were forced into bankruptcy.

The multi-year scheme was so complex that in its final three months one Carlow employee floated 3,700 bad checks worth $1.9 billion to artificially inflate the balances of 57 business bank accounts in 19 states, federal prosecutors said.

When Carlow was indicted again two years ago he faced more serious tax fraud charges that could have put him in prison for 22 years.

Those charges were withdrawn and he was allowed to plead guilty to a less-serious umbrella charge of corruptly impeding the administration of the IRS from 2000 to 2011, which carried a maximum three-year sentence. That happened after Carlow’s attorney tried to have the case thrown out because a white-collar defense attorney who once consulted on his case was hired by Pittsburgh U.S. Attorney David Hickton, then assigned to Carlow’s criminal prosecution.

Hickton recused his office, and the case was prosecuted by Jeffrey McLellan, of the U.S. Justice Department’s Tax Division. He declined comment on the sentence.