San Diego To weave a cleverly tangled web of secret offshore tax havens, sometimes it takes two to tangle. If the two tanglers are dead,it can be difficult for government investigators to penetrate the maze. Despite this obstacle, the U.S. attorney's office last Thursday (April 28) won convictions of two more conspirators in the Advanced Technologies International scam. Purported inventor Stephen H. Smith was convicted of tax conspiracy and evasion, money-laundering conspiracy, and mail and wire fraud conspiracy, and accountant Richard G. Boyer got nailed for tax conspiracy. Their sentencing date has not been determined, and U.S. attorney Phil Halpern, who tried the case, expects them to appeal. Most of the others who have previously pleaded guilty will be sentenced June 20.
Alas, the two tanglers who concocted the scheme, San Diego stock swindler Konstanenos "Nick" Hronopoulos and Chicago lawyer Burton W. Kanter, died in 2003 and 2001, respectively. Hronopoulos had been indicted before his death on multiple fraud and tax charges, as well as for physically threatening witnesses. Kanter had never been charged.
The company had an operation in San Diego named Basic Research Corp. that claimed it would exploit Smith's alleged inventions, such as one called E-spin, which would supposedly revolutionize medicine and telemetry. But company assets actually had been transferred to the Bahamas tax haven under the name Advanced Technologies. It also had an operation on the Caribbean haven of the Cayman Islands, and according to civil suits in the case, there was money funneling through the Isle of Jersey, the haven in the English Channel.
More than 100 investors -- many of them evangelical Christians -- lost $12 million in the caper, according to the federal government. Perhaps it was no surprise, then, that at one point, there was a plan to move money covertly between two offshore entities: one to be named the Truth and the other to be named the Way. The plan was abandoned.
The fellow who set up offshore trusts to facilitate the caper was Kanter, an expert in moving money around. The federal government -- particularly the Internal Revenue Service -- chased Kanter for three decades and was still pursuing his estate after his death. One of the civil suits in the Advanced Technologies case charged that "the Byzantine ownership structure [of the company and affiliates] was masterminded by Kanter, a lawyer who is reputed to have been the architect of several similarly convoluted ownership structures designed to conceal and shelter the assets and income of those who have engaged in criminal activity and who are associated with organized crime."
According to the 1992 book The Mafia, CIA, and George Bush, as well as other sources, Kanter played a key role in the financing of La Costa, the North County golf club and spa that was financed with Las Vegas and Teamsters money in the 1960s. Kanter claimed he played only a small role. Kanter's name shows up throughout that book, largely in relation to alleged organized-crime-related contacts.
Another book, Masters of Paradise: Organized Crime and the Internal Revenue Service in the Bahamas, said that Kanter was instrumental in the forming of Castle Bank & Trust in the Bahamas. The Internal Revenue Service said the bank was a haven for criminals stashing money to dodge taxes. Kanter denied he founded the bank and was acquitted of criminal charges in the matter.
In any case, Kanter knew offshore havens, and not surprisingly, he also knew San Diego. At a meeting of shareholders in early 1999, Boyer opened with a prayer -- thanking divine providence for Smith's inventions -- and then described how his meeting with Kanter was next to miraculous. With Kanter's offshore savvy, financing would be heaven-sent.
It certainly turned out that way for Hronopoulos. According to the indictment, he and his fellow conspirators secretly transferred the ownership of Smith's purported inventions from Basic to Advanced Technologies offshore. Thus, investors in Basic were getting nothing. The offshore entity was one of the vehicles by which Hronopoulos and his colleagues funneled the investor funds into their own pockets and concealed these returns from the Internal Revenue Service, according to the government.
Investors were not told that Hronopoulos had pleaded guilty to fraud and tax evasion in 1983 and had gone to prison. In 1979, he had been permanently enjoined from selling unregistered securities by the Securities and Exchange Commission. Nor were investors told that Paul Scheibe, another key insider, had been convicted in 1984 of selling unregistered securities, and he and Hronopoulos controlled the disbursement of investor funds. Scheibe pleaded guilty to conspiracy to commit mail and wire fraud and income-tax conspiracy last year.
The lawyer in the case, Lawrence W. Taggart, pleaded guilty last year to the same charges. In 1998, Taggart was charged in a civil suit with fleecing a physician of $400,000 through a prime-bank-note scam, or rapid-fire trading of financial paper among overseas banks. Unfortunately, in such scams, this trading does not take place. Taggart only partially paid the court judgment against him, according to Scott Dreher, the victim's attorney.
Taggart was state savings and loan commissioner during the 1980s. While in office, he approved Charles Keating's purchase of Lincoln Savings & Loan and gave the nod to the institution's dicey deals. A few weeks after resigning as commissioner, Taggart signed on as a Lincoln consultant, according to the Dallas Observer and the Union-Tribune. That was before the savings and loan collapsed and Keating went to prison.
After leaving his state post, Taggart did consulting for $10,000 a month for Don Dixon, the Texas savings-and-loan swashbuckler who spent much of his time in San Diego and got national attention for providing his boardmembers with the salutary services of Karen Wilkening, San Diego's once-famed Rolodex Madam. Dixon did lending at La Costa and landed in prison. He complained that he was misunderstood: the assignations with Wilkening's ladies were "artfully done in a classy manner." Like Kanter, Dixon is all over the book The Mafia, CIA, and George Bush. (Incidentally, the book concerns the senior George Bush. President George W. Bush is barely mentioned.)
In his plea agreement, Taggart, who could not be reached for comment, admitted knowing that Hronopoulos was a convicted felon enjoined from selling securities. He also knew that the purported Smith inventions had been transferred to the Advanced Technologies offshore entity to line Hronopoulos's pocket. Taggart admitted he knew that investor funds had been funneled to Hronopoulos, Smith, and Scheibe. And he funneled some to himself. "There is no question Hronopoulos and Kanter were running a shell game using Taggart as a willing pawn," says Halpern.
Last year, Gilbert N. Holloway pleaded guilty to conspiracy to commit mail and wire fraud. Among many things, he admitted that, as president of Basic, he began raising investor funds even though he knew the company had assigned away its rights to the so-called Smith technologies. He also knew that investor funds had not been accounted for, and some had been diverted to Hronopoulos, Smith, and Scheibe. In 1997, Taggart had written Holloway, acknowledging a "serious problem" with the "use and possible diversion of these funds." Kirsten Hronopoulos, widow of Hronopoulos, pleaded guilty last year to income-tax conspiracy and tax evasion and got three years of probation. Patricia Smith, Smith's spouse, pleaded guilty last year to making a false statement to the government; her sentencing has been delayed until June 27.