Feb. 7 (Bloomberg) -- Two officials of Scores, the operator of two Manhattan strip clubs, were indicted on charges of diverting funds to shell companies that paid no state taxes and pocketing the money for their personal use.

Richard Goldring, the chief executive officer of Scores Holding Co. Inc., and club manager Harvey Osher, a director of the publicly held company, were charged in the alleged scam, along with Osher's niece, a Scores bookkeeper. Five companies affiliated with Scores were also charged. Scores Holding Co. licenses the Scores name around the country.

The investigation that led to the indictment was sparked by complaints from customers who said they were overcharged by Scores, according to Manhattan District Attorney Robert Morgenthau.

``It's a pretty flagrant and obvious way of avoiding taxes,'' Morgenthau said at a press conference today. ``I hate to say this, but the press played a role in this because there were a lot of corporate people who spent a lot of money at Scores. This got a lot of attention.''

Goldring and Osher were charged with numerous counts of falsifying tax returns and business records. Cheryl Osher was indicted on similar charges. The defendants face a maximum of four years in prison on each charge.

Shell Companies

Five companies also were charged, including two licensed by Scores Holding Company to operate the club on the Upper East Side of Manhattan: Scores Entertainment Inc. and 333 East 60th Street Inc. Scores also operates a club on Manhattan's West Side.

The three alleged shell companies named in the indictment are DDM Management Corp., T&O Consulting Corp., and Interactive Business Concepts Inc. The defendants are accused of avoiding taxes on income of $3.1 million.

Between 2001 and 2003, Goldring paid $1.66 million to Interactive Business Concepts for Scores-related business, even though IBC had no legitimate business purpose, Morgenthau said. IBC then claimed $1.68 million in business-related deductions on its state tax returns, he said.

Morgenthau said Goldring wrote off $185,000 as a ``consulting expense,'' and used the money to help build a house in New Jersey. He also used other funds diverted to IBC to buy $80,000 in jewelry and household items, according to Morgenthau.

`Potential Securities Fraud'

Morgenthau said there might be ``a problem'' with Scores financial statements as well. Assistant District Attorney Daniel Castleman, chief of investigations in Morgenthau's office, said Manhattan prosecutors are ``still looking at a number of things, including potential securities fraud.''

``We're dismayed by the charges, and we're confident the matter will be resolved very quickly,'' Goldring's attorney, Edward McDonald, said in an interview this morning.

Scores has been in the news over the past few years for some of the hefty bills racked up by executives entertaining clients. In October, American Express Co. sued Savvis Inc. and its CEO Robert McCormick, claiming he ran up a $241,000 bill in a single night at Scores in October 2003. The suit said Savvis wouldn't cover McCormick's tab.

Savvis, a provider of networking services, disputed the charges, saying they totaled only about $20,000, according to the complaint. After performing its own investigation, American Express paid Scores, the suit said.

Champagne and Lap Dances

McCormick resigned from Savvis in November. At the time of the announcement, the suit hadn't been resolved, the company said in a statement. Town & Country, Missouri-based Savvis said McCormick didn't submit the disputed credit card charges to the company for reimbursement and that the company hadn't made any payment to American Express related to the bill.

In May 2004, Mitchell Blaser, the chief financial officer for the Americas division of Swiss Reinsurance Co., said in a lawsuit that Scores overcharged him on a $28,000 bill for a night of adult entertainment. Blaser charged five magnums of $3,200-a- bottle champagne and spent $7,000 for lap dances and other entertainment, Scores spokesman Lonnie Hanover said.

A month later, Tauhidul Chaudury, the husband of a Bangladeshi diplomat, sued Scores over his $129,000 tab, claiming he too was overcharged. The diplomat was later recalled to Bangladesh.

`Principle-Based Standards'

The New York Stock Exchange and the National Association of Securities Dealers announced last month that they planned to file a proposal with the U.S. Securities and Exchange Commission for ``principle-based standards'' regarding business entertainment.

Also last month, Morgan Stanley fired four employees for going to an Arizona strip club during a conference.

Goldring and Cheryl Osher were released on their own recognizance following an arraignment in Manhattan state Supreme Court this afternoon. Harvey Osher, also known as Harvey Cohen, who was convicted of federal felony charges in connection with a stock fraud, had to post $10,000 cash bail.

George Weinbaum, a lawyer for Harvey Osher, said he expected to resolve the case quickly. He told reporters his client had ``relied on the advice of accounting professionals.''

The three are due back in court Feb. 16th.

Shares of Scores Holding Company fell .05 cent to .8 cent in over-the-counter trading.

To contact the reporter on this story: Karen Freifeld in New York at Kfreifeld@bloomberg.net.

Last Updated: February 7, 2006 16:43 EST