LITTLE ROCK — The owners of Medical Park Hospital in Hope pleaded guilty to failing to pay payroll taxes at a hospital in Lubbock, Texas.
In August, James Cheek and Herschel Breig were charged in U.S. District Court with eight felony counts over allegations they did not pay $1.9 million in payroll taxes and embezzled more than $300,000 in employee healthcare deductions between March 2006 and May 2008, when they operated Lubbock’s Highland Medical Center.
Both men appeared Thursday before U.S. District Judge Sam Cummings in Lubbock, and each pleaded guilty to one count of failing to pay payroll taxes.
The guilty plea covers three months in 2007 during which Shiloh Health Services, the company Breig and Cheek own, deducted $337,000 in payroll taxes from employees’ paychecks that was not deposited with the Internal Revenue Service.
In exchange for the guilty plea, the U.S. attorney’s office of the Northern District of Texas agreed not to pursue the seven additional charges, according to court documents.
Kathy Colvin, a spokesman for the U.S. attorney’s office, declined to comment on the case because it is still open.
Cheek and Breig face a maximum sentence of five years in prison, a $10,000 fine and one year of supervised release.
They will be required to pay $120,000 in restitution to victims identified by the U.S. Department of Labor before sentencing, which has not yet been scheduled.
A probation officer is required to complete a presentencing report within 35 working days.
Shiloh Health Services purchased Medical Park Hospital in Hope in May 2008, one month before the hospital in Lubbock filed for bankruptcy.
Medical Park has since accrued more than $3.5 million in unpaid federal, state and local taxes and is scheduled to be auctioned off by the Arkansas Commissioner of State Lands in May.
Shiloh transferred management of Medical Park Hospital in June 2011 to Carraway Medical Systems, which shared the company’s top leadership, including Cheek and Breig.
In a news release issued by Carraway, the company referred to Cheek and Breig as its former president and vice president.
Mark Caton, the hospital’s executive director, is implementing a restructuring plan for the hospital, according to the release.
The plan includes an analysis of all departments and prompted the hospital to close its labor and delivery ward and eliminate after-hours surgeries.
Arkansas, Pages 14 on 02/29/2012