2 Wall Street Firms Pay $42 Million to End Suit

Two Wall Street brokerages have paid $42 million to settle a lawsuit stemming from an alleged tax-shelter fraud whose victims included actor Sidney Poitier, producer Norman Lear and Loews Corp. co-chairmen Laurence A. Tisch and Preston R. Tisch.

Donaldson, Lufkin & Jenrette Inc.’s securities unit and HSBC Securities Inc., both denying any wrongdoing, agreed to pay the money to 188 plaintiffs, many of them in Southern California. The settlement came as the lawsuit was about to go to trial in U.S. District Court in New York.

Other defendants, including prominent investor Asher B. Edelman, paid additional settlements totaling about $1 million, lawyers for the plaintiffs said Tuesday.

DLJ and the firm of Carroll McEntee & McGinley Inc.--later purchased by British-based HSBC--were accused of conspiring with tax-shelter promoter Charles A. Atkins to create more than $1.3 billion in bogus tax losses through fictitious trading of U.S. Treasury securities in the late 1970s and early ‘80s. Tax-shelter abuses in those years prompted Congress to tighten laws.

Atkins’ tax-shelter limited partnerships were marketed to investors on the understanding that they would generate tax write-offs of up to four times the amount invested.

Atkins and several others were convicted on federal tax-fraud charges. DLJ and Carroll McEntee never were charged criminally.

DLJ, through a spokeswoman, declined to comment. A spokeswoman for HSBC said the firm settled the case “solely to avoid the burden of protracted litigation.”

Edelman, who also denied wrongdoing, could not be reached for comment Tuesday.