E L A NILLO Ú NICO : DE SU DESCUBRIMIENTO Y SU NATURALEZA

When Leona Helmsley, prominent New York hotel heiress of the 1980s, got caught with her hand in the cookie jar, she could not be saved even with the best legal talent money could buy. Her August 1989 convictions included tax fraud, and revolved around her scheme to

charge personal expenditures to various business enterprises. She ultimately received a four- year prison sentence, based on unreported income of over $2.5 million and an attempted tax fraud of over $1.2 million. The Helmsley case illustrates the concept of a double tax fraud . It was a more complicated version of Scenario 7, and involved a larger fraud.

In June 1983, Helmsley and her husband purchased a 21-room mansion known as Dunnellen Hall in Greenwich, Connecticut, and undertook major renovation and decoration of it, including a $2 million addition that enclosed one of two swimming pools and featured a rooftop marble dance floor, four jade art pieces costing $500,000, and an indoor/outdoor stereo system worth over $100,000. The Helmsleys also did extensive gardening and landscaping work. Beginning at the end of 1983 and continuing for two more years, the Helmsleys schemed to charge personal expenses associated with Dunnellen Hall and elsewhere to various Helmsley business entities. With the collaboration of Joseph V. Licari, Senior Vice President and Chief Financial Officer of HEI, and Frank J. Turco, Vice President and Chief of Financial Services for Helmsley Hotels, the Helmsleys arranged for hundreds of thousands of dollars of their personal expenses to be paid by companies they owned and controlled and to be carried on the company books as business expenditures.

The result of the fraud was a double tax benefit. First, by having the companies pay the expenses rather than distribute taxable income to the Helmsleys, the Helmsleys avoided personal income taxes. Second, because the various Helmsley companies involved treated the payment of these personal expenses as business expenditures, the companies enjoyed artificially inflated business expense deductions. The tax returns filed by the Helmsleys and by the various firms reflected the false billings.

Meanwhile, a New York Post reporter, Ransdell Pierson, had at one time pursued a tip about the misuse of corporate funds by the Helmsleys but had abandoned the quest after finding little hard evidence. However, an investigation into a sales tax avoidance scheme by two jewelers had caused Mrs. Helmsley to make two appearances before state grand juries during which she gave immunized testimony. Some time later, a New York Times article implicated Mrs. Helmsley in the state sales tax avoidance scheme. Pierson's interest was renewed by the

Times story, and, tipped by a disgruntled former Helmsley employee named Jeremiah McCarthy,

Pierson published an article in the Post on December 2, 1986, stating that the Helmsleys had used false invoices to pay personal expenses with corporate funds. This article triggered investigations by both the United States Attorney for the Southern District of New York and the New York State Attorney General. Their investigations, later combined, resulted in the federal indictment that is the genesis of the instant case and in a separate state indictment, since

withdrawn.

Helmsley’s main argument on appeal to the tax charges involves the claim that, as a civil tax matter, she actually overpaid her taxes during the years in question. The Second Circuit, an an opinion written by Judge Winter, rejected this argument, which was based on proffered expert testimony about how the Helmsleys could have hypothetically structured their

assets. It also rejected her claim that the government had failed to be consistent in characterizing the nature of the false deductions on the corporate returns. United States v. Helmsley, 941 F.2d 71 (2nd Cir. 1991).

A similar fate awaited prominent charity executive William Aramony a few years later, although his scheme did not involve a corporation paying for a dream house. Instead, Aramony got caught taking advantage of a prominent U.S. charity to help him maintain his romances with young women.

In 1970, Aramony became chief executive of the United Way of America (UWA), the nonprofit organization that acts as a service organization for local United Way organizations located throughout the United States. This position made him one of the most prominent individuals in American philanthropy. His friend, Thomas Merlo, a certified public accountant, became UWA’s chief financial officer in 1989. A third executive, Stephen Paulachak began working for UWA in the 1970s. Beginning in the mid-1980s, the three were involved in a plot to use UWA funds or personal gain.

Aramony dated Lori Villasor from December 1986 to July 1990. He travelled to Gainesville, Florida, Villasor's hometown, at least once a month to visit her, with UWA paying for these trips. On some of his trips Aramony used UWA money to pay for rental cars.

Aramony used UWA money to help pay for taking Villasor with him on UWA business trips and vacations. In December 1988, he took her to London and Paris for her birthday. In December 1989, he took her on a two-week trip to London and Cairo. And in April 1990, he used UWA money to fly Villasor to London, England to be with him while he and Paulachak attended a board meeting. Merlo gave Laura Shifflet, one of Aramony's assistants, his UWA corporate credit card number so that she could use it to charge Villasor's airline tickets.

Aramony used Merlo to provide Villasor with money. From 1988 to 1991, Merlo received over $300,000 in consulting fees despite doing no work for the money. Merlo, in turn, paid Villasor a total of $89,000 over this period. One manner of getting Villasor this money was to have Merlo pay her a monthly salary despite Villasor doing, at the most, only a day or two of work.

Anita Terranova lived in Florida and had a long history with Aramony. As with Villasor, Aramony often traveled to Florida at UWA expense to visit her. Importantly, Aramony bought a condominium in Florida to rendez-vous with her. The money for this apartment came from a donation that Mutual of America (MOA)--an insurance company that did business with UWA--made to UWA

Aramony’s perfidy did not stop with young women. When he visited New York, he often used the chauffeuring service of Charles Harrison. From 1988 to 1990, incurred over $100,000 chauffering expenses. Although Aramony used the service for UWA business, he also used it for personal business which he billed to the company. All of the expenses were paid by

UWA.

Aramony and Merlo were convicted of conspiracy to defraud the United States by impeding the lawful functions of the IRS, mail fraud, wire fraud, interstate transportation of fraudulently acquired property, money laundering, and filing false tax returns. Aramony unsuccessfully argued on appeal that the district court admitted inflammatory and unfairly prejudicial evidence depicting his sexual misconduct, including the fact that one of his

paramours was under age. This type of defense is addressed in later chapters. United States v.

Aramony, 88 F.3d 1369 (4th _{Cir. 1996) .}