Fraud, Racket Counts Faced by DeLorean
A federal grand jury issued a 15-count criminal indictment Friday charging that former auto maker John Z. DeLorean set up a complex scheme to defraud the private investors in his defunct auto company out of nearly $18 million beginning in 1978.
The indictment, which charges DeLorean with violating federal racketeering laws as well as with committing mail and wire fraud, income tax evasion and filing false tax returns, came a little more than a year after the one-time General Motors Corp. executive was acquitted of all charges in a cocaine trafficking trial in Los Angeles.
No Warrant Issued
The U.S. attorney’s office said in a statement that although no arrest warrant has been issued for DeLorean, who was reported to be in New York, an arraignment has been scheduled for next Friday before a U.S. magistrate here. Howard Weitzman, the Los Angeles attorney who successfully defended DeLorean in the drug trial and who court officials say plans to represent him again, was not available for comment.
The indictment is the result of a two-year investigation by the FBI and Internal Revenue Service offices in Detroit into the disappear ance of the investors’ funds, the government said. Federal officials refused to comment, but the government’s probe apparently was begun after attorneys in the separate DeLorean Motor Co. bankruptcy case here began to sift through the complex web of corporate entities set up by DeLorean as offshoots of his auto firm and found that millions of dollars could not be accounted for.
Filed for Bankruptcy in ’82
DeLorean Motor Co., heavily subsidized by the British government, briefly manufactured expensive sports cars in Northern Ireland for export to the United States. It filed for bankruptcy in 1982 and went out of business just as DeLorean was arrested in the drug case. The bankruptcy case since has been held up by a thicket of lawsuits and countersuits.
Laundering of Funds Charged
“I suspect that the investigation sprang out of the bankruptcy case, where these questions were first raised,” said Sheldon Toll, a Detroit attorney representing the estate of the DeLorean Motor Co. in the bankruptcy case. Attorneys in that case frequently have charged that DeLorean’s practice of setting up numerous interconnected corporate entities was little more than an attempt to launder company funds for his own use.
The indictment returned Friday focuses on funds raised by the DeLorean Research Limited Partnership, an affiliate of DeLorean Motor Co. formed in 1978. The partnership allegedly was set up to use money from private investors for research and development on DeLorean’s gull-winged, stainless steel car, but little if any of the funds were ever used for that purpose, according to the indictment.
Instead, about $17.75 million was funneled from the partnership into a Panamanian corporation called GPD Services, which supposedly had offices in Switzerland, the document said. GPD was supposed to turn the funds over to Lotus Cars Ltd. of England for work on the DeLorean car, but only about $137,000 ever stayed with Lotus, the government alleged.
Swiss Attorney Cited
DeLorean allegedly siphoned much of the money out of GPD through other corporate entities in Europe with the help of a Swiss attorney, the indictment said.
Unraveling the maze of foreign and domestic corporate entities used by DeLorean to shuffle funds around the world apparently was a big reason why federal investigators have taken so long to gain an indictment in the case, the indictment made clear.
Much of the money still apparently has not been traced by the government, but the indictment charged that about $8,375,000 was used by DeLorean to pay off personal loans he had taken out to buy Logan Manufacturing Co., a snow grooming machine manufacturer in Utah that is still in business.
Another $534,000 from GPD was used by DeLorean for his personal use, the government charged.
Logan Manufacturing is also at the center of the ongoing DeLorean bankruptcy case because of the allegations that it was bought with investors’ funds.
Claims on Company
Attorneys for DeLorean’s creditors and the company’s estate contend that it (the company) should be considered an asset of the liquidated auto company because DeLorean allegedly used investors’ funds to buy it. Logan is controlled by yet another entity--Christina--a Nevada holding company run by DeLorean that also controlled DeLorean Motor Co.
The indictment comes just weeks after the 60-year-old DeLorean called a press conference in Columbus, Ohio, to announce that he has found several backers willing to help him develop yet another expensive sports car that could go on sale as early as next year. He said that he plans to manufacture the new high-performance car in the Columbus area.
He also reportedly contended at the time that some of his new backers also had been investors in his earlier company, and that he would “prevail” if he were indicted in Detroit.