Singer Chairman Guilty of Tax, Securities Fraud; First Verdict in Scandal

Paul A. Bilzerian, who rose from humble origins to become a corporate raider and chairman of Singer Co., was convicted Friday on nine counts of securities fraud and tax fraud.

The case, which charged that Bilzerian’s takeover attempts relied in part on fraud, gave federal prosecutors their first guilty verdict in the chain of big Wall Street securities fraud and insider trading cases sparked by information from former stock speculator Ivan F. Boesky. The others have resulted in guilty pleas or mistrials or are pending.

It also reaffirmed the prosecution’s faith in its star witness in the case, Boyd L. Jefferies. The former head of the Los Angeles brokerage firm Jefferies & Co., Jefferies is also the main government witness in several other pending cases. His credibility as a witness was in doubt after the first case in which he testified, involving GAF Corp., resulted in two mistrials.

Paul O’Neill, 26, an audit manager at a major accounting firm, was jury foreman in the Bilzerian case and said after the trial that there was little disagreement among the jurors. He said they were persuaded mainly by the testimony of Jefferies and a Jefferies & Co. executive, Michael Landy.

“We put a lot of credence in Boyd Jefferies’ testimony,” O’Neill told reporters. He said the jury found Bilzerian’s own credibility as a witness “not that high.”

The jury returned the verdict after deliberating for eight hours over two days. Bilzerian, 38, showed no emotion as the foreman replied “guilty” on each of the nine counts, including securities fraud, conspiracy to commit tax fraud and giving false statements to the government.

Bilzerian originally was indicted on 12 counts, but one was dropped and two others were merged with other charges shortly before the case went to the jury. He faces a maximum sentence of 45 years in prison and a fine of $2.25 million. U.S. District Judge Robert J. Ward allowed to him to remain free on a $250,000 bond until sentencing Aug. 16.

Bilzerian was accused of amassing millions illegally in failed raids in 1985 and 1986 on Cluett, Peabody & Co.; H. H. Roberts & Co., and Hammermill Paper Co., as well as in an undisclosed investment in Armco Inc. The government claimed that Bilzerian secretly accumulated shares in the companies, circumvented Securities and Exchange Commission disclosure requirements and misrepresented how he got the funds for the takeover attempts.

Prosecutors charged that the scheme involved an illegal arrangement with Jefferies & Co. under which the brokerage agreed to hold blocks of stock for Bilzerian and hide their true ownership. The government also claimed that the scheme enabled Bilzerian to create phony tax losses.

The charges did not relate to Bilzerian’s involvement with Singer Co.

Arthur Mathews, one of Bilzerian’s defense lawyers, said he didn’t believe that Bilzerian had received a fair trial and said he would appeal the verdict on the grounds of improper rulings by the judge.

During the trial, Bilzerian appeared to play dumb at times on the witness stand, portraying himself as a naive newcomer to the world of SEC regulations, tax laws and the financing of big deals. He described himself as a high school dropout who had to work to support himself from an early age. But he managed to obtain a degree from Harvard Business School after time in Vietnam, and he turned his attention to stocks after a stint in the real estate development business with his father-in-law.

At first, the would-be corporate raider was not taken seriously when, in the mid-1980s, he launched a succession of unsuccessful takeover attempts with only modest apparent resources. Although he earned some big profits and had the backing of such well-known investors as shopping center magnate Edward J. DeBartolo Sr., all of his early attempts failed. The investment world was somewhat surprised when, in 1987, Bilzerian succeeded in a $1.06-billion hostile bid to take over Singer Co., a major defense contractor and one of the nation’s oldest and best-known companies.

A ruling during the trial by Judge Ward caught defense lawyers by surprise and undermined a main element of the defense: Bilzerian’s claim that he had acted in good faith and had not intentionally violated the law.

The judge ruled that if Bilzerian testified that he thought he was within the law when he filed erroneous documents with the SEC, prosecutors would be allowed to question him about the legal advice he had received from his attorneys. The ruling also raised the possibility that prosecutors would be able to call Bilzerian’s own lawyers as witnesses.

Defense lawyers claimed the ruling violated the confidentiality normally given to clients’ consultations with their attorneys. It prompted the defense to abandon plans to question Bilzerian on the stand about whether he believed what he was doing was legal. After the trial, Mathews said in an interview that the judge’s ruling on that issue may have cost Bilzerian the case. “It was nuclear. It was devastating to us,” Mathews said.

Happy With Jefferies

The government presented several key pieces of evidence in the trial, including tape recordings of telephone conversations that Bilzerian had with DeBartolo, who appeared to agree to give secret financial backing to the Cluett Peabody bid. Prosecutors also presented evidence that Bilzerian had lied in earlier testimony in SEC proceedings. Under cross-examination from Assistant U.S. Atty. David Brodsky, Bilzerian admitted that he had false invoices drawn up to cover payments to and from from Jefferies & Co.

But Benito Romano, the acting U.S. Attorney in Manhattan, said he was particularly heartened by Jefferies’ successful performance as a witness. “We’re obviously happy that Boyd Jefferies’ testimony was credited by the jury,” he said. Jefferies is slated to be the main witness in the stock market manipulation trial of Salim B. Lewis, a securities trader and merger specialist, and in another retrial of the GAF case. Jefferies, implicated by Boesky in illegal stock transactions, agreed in 1987 to plead guilty to two charges and cooperate with prosecutors.

Romano said that although each case will stand or fall on its own merits, the Bilzerian trial indicated that a jury is capable of sorting through very complicated securities fraud allegations.

It was not immediately clear what the implications of Bilzerian’s conviction will be for Singer Co., which is no longer a publicly held firm. The company faces civil charges from the Justice Department that it overcharged the Pentagon from 1980 to 1988 on contracts for aircraft flight simulators.