Historic Redstone Castle seized by IRS in fraud investigation | AspenTimes.com

Historic Redstone Castle seized by IRS in fraud investigation

The historic Redstone Castle in the Crystal River Valley is being held as evidence in a federal fraud case, and a local attorney who is suing the castle’s owners says he’s not surprised.

The castle was seized by IRS agents on Friday, based on allegations that it was purchased with proceeds from a fraud scheme. Leon and Debbie Harte and Norman Schmidt used $6 million to purchase the castle in the spring of 2000.

According to court documents, the trio defrauded dozens of investors of about $20 million, under the guise of several corporations that promised 50 percent rates of return on investments. The money was then used to buy the castle.

“I’m very surprised it took this long,” said Aspen attorney Peter Thomas of the federal seizure. He represented former castle manager Cynthia Lange when she sued the owners in civil court.

Lange claimed she lost $50,000 to the Hartes and Schmidt in their racketeering operation. The suit was later settled for an undisclosed amount.

But last September Thomas also filed suit on behalf of six people living in areas as far-flung as Ulzburg, Germany, and Edmonton, Canada, who are collectively seeking $800,000 in lost investments from the Hartes and Schmidt. The lawsuit states that the Hartes, Schmidt and their various corporations promised investors a yield of at least 50 percent monthly.

Thomas said there is a motion pending before a judge in that lawsuit for a default judgment against the defendants for their alleged refusal to cooperate with various parts of the lawsuit.

A representative for the U.S. attorney’s office in Denver said no charges have been filed, and that the matter remains under investigation.

The seizure left locals wondering whether the popular tourist draw will operate this summer.

“It’s possible there could be tours,” said Internal Revenue Service spokesman John Harrison. “We realize the community is somewhat dependent on it as a tourist attraction. It would have to be OK with the court.”

Harrison said the IRS seized the castle and three other Redstone properties in the investigation: surrounding lands, the Carriage House parcel and the former restaurant at 410 Redstone Blvd. where the castle originated its tours.

Redstone Castle was built in 1902 by coal magnate John Osgood as a summer home for business entertaining. The castle hosted some of the wealthiest people in America, including Jay Gould and John D. Rockefeller. The 42-room home complete with servant’s quarters comprises 149 acres of land, including a carriage house and a barn.

“I think the whole town is sad,” said Redstone resident Sandy Kaplan. “We’re sad this has happened, and we look forward to something wonderful happening there in the future.”

Kaplan lives across Highway 133 from the castle and can see the mansion from her kitchen window. There are no signs or tape up in windows indicating its possession by the IRS, although she said Debbie Harte told her the gates that lead to the castle are locked.

A masseuse in Redstone and the former editor and publisher of the recently discontinued Redstone Reader, Kaplan said the town’s residents are familiar with the castle’s troubled past. In recent years various parties and companies were interested in making the castle a spa or an upscale bed and breakfast, but ran out of funds.

Kaplan said Debbie Harte put a lot of work into keeping the castle afloat.

“When Debbie had it, she really did a good job at it – she went in, had the furniture taken out and re-did the floors. She also organized the tours, weddings, parties and meetings for corporations,” she said. “She was just about to open it as a bed and breakfast when it closed.”

Harte closed the castle for the winter in November, saying it could not support operations during the slow time of year in Redstone.

The Castle seizure was the talk of the town Monday.

“It was a surprise to us,” said Joyce Illian of Marble, a clerk at the Redstone General Store.

Illian said Debbie Harte was in the store last week, and they talked about attending a yoga class. “She seemed fine,” Illian said.

The castle is an important tourist attraction for Redstone’s economy.

“It’s like our brother,” said Debbie Strom, general manager at the popular Redstone Inn.

[The Glenwood Springs Post Independent contributed to this story.]

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