Beanie Baby founder to plead guilty to tax evasion, pay $53M

Felonies and potential prison stints haven't been the kinds of things associated with cute, cuddly Beanie Babies, but that changed Wednesday when the creator of the iconic stuffed toys was charged with tax evasion and agreed to pay a $53 million penalty.

H. Ty Warner, a 69-year-old billionaire from suburban Chicago, intends to plead guilty and pay the massive penalty, his attorney said in a statement as prosecutors in Chicago announced the legal action. He's accused of failing to report income he earned in an offshore bank account. If convicted, he faces up to five years in prison and assorted other fines.

The well-honed image of Beanie Babies, so much a part of the lives of many children and their parents, could take a hit, said Allen Adamson, managing director of the New York-based branding firm Landor Associates.

"It's so jarring because this product feels so sweet, so innocent," Adamson said. "To find out the person behind it isn't so sweet and innocent. ... Beanie Baby's getting a black eye."

Beanie Babies first appeared in the mid-1990s, triggering a craze that generated hundreds of millions of dollars for Westmont, Illinois-based TY Inc., of which Warner is the sole owner. The small, plush toys have heart-shaped name tags and are made to resemble bears and other animals. Some of the more recent ones are designed to look like cartoon or comic book characters.

As collectibles, some fetch thousands of dollars.

Court documents allege that Warner maintained a secret offshore account starting in 1996 with the Switzerland-based financial services company, UBS. Prosecutors say he earned $3.1 million in gross income in 2002 through the account, but didn't report it.

"This is an unfortunate situation that Mr. Warner has been trying to resolve for several years now," Warner's attorney, Gregory Scandaglia, said.

The U.S. Attorney's Office in Chicago did not mention a $53 million penalty in its news release. Scandaglia described it as "a civil penalty ... for failure to file a Foreign Bank Account Report."

Warner would appear to be in a position to pay: Forbes recently estimated his net worth at $2.6 billion.

His legal troubles could put off some Beanie Babies fans or would-be business partners, potentially denting profits, Adamson said.

"People are risk averse," he said. "If there's negative buzz around something, they can choose something else."

But people generally don't associate Warner's name with his product, so branding expert Laura Ries doesn't think the case will keep lovers of the toys away.

"People may not buy (a Beanie Babies toy) because it's not as cool as it was," said Ries of the Atlanta firm Ries & Ries. "But I don't think consumers care the owner didn't pay his taxes and is in big legal trouble."

Warner's arraignment is scheduled for Oct. 2.