A federal grand jury in New York on Wednesday indicted the three promoters of an allegedly fraudulent tax shelter scheme that brought millions of dollars in fraudulent writeoffs for CBS Chief Executive Laurence A. Tisch, U.S. Postmaster General Robert Preston Tisch, wealthy investment bankers and Hollywood celebrities.
Charles A. Atkins, a widely known tax shelter promoter, and associates William S. Hack and Ernest M. Grunebaum were indicted in a scheme that generated more than $350 million in writeoffs by claiming $1.3 billion in losses on fraudulent government securities trades and interest expenses, authorities said.
The more-than-400 investors in the scheme--one of the largest tax frauds ever--also included producer Norman Lear, actors Sidney Poitier, Lorne Greene and Michael Landon, and the late artist Andy Warhol. Among other investors were Michel David-Weill, head of the Lazard Freres investment bank, two other senior Lazard executives, and George T. Scharffenberger of Palos Verdes, chairman of City Investing.
The investors face no criminal charges but will be required to pay the government back taxes, plus interest, and perhaps also penalties that may be as high as 50% of what they owed, officials said. They said most investors did not have direct contact with the promoters, who ran several limited partnerships collectively called the Securities Groups, but became involved on the advice of their accountants or tax attorneys.
Breaks Topped Investments
Prospectuses for the shelters fraudulently promised the investors that the government securities transactions were not made solely for the purpose of gaining writeoffs. The scheme allowed investors writeoffs worth four times their cash investments.
Rudolph W. Giuliani, U.S. attorney in Manhattan, said he would not comment on whether the investors' actions were unethical, but added: "I wouldn't lose a lot of sleep sympathizing with their problems."
Asked about the ethics of the postmaster general taking part in such a scheme, he said, "it depends what he knew."
While investments that offer such heavy writeoffs--which have been largely eliminated by last year's tax revisions--are not inherently illegal, "they should put you on notice to look very carefully at what's going on," Giuliani said.
He estimated that the investors as a group would have to pay the government $200 million, though he said the figure would probably be higher.
Among the biggest writeoffs produced as a result of the scheme, which lasted between 1978 and 1983, were the following: David-Weill, $4.4 million; Landon, $1 million; Lear, $1.5 million; Scharffenberger, $1.5 million, and Laurence Tisch, $1.2 million. Lorne Greene's was $334,000, Poitier's was $501,000, and Preston Tisch's was $480,000. Warhol, who died last month, had a writeoff of $600,000.
For taxpayers in the 50% bracket--a group that presumably includes most of these investors--such a deduction provides a tax savings worth half the value of the writeoff.