Tax evasion, fraud trial of combative litigator opens

When he was arraigned last July, civil rights attorney Stephen Yagman wore shoes adorned with the skull and crossbones and turned the traditional “not guilty” plea upside down by pleading “presumed innocent.”

But Wednesday, a more subdued Yagman, in a gray suit and tie, showed deference to the federal justice system he so often criticized as his trial for tax evasion and bankruptcy fraud began.

The combative litigator, famed for his police abuse cases, sat quietly as Assistant U.S. Atty. Beong-Soo Kim told jurors that Yagman hid his assets -- including his 2,800-square-foot Venice home -- from tax collectors.

“He gave his house to his girlfriend for nothing,” Kim said. “Not even a penny.”

Yagman is accused in a 19-count indictment of money laundering and committing bankruptcy fraud to avoid paying more than $200,000 in state and federal taxes.

He has alleged in court filings that the case is a “vindictive prosecution” based on his “contentious history with federal law enforcement agencies.”

Yagman has relentlessly criticized federal law enforcement, prosecutors and judges for allegedly failing to uphold civil rights laws, particularly in matters of police abuse. Recently, he has sought writs of habeas corpus on behalf of Guantanamo Bay detainees.

In court documents, Yagman’s lawyer Barry Tarlow noted that his client previously tangled with the two law enforcement agencies investigating him. As a special prosecutor, Yagman investigated the FBI in the Ruby Ridge shootings. And he sued the IRS in 1994 over violent conduct by an agent and won a $650,000 settlement.

U.S. District Judge Stephen V. Wilson refused to dismiss the case based on the allegations but has allowed the defense to question the motives of the federal agents who launched the inquiry.

If the pretrial motions and opening statements are an indicator, Yagman’s team, led by Tarlow, plans to challenge nearly every aspect of the investigation.

Generally, prosecutors’ opening statements are longer than the defense’s. On Wednesday, Kim’s opening statement ran about 45 minutes, while Tarlow’s went well beyond three hours.

As is common in financial prosecutions, the facts of the case are not so much in dispute as what they mean.

For every piece of evidence Kim used in an effort to show that Yagman had purposely concealed his assets, Tarlow raised an alternative explanation for the transaction.

He said Yagman transferred the deed of his home to his girlfriend, K.D. Mattox, to give her a sense of security in their relationship, after she moved from Orange County to be with him.

“When she got to L.A., she had no career, no full-time job; his friends became her friends,” Tarlow said. “It was a tangible demonstration by him: ‘I love you, I will take care of you.’ ”

Tarlow added that Yagman had only $100,000 in equity in the home at the time.

The prosecution alleges an elaborate conspiracy that includes: Yagman depositing all of his income into Mattox’s account and signing checks in her name, placing $600,000 in money he received from elderly relatives into an investment account he opened in her name, and filing for bankruptcy in New York so the trustees would not find his assets in California.

“Hours after he filed for bankruptcy, he spent $2,000 in shoes and clothing ... on Madison Avenue,” Kim said. And he went out to a $260 dinner.

As Yagman was trying to get the IRS to allow him to pay his debt on an installment plan, Kim said, he took a $3,000 trip to Aspen, Colo., and then traveled to Europe, where he spent about $22,000 on two credit cards that he maxed out -- debt that would be canceled with his bankruptcy.

Tarlow countered that one doesn’t have to be poor to file for bankruptcy and that Yagman had for years done things differently from other people: He hadn’t had his own checking account since the 1970s and had deeded a previous house in Mar Vista to his then-wife, Marion, in 1980.

“Stephen Yagman is a child of the ‘60s,” Tarlow said. “Things don’t mean that much to him.”

Tarlow also said Yagman receives so many death threats that he often tries to conceal his address. “When he was married to Marion Yagman, the utility bills were in the name of her grandmother,” he said.

And he has long “domiciled” in New York, Tarlow said. He has an apartment there, his driver’s license is from there, and he votes there.

If convicted, Yagman could face up to five years in prison on each of the tax evasion and bankruptcy charges, and 10 years on each of the money laundering counts.

joe.mozingo@latimes.com