Gerald L. Schulman spent money in ways that prove how easily deep pockets can buy prestige.
For $15,000 a year, he joined an elite circle of Democratic contributors who lunched regularly with U.S. senators, at least four of whom visited his Encino home. For a $100,000 donation, the San Diego Zoo named an exotic bird hatchery after him. For an estimated $25,000, Schulman bought one of 28 existing copies of a Declaration of Independence replica printed in 1823 by order of John Quincy Adams.
But Schulman really made his mark as a real estate syndicator. Since the mid-1970s, Schulman persuaded 5,000 investors to put up $200 million and pool their money in tax shelters. His clients included comedian Robin Williams, film director Woody Allen and enough major league baseball players to field an all-star team.
With their money, Schulman formed investment partnerships that acquired nearly 600 buildings, two-thirds of them used as U.S. post offices, which generated close to $40 million a year in rent. His North Hollywood-based Postal Management Services Co. in 1986 claimed to manage $950 million in assets in 47 states and Puerto Rico. He also was the Postal Service's biggest landlord.
For anywhere from $10,000 to $250,000, an investor could own a piece of a post office or other government facility, or a public utility building in hamlets such as Starkville, Miss., or in large cities such as Los Angeles, where a Schulman partnership owns a post office near International Airport.
"I was very impressed with him. I thought he was a very successful man, very generous and a very good man," said former Gov. Edmund G. (Pat) Brown, a friend of Schulman's.
What virtually no one knew was that Schulman was a twice-convicted felon, that he was disbarred in New York and suspended as a certified public accountant in California for two years. Nor were his investors told that the man to whom they entrusted their money had filed for personal bankruptcy in 1970.
Last February, U.S. District Court Judge Mariana R. Pfaelzer in Los Angeles convicted Schulman of 20 counts of felony tax fraud. At the trial, federal prosecutors alleged that he had defrauded the government of $28 million in taxes through 91 partnerships he organized.
The way he did it, they said, was by shuffling hundreds of millions of dollars between banks and corporations in Panama and the Netherlands Antilles to create the illusion that loans were being made so that interest payments could be written off.
In an earlier stage of the case, Judge Thomas Tang of the U.S. 9th Circuit Court of Appeals wrote on behalf of the court that Schulman's transactions were "a sham that lacked substance because there was no economic risk associated with the purported loans."
Schulman has not yet been sentenced, pending a decision by Pfaelzer on a request by Schulman's lawyers to overturn her verdict.
Back Taxes Due
Schulman, through lawyer David H. Aufhauser, declined to be interviewed. Aufhauser said that Schulman maintains his innocence, adding that Schulman carefully checked on whether the programs he promoted were legal before going through with them.
"Everything Gerry did with respect to those partnerships was done on the advice of legal counsel," Aufhauser said.
Schulman faces other legal headaches as well. Angry investors who have been hit with hefty back-tax bills because of disallowed tax deductions have sued Schulman and some of his associates for fraud in New York, Newark, N.J., and Philadelphia. The investors claim that they could lose as much as $200 million because disallowed tax deductions. They also have alleged that they could lose up to $200 million that they had invested in Schulman's programs, in part because the properties were sold to them at inflated values, and because they have been heavily mortgaged.
Schulman's attorney Aufhauser disputes the figures of potential losses cited in the lawsuits. He said that under agreements the Internal Revenue Service has been negotiating with most investors, some of the disallowed tax write-offs will be reinstated, although how much varies widely among investors.
Schulman's investors are confused, to say the least. Dr. Roland A. Schaumloffel, a Long Beach physician, said he invested $100,000 for a share of post office buildings in such places as South Gate, Gilroy, Calif., and New York state.
"Someone told me recently that I ought to be a millionaire by now with the way property has appreciated," he said. "But I'm not a millionaire. I don't know where I am."
Served Four Months
The story of Gerald Schulman and his post offices, as told in court documents, depositions and interviews with associates, is full of such mysteries.