Kaloti Grocery Brothers Sentenced to Prison for Tax Fraud

Two Brookfield brothers have been sentenced to 22 months in federal prison for their roles in various schemes to deal in stolen baby formula and defraud the government of taxes.

Prosecutors said Rassem Kaloti, 51, and Ishaq Kaloti, 45, diverted more than $2.2 million from various business ventures and concealed the income from their accountants and the Internal Revenue Service over a nine-year period, filing false income tax returns in 2005.

Ishaq Kaloti also was convicted of purchasing and receiving stolen infant formula.

U.S. District Judge J.P. Stadmueller agreed to allow Isaac Kaloti to serve his term first, after which his brother Rassem will start his sentence, so the family can continue their grocery business.

JSOnline.com reporter John Diedrich has more details from the sentencing hearing in Milwaukee Thursday.

The brothers owned and operated a series of businesses, including Kaloti Wholesale Inc., a dry-grocery wholesaler; RIMKO Realty LLP, through which they owned buildings in Milwaukee; Thyzdar LLP, through which they operated the Howard Johnson Hotel in those buildings; and Kaloti Enterprises of Michigan, another grocery wholesaler.

In a 2011 plea agreement, prosecutors outlined a series of schemes the brothers used to conceal income from all these businesses. They set up secondary bank accounts and hid them from their accountants; signed false business checks; created a second reservation computer and credit card machine at the hotel; and falsely represented as “purchases” checks that were cashed to pay illegal immigrant workers at Kaloti Wholesale — workers who also performed personal services for the brothers.

On Feb. 14, 2007, agents from the Federal Bureau of Investigation and the Internal Revenue Service searched the Kaloti Warehouse in New Berlin pursuant to a search warrant and seized, among other things, more than 81,000 cans of suspected stolen infant formula, according to a press release from U.S. Attorney James L. Santelle. The formula was forfeited in the plea deal.