A Chinese-American Tragedy (1979-91)

By Gary Libby from the May 2008 CAFAM Newsletter

Portland area old timers will recall that, in 1979, a new kind of Chinese restaurant opened on Congress Street. It was called Hu Shang, and it offered a different menu from the familiar Cantonese-American fare, including Sichuan dishes that would set your mouth on fire. It quickly became one of Portland’s hottest restaurants, with customers lining up at the door.

The owners of that restaurant were two brothers, Ken and Henry Ng. While Henry worked the kitchen, handsome and personable Ken became the public face of “K & H Corp,” as their business was named. And a successful enterprise it was. By 1981, needing more space, they bought a building on Brown Street, with $75,000 cash down. They closed their Congress Street place and named the completely remodeled Brown Street restaurant “Hu Shang II.” The business continued to thrive. Two years later, in 1983, they opened Hu Shang III on Exchange Street, with a full bar and disco. The money poured in.

Ken and Henry seemed to be living examples of the American dream for industrious immigrants. They were getting rich and were becoming pillars of the Portland business community. Henry was not so well known, but Ken charmed everyone.

However all did not continue happily. It seems that Ken had a dark side and was not inclined to play by the rules. The first sign of problems happened when the brothers argued and agreed to manage the two restaurants separately. But that was just the beginning.

The real source of troubles was Ken’s financial shenanigans. He was in charge of all the books and, since the restaurants accepted only cash, he could easily under-report income. The money he skimmed was used to buy real estate in the names of family members, usually with cash down payments.

In another slick transaction, Ken wired about $200,000 to a Hong Kong bank. He then traveled to Hong Kong, picked up the check, and returned to Maine where he declared the money as income from the sale of stock (favorably taxed as “capital gains”). Also, using funds skimmed from the business itself, he made loans to K & H Corp to cover cash flow problems, totaling more than $300,000.

It was only a matter of time before all of this came to light, and when it was over, Ken would find himself an inmate in a federal prison, and even Henry would go to jail.

For starters, Ken’s Hong Kong trip caught the attention of the Internal Revenue Service and an investigation was started. Then Henry grew suspicious of Ken’s bookkeeping. When confronted, Ken essentially dared his brother to sue him. This was a mistake. Henry filed a civil suit in 1985. The proceedings disclosed the existence of two sets of books. Henry alleged that Ken had underreported corporate income between 1979 and 1985 by at least $2.5 million. It also came to light (among other questionable things) that Ken habitually underreported daily receipts by about $1,000 per day. This cash went into a canvass bag which Ken kept in a closet. The brothers almost settled the suit, but then Ken backed out.

The fact that all this information came out was a Godsend to IRS investigators. Plus there was a federal grand jury indictment charging Ken with lying on his application for citizenship (which was based on a sham marriage). Confronted with so much incriminating evidence, Ken pled guilty to personal and corporate income tax evasion on May 2, 1986. At his sentencing, the prosecutor estimated that Ken had misstated personal income by more than $700,000 in just two years between 1981 and 1983 and misrepresented the H & K Corp’s income by more than a million dollars.

Although many prominent citizens wrote letters urging leniency, the judge was not swayed. He sentenced Ken to four years of incarceration and three years’ probation, fined him $45,000, and ordered him to reimburse the government for the cost of his prosecution. This was the longest sentence for tax evasion in Maine’s history.

Meanwhile, Henry himself had pled guilty to conspiring to impede tax collection. He agreed to cooperate with the federal government against his brother in return for a six-month sentence.

Ken’s troubles continued. On the positive side, he served only 22 months of his four year sentence. However he had been forced to pay $864,000 in personal income taxes and still owed about a million dollars in corporate taxes. Still worse, after his release from prison, an IRS agent alleged that Ken tried to bribe him in connection with seized property that the IRS was about to auction off. He was indicted in 1991. At that time he was also subject to deportation proceedings. He entered a guilty plea in July and, in September of that year, he was sentenced to five years in prison, two years for bribery and another three years for probation violation.

In the annals of Chinese in Maine, the story of Ken and Henry Ng is surely the most spectacular case of incredible success and sadly avoidable disaster.