Beanie Babies Billionaire Pleads Guilty to Tax Evasion

CHICAGO--The creator of Beanie Babies pleaded guilty to federal-tax evasion Wednesday, apologizing in court for what prosecutors say was the hiding of tens of millions of dollars in income in offshore accounts.

Ty Warner, chief executive of Ty Inc., the maker of stuffed dolls, will face up to five years in prison when he's sentenced early next year. He also will owe the government $53.6 million for failing to file a report on foreign financial accounts, the largest offshore-account penalty ever reported.

"I apologize for my conduct," said Mr. Warner in U.S. District Court here. "I made a mistake. I'm fully responsible."

Mr. Warner, who is 69 years old, became a billionaire in the 1990s after creating the popular stuffed animals, which drew children and collectors alike. He branched out into luxury properties with Ty Warner Hotels & Resorts, which owns Four Seasons hotels in New York and Santa Barbara, Calif.

Mr. Warner pleaded guilty to the felony charge for failing to pay taxes on $3.2 million in earnings in 2002 made through investments in an account at Swiss bank UBS AG (UBS, UBSN.VX), according to court documents.

Although pleading guilty to the single count, prosecutors said Mr. Warner failed to report a total of $24.4 million in income from offshore accounts over more than a decade, hiding the existence of the accounts from business and personal accountants.

The case against Mr. Warner is part of larger crackdown by the U.S. government on undeclared offshore accounts that intensified after UBS admitted in 2009 to helping U.S. taxpayers hide money abroad.

An analysis done earlier this year found U.S. courts have been more lenient in cases tied to the government crackdown on secret offshore accounts. The average sentence in criminal offshore cases has been about half as long as in tax-shelter schemes, according to a comparison of Internal Revenue Service statistics and data compiled by Houston attorney Jack Townsend, who publishes the Federal Tax Crimes blog. In many cases, judges are also opting for shorter sentences than recommended under federal guidelines.

--Laura Saunders contributed to this article.

Write to Mark Peters at [e-mail]

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