Guilty of being rich - victimization of hotel magnate Leona Helmsley

National Review, Nov 15, 1993 by Paul Craig Roberts

Someone was guilty of something in the Helmsley case. But was it Mrs. Helmsley?

ON Tuesday October 26, 1993, Leona M. Helmsley was set free from federal prison. Her long ordeal began on April 14, 1988, when U.S. Attorney Rudolph Giuliani, with an eye toward the next day's headlines, announced her indictment for tax fraud. The injustices Leona Helmsley suffered are a product of prosecutorial abuses that no civil society should permit.

The government had picked its annual April 15 tax-fraud case with care. Here was a defendant everyone would recognize. For years, glossy magazines had carried Helmsley Hotel ads featuring a smiling Leona checking pillows and towels. Newsweek zeroed in on Leona and pictured her on its cover under the infamous headline, "Rhymes with Rich."

According to media reports, the charge against Leona Helmsley was that she treated personal expenses as Helmsley business expenses in order to reduce income-tax liability. The charge against her was actually more nuanced. The government's case was that she intentionally deceived the outside accounting firm that prepared both corporate and personal tax returns for the Helmsleys in order to claim personal expenses as business deductions (specifically, expenses connected with the $3-million renovation of a 28-acre estate named Dunnellen Hall, in Greenwich, Connecticut, which the Helmsleys purchased for $11 million in 1983).

The government did everything it could during Mrs. Helmsley's ten-week trial to portray her in the worst possible light. Most of the 44 people who testified against her were disgruntled employees. One of them, former Dunnellen Hall maid Elizabeth Baum, made headlines with her testimony that she had once overheard Mrs. Helmsley say, "We don't pay taxes; the little people pay taxes."

Judge John Walker, a George Bush relative who had served in the Reagan Treasury Department, joined in the denunciations. Shattering any semblance of judicial impartiality, Walker told Mrs. Helmsley from his elevated bench: "Unlike many defendants who come before the court, you were not driven to this crime by financial need; rather, your conduct was the product of naked greed."

The government used these personal attacks to paint the picture of guilt, but they were irrelevant as a matter of law. The crux of the government's legal case hinged upon the testimony of accountants from the Helmsleys' outside accounting firm, Eisner & Lubin. The accountant most familiar with the Helmsley account testified that the firm was totally unaware that personal expenses had been disguised as business expenses. Without this testimonial evidence, the government would have failed to satisfy the elements of a prima-facie case, and Mrs. Helmsley would have been entitled to a directed verdict in her favor.

After Mrs. Helmsley was convicted, her attorneys discovered compelling evidence that the government had known the accountants were lying. In order to protect the credibility of its key witness, Gerald Marsden, prosecutors painted him as an honest accountant, duped by Mrs. Helmsley. Yet for several years he had been the subject of a criminal investigation for signing fraudulent "comfort" letters exaggerating the financial strength of a client, Robert Landau Associates, resulting in the Miller Brewing Company's being defrauded of $2 million. After Marsden testified against Mrs. Helmsley in the grand-jury hearing, and shortly before he testified at her trial, the charges against him were dropped.

To hobble Mrs. Helmsley's attorneys in challenging Marsden's credibility, the government thwarted access to people who could testify against him. For example, Charles Lockwood, vice president of Robert Landau Associates, pleaded guilty in the Miller Brewing fraud in June 1986 and agreed to be a government witness against Marsden in that case. The government delayed sentencing him by an unprecedented three years until the eve of Marsden's testimony against Mrs. Helmsley. This tactic served to keep Marsden in line and also to make it clear to Lockwood that cooperation with Mrs. Helmsley's attorneys could affect his sentence.

Dershowitz & Bork

THE EVIDENCE that Mrs. Helmsley had been framed was so overwhelming that two prominent attorneys known for their divergent legal philosophies took up her case: first Harvard Law professor and criminal defense attorney Alan Dershowitz, and then former appellate judge and conservative constitutional scholar Robert Bork.

No one disputes that the Helmsleys purchased many items for the renovation of their estate through their business. This practice, engaged in by millions of family-owned businesses, is perfectly legal so long as personal expenses are distinguished from business expenses when tax returns are filed. Like many others, Mrs. Helmsley relied on her accountants to sort out these expenses. The government claimed she submitted false invoices to make personal expenses appear to her accountants as business expenses.

The problem with this charge is that the accountants treated the same expenses differently on different sets of books. Both Dershowitz and Bork concluded that if there was tax fraud going on, the accountants had to have been in on it, and the government's case that Mrs. Helmsley deceived her accountants had no basis.