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Man draws probation in 'HushHush' case

Owner pleaded guilty to tax fraud for hiring prostitutes and writing them off as ad expenses.

By Kerry Hall
Khall@charlotteobserver.com

Charlotte businessman James Smith was sentenced Wednesday to 18 months probation for hiring prostitutes and writing them off as advertising expenses on his corporate income taxes.

Smith, owner of construction company Red Clay Aggregate, had pleaded guilty in August to tax fraud. He'd faced up to three years in prison and a fine of up to $250,000.

Nine of the 18 months probation are to be spent in home confinement. He declined comment Wednesday through his attorney.

Smith was the second client to plead guilty in the federal government's investigation into “HushHush,” a lucrative prostitution ring in Charlotte.

Smith was accused of using the services of Soft Touch Promotions and SW Associates from 2002 through October 2007. Those were the shell companies used to operate the Internet-based escort service, according to court documents.

The madam of the high-priced call-girl service, Sallie Saxon, was sentenced to two years in prison. Prosecutors have said her service drew some 1,900 clients and employed hundreds of prostitutes over several years. Liaisons took place at hotels around SouthPark and uptown, as well as in Chicago and Las Vegas.

Prosecutors allege Smith reported income of about $455,935 on his 2006 tax return. But Smith, according to the federal charge, knew his income was substantially more. Prosecutors say Smith owed an additional $19,543.66 in taxes over a five-year period.

“In truth and fact, the expenses were personal in nature, and the false treatment on the tax return caused the understatement of income to defendant James Smith,” the charge alleged.

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