Pied Piper to the Truly Rich

By Frederick Ungeheuer/New York

The Rolling Stones' fretful tune Gimme Shelter carries a special meaning for rock stars, Hollywood actors, even Wall Street tycoons. Like all of America's truly rich, they constantly look for loopholes in U.S. tax laws to shield their megabuck earnings from the Internal Revenue Service. But at times, as the headlines last week again confirmed, the Government declares those shelters to be illegal.

A federal grand jury last week charged three executives -- Charles Atkins, 32, William Hack, 62, and Ernest Grunebaum, 52 -- of Securities Groups, a bankrupt Manhattan-based investment firm, with providing $550 million in false tax write-offs through fraudulent trades in Government securities. Atkins, who headed Securities Groups, is the son of former Ashland Oil Chairman Orin Atkins. The roster of investors lured into the scheme reads like a program listing for Lifestyles of the Rich and Famous.

None of the celebrities, who filed jointly with their wives, were accused of any wrongdoing. But they may still have to pay huge sums in back taxes, penalties and interest. Sidney Poitier ended up with questionable deductions of $500,757, Michael Landon with $1 million, and his former Bonanza co-star Lorne Greene with $333,838. Producer Norman Lear, creator of All in the Family, has to answer for $1.5 million. CBS Chief Executive Laurence Tisch's deductions amounted to $1.1 million, while his brother Preston, the U.S. Postmaster General, benefited from a $480,508 write-off. The biggest hit may have to be taken by French Financier Michel David-Weill, who owns 35% of Lazard Freres, a highly successful securities firm. If the Government prevails in the case, he stands to lose at least $4.4 million in deductions.

Atkins began playing Pied Piper to the rich in 1978 with a scheme that promised $4 in paper losses from securities trading for every $1 invested. He was only 24 when he started and 29 when the operation ended in 1983 amid lawsuits from angry investors who accused Atkins of having caused them huge losses. Many had felt queasy about trusting someone under 30, but were reassured by Atkins' plush, marble-floored offices at 500 Park Avenue, his impeccable grooming and the fact that his father was a well-known oil executive. The Tisches say they went along because their lawyers could find no flaw in the prospectuses. In total, Atkins attracted investments of $36.8 million from 400 investors. If convicted on all counts, he faces up to 86 years in prison.

Like similar charges in the past, the indictment seemed well timed to coincide with tax-filing season, when people sitting down to struggle with Form 1040 have little sympathy for big shots who take advantage of fancy dodges. Tax reform, which went into effect on Jan. 1, is designed to eliminate many legitimate shelters and reduce the incentive for chiseling by cutting the maximum tax rate from 50% to an eventual 28%. But tax experts doubt that the shelter game is over. Says John McAtee, a securities lawyer with Davis Polk & Wardwell: "The Government will continue to create new loopholes to accomplish economic and social goals." Smooth-talking operators will continue to tempt wealthy investors with creative -- and not always legitimate -- ways to use those loopholes.