Outgrowth of Payola Probe : Lawyer Indicted on Drug, Tax, ‘Laundering’ Charges

In the first indictment growing out of a federal grand jury investigation into suspected payola practices in the recording industry, a tax attorney for a Los Angeles independent record promoter has been charged with aiding and assisting in the preparation of false income tax returns by setting up a fraudulent partnership.

San Mateo attorney Dennis DiRicco, 40, a former Internal Revenue Service agent, was arrested Tuesday in Portola Valley, Calif., where he lives. According to the authorities, the income tax returns in question claimed fraudulent deductions as a result of losses from a partnership in which individuals had invested.

As a result of a separate investigation based in San Francisco, DiRicco and Kevin Leong, a former investigator for the Alameda County district attorney’s office, were also indicted and arrested on charges of cocaine possession and distribution, “money laundering” and obstruction of justice. The San Francisco investigation was conducted by agents of the Internal Revenue Service and the FBI working with attorneys for the Justice Department’s Drug Task Force.

According to a statement released by the U.S. attorney’s office here, DiRicco formed the partnership for the stated purpose of funding American Lumenetics, a San Jose-based company involved in energy conservation technology. Investors in the partnership were told that for a cash investment--ranging from $2,500 to $500,000--they would receive a 3-to-1 write-off for income tax purposes.

The two largest investors in the allegedly fraudulent tax scheme were Los Angeles-based record promoter Joseph Isgro and one of his former business associates, record promoter Ralph Tashjian, whose activities have been under investigation by the Los Angeles grand jury.

According to the indictment, Isgro claimed a loss of $1.4 million in 1984 and Tashjian claimed a loss of $98,000. However, “there is no evidence that individual investors had knowledge of the fraudulent nature of the deductions they were claiming,” according to a statement from the U.S. attorney’s office.

“In the course of reviewing tax records in the payola investigation, we uncovered the fraudulent deductions and came upon a fraudulent tax scheme,” said Richard A. Small, a special attorney with the Los Angeles office of the Justice Department’s Organized Crime Strike Force. “We never would have found it if we hadn’t been doing the payola investigation.”

The Los Angeles grand jury investigation into payola is being conducted by IRS agents under the direction of the strike force. It was launched in February, 1986, as an adjunct to an investigation into the activities of reputed organized-crime figure Salvatore Pisello, who is set to go on trial next week on tax evasion charges.

The grand jury investigation has uncovered evidence of a system of payments that funneled more than $1 million from independent promoters to radio program directors between 1981 and 1985. However, investigators say the system may not violate the federal payola law, which is generally believed to be vague and imprecisely written. The most likely charges to be filed as a result of the investigation, law enforcement officials say, will be for tax evasion.