IRS Investigation Targets Irvine Tax Shelter Firm

It was just a year ago that Michael Surian, an Indiana surgeon, flew to the Texas Panhandle to look over the 1,500 acres of wheat that he had paid to have grown for him.

Trailed by clouds of dust as he tramped through the bone-dry fields with Texas farmer Paul Hays and Orange County investment adviser George L. Schrieber, Surian had more than just wheat on his mind. He wanted to know more about the tax breaks that he soon would be harvesting.

Back then, Surian was merely trying to shelter some of his considerable income from the tax man. And it was all perfectly legal; or so he thought.

But today, faced with an admission by the farmer that he never grew crops for Surian, the surgeon is frantic.

With good reason: He may lose a hefty chunk of his net worth if an ongoing criminal investigation of Amcor Capital Corp. of Irvine by the Internal Revenue Service shows that the big tax deductions he took were based on fraudulent investment deals.

Until the IRS probe was disclosed last month, Amcor had an unblemished public image as a successful tax shelter promoter.

But a Times investigation shows that the firm did not disclose in its sales circulars or filings with government agencies a history of negative incidents in the background of Amcor’s founder, Frederick H. Behrens of Newport Beach. It includes business failures, bankruptcies and allegations of fraud by irate investors, partners, clients and creditors.

Since 1981, an estimated 4,000 people have pumped $200 million into tax shelter investments designed and managed by Amcor or its predecessor firm, American Agri-Corp. Although there is no indication that the IRS investigation is aimed at any of Amcor’s investors, federal law holds taxpayers responsible for any taxes that they avoided by means of fraud even if they had no knowledge of it.

$1 Billion in Deductions

And that means that many of the 4,000 investors stand to be hit by massive bills for back taxes, interest and perhaps penalties if the allegations against Amcor are proven.

As many as 100 of the 137 agricultural partnerships that Amcor put together had suspect investments, according to a court statement by IRS special agent Wilbur J. Goolkasian. In all, Amcor investors have claimed nearly $1 billion in tax deductions, Goolkasian said in a search warrant affidavit filed in U.S. District Court in Los Angeles.

Schrieber, a Villa Park resident who quit his job as president of Amcor in May, could not be reached for comment. Current Amcor officers, including Behrens, declined comment on the advice of attorneys, according to Marlene Adams Tapie, an Amcor vice president and corporate secretary.

But in an interview last month, the company’s new president, Robert A. Wright, denied any wrongdoing by the company in its Texas farming operations. He also said that Behrens’ past legal and financial troubles were “too old” to be concerned about.

Wright said the company believes that the IRS is investigating bogus charges from a group of Texas farmers who went to the government to muddy the waters in hopes of avoiding repayment of a debt that they owed Amcor.

In all, eight farmers have obtained immunity from the Justice Department in return for their testimony about the purported fraud, according to Goolkasian’s affidavit.

Their attorney, Wendell Davies of Amarillo, Tex., denied Wright’s contention. He said he knows of other Texas farmers who participated in fraudulent investment schemes with Amcor.

Selling Crops

According to Panhandle farmer Hays, whose testimony to investigators was outlined in the IRS affidavit and confirmed by Davies, the various contracts that he signed to grow crops for Amcor investors were merely devices designed to fool investors and the IRS.

Amcor, according to Goolkasian’s affidavit, gave investors false financial statements that they relied on when preparing their income tax returns.

According to Davies, the farmers took payments from Amcor to pretend that they were entering into farming leases with investors but actually ignored the agreements and continued financing, growing and selling crops for their own benefit.

Davies said the farmers never received lease payments from Amcor and instead were paid a lump sum to agree to tell the investors that they were farming for them.

Goolkasian, in his affidavit, said the IRS secretly tape-recorded Amcor attorney Ted Frame admitting to the scheme in several meetings with Davies. The affidavit says Frame told Davies that if Amcor and the farmers admitted that the farming agreements were a sham, they all would be prosecuted for tax fraud and conspiracy.

Frame, whose office is in Coalinga, Calif., has declined comment on advice of his personal lawyer.

The deals Amcor marketed from its inception through mid-1986, when the Tax Reform Act changed the rules, were sold mainly to wealthy investors seeking to shelter large sums of money from tax rates that hit 50% in some cases.

Lease Arrangements

Tax law at the time allowed passive investors in certain high-risk enterprises such as agriculture to deduct loans as well as their cash investments in the first year. They later paid a 20% capital gains tax on any profit realized from the sale of crops or farm land that the limited partnerships had acquired.

Goolkasian’s affidavit centers on farming investments in Texas, Mexico and Central California. The IRS, according to the affidavit, believes that none of the deals actually produced crops for investors. The IRS will not comment on the probe beyond Goolkasian’s affidavit, but the agency’s usual procedure is to turn over evidence from its criminal investigations to the Justice Department for prosecution when warranted. A prosecutor in the U.S. Attorney’s Office in Los Angeles has been assigned to monitor the case.

Most of the Amcor deals were lease arrangements such as Surian’s that enabled investors to take first-year tax write-offs of two or three times the amount of their actual cash investment.

Law enforcement officials connected with the case said it will likely take the better part of a year for the agency to conduct a full investigation because of the complexity of the Amcor empire.

The deals benefited not only the investors, but also Amcor and its principals.

In one recent transaction, Amcor acquired 1,600 acres of land in Riverside County’s Coachella Valley and then sold it to various of its partnerships at huge mark-ups. The transaction was brought to light by Yorba Linda private investigator Joseph Cordero, who has been investigating Amcor since 1986 on behalf of a Texas investor.

Jennifer Johnson, California project coordinator for the Nature Conservancy, a Virginia-based nonprofit organization formed to acquire and preserve ecologically sensitive lands, confirmed that the organization sold the land to Amcor in March, 1985, for $1.1 million, or about $650 an acre. She said the Nature Conservancy acquired the property in a land swap with the federal government.

Profit on the Land

But records on file in the Riverside County Recorder’s office show that Amcor in late 1985 and ’86 charged as much as $5,000 an acre as it sold the same land to limited partnerships that it had formed and was managing. It thus reaped a profit of 660% from its own investors while charging them a management fee for locating the property and arranging the sale.

In its offering circulars, Amcor explained that it might, from time to time, sell land to partnerships at a profit to itself.

The company’s circulars were less revealing, however, about Amcor founder Behrens, a former accountant and real estate developer who recovered from a personal bankruptcy 14 years ago to become one of the biggest and most respected agricultural tax shelter promoters in the nation.

In 1986, its biggest year, Amcor received $10.4 million in management fees. In 1988, in the midst of winding down its agricultural investing and gearing up as a real estate syndicator, the company received $4.1 million in fees. Partnerships and other entities managed by Amcor own more than 22,000 acres of prime agricultural land in California, Oregon, Georgia and Mississippi and nearly 2,000 acres of land slated for development in California and Texas.

In a biographical sketch contained in Amcor documents, Behrens stressed his years as an auditor with a major accounting firm, as an executive with an agricultural management company, as president of Sunriver Farms Inc. of California and as principal in a real estate development company.

But federal and state securities laws generally require investment firms such as Amcor to disclose any material facts that would affect a potential client’s decision to invest with the company, and Amcor’s disclosure statements appear to omit as much as they reveal.

The Behrens biography, for example, does not disclose the failure of both the real estate development company and the agricultural management company he headed. Nor does it discuss the bankruptcy of Sunriver Farms of Oregon, a subsidiary of Sunriver Farms of California.

Sued for Fraud

Nor did Amcor disclose until after it became a publicly traded company that a former investor in Sunriver Farms of California sued Amcor and Behrens for misappropriating the firm’s assets when starting Amcor.

That suit was settled in September, on the eve of the trial date, when Amcor agreed to pay the former investor $1.1 million and Behrens guaranteed the settlement by putting up his new Corona del Mar home as collateral.

Amcor, which became publicly traded for the first time in December, also has not told the Securities and Exchange Commission that as a would-be real estate entrepreneur in the mid-1970s, Behrens was sued for fraud by an investment partnership that retained Behrens and his associates to find a suitable piece of agricultural land for it to acquire in Kern County.

In a stipulated judgment in which he agreed to pay the partnership $27,300 and admitted defrauding it, Behrens admitted that he and his associates found the land, bought it themselves for $2,300 an acre and then, when their escrow closed, immediately sold it to the partnership for $2,750 an acre without disclosing that they were the sellers.

In an earlier case in 1970, Behrens was successfully sued for defrauding a business partner. In a 1973 case, his wages were garnisheed to collect on a judgment in a suit brought by a Reseda businessman who claimed Behrens failed to pay an agreed upon $2,500 fee.

Those two cases are outlined in Behrens’ 1975 bankruptcy filing, but they are not disclosed in Amcor’s sales circulars and regulatory documents. That bankruptcy also has not been disclosed to regulators.

In his bankruptcy petition, filed in Los Angeles, Behrens listed $171,000 in debt and $18,000 in assets, of which $11,000 was the value that he placed on personal goods such as furnishings, clothing and cooking utensils.

But the ensuing years apparently have been good to him.

Last year, Behrens moved into a $1-million, custom-built home in the Harbor Ridge area of Corona del Mar.

With cash and other forms of compensation, Behrens, Schrieber and Wright each were paid more than $200,000 by Amcor in the fiscal year ended November, 1988, a year in which the company lost $2.1 million. In addition, they hold equity in almost every one of the investment partnerships and thus share in any profit recorded when crops and properties are sold.

No Negative Aspects

After being informed by The Times of the apparent omissions from Amcor’s circulars and other required filings, Janice Rovner, an attorney with the California Department of Corporations, said it appears that the company violated a number of the department’s reporting requirements.

Thomas Colthurst, head of the enforcement division of the SEC’s Los Angeles regional office, said he could not comment. But he said that in the past, the SEC has sued investment companies for failing to reveal adverse information about principals, even when that information was a decade or more old.

Surian, the Bloomington, Ind., surgeon who invested in the Texas farming operation, said that if he had been aware of Behrens’ past, “I never would have invested a dime with them.”

According to several Amcor investors in various parts of the country, none of the management histories in the offering circulars they received mentioned the negative aspects of Behrens’ background.

Amcor also has not disclosed in filings with government agencies that it has continued doing business with two former employees who were discharged from management positions with the Sunriver Farms operation in Oregon after it was revealed that they had been convicted of securities fraud and served jail time in California for an early 1970s fraud involving the sale of land in the Palmdale area.

The two men, Ronald L. Dodson Jr. and Ray S. McCoy Jr., both of Madera, Calif., are the subject of a separate IRS criminal investigation.

In a search warrant affidavit filed in Fresno, IRS agent Goolkasian said the pair is suspected of tax fraud in a series of Mexican farming leases.

The search warrant receipt, which lists the nature of material taken from the two men’s homes, shows that among the documents seized were files that contained information about ongoing deals that Dodson and McCoy had with Amcor.

Goolkasian’s Fresno affidavit also revealed that Amcor and Dodson and McCoy share an accountant, identified as Barry Jones of Fullerton, who testified before the Securities and Exchange Commission in May, 1988, about false financial documents he allegedly prepared for Dodson and McCoy. Jones had no comment on Amcor.

Despite the revelations, a number of Amcor’s investors are still hoping for the best.

Surian, who says he has invested more than $600,000 in various Amcor-sponsored partnerships since 1982, cited one deal that returned him a 150% profit. He said he hopes that the IRS is wrong and that Amcor is not involved in a fraud “because I’m the one who will get crushed.”

And investor Kenneth J. Griggy, an Oklahoma City land developer and former chief executive of Wilson Foods Corp., said he has met Behrens on several occasions. He said he has “been impressed with Fred . . . and have not seen any evidence of them trying to hide anything.”

Griggy invested $125,000 in a partnership that owns a piece of an Amcor-managed table-grape vineyard in the Coachella Valley.

“I have been there and I have seen the vineyard,” he said. “I know it exists.”