Property tax assessment fraud in Cook County
By ED McMANUS
Investigatorsfrom the U.S. Attorney's Office, the FBI and the IRS were looking into:
The Cook County Board of Appeals where, it was said, the pay wasn't very good but the 'benefits' were
A property owner who allegedly saved a lot of money when his assessments were reduced
A public accountant whose named figured in more than one lawsuit
A deputy commissioner to the Board of Appeals who abruptly took a new job
Ed McManus was urban affairs editor of the Chicago Tribune when he first discovered corruption at the Cook County Board of Appeals, which led to the FBI investigations. McManus is now assistant city editor for the Tribune and "Chicago" columnist for Illinois Issues.
OVER A LONG lunch one sunny day in June 1972, at the old LaSalle Hotel in Chicago's Loop, it is said, the two men made a deal.
The professional man would round up the clients. He would find the homeowners and the businessmen who wanted a break on their property taxes, the people who were willing to pay for a favor. There are a lot of them in Cook County.
His friend, who worked in the County Building up the street at the County Board of Appeals would see that the job was done. He would chop a few hundred dollars here and a few thousand dollars there off the real estate assessments of each client, regardless of the value of the property. And when it was done, the client would pay his fee, and the two men would split it. For the man at the board especially, the deal meant a lot, because the jobs there don't pay much.
In the intervening years, some things have changed. The LaSalle has been torn down to make way for a 26-story office building. The professional man has moved out to the suburbs. And his friend? He has been indicted by a federal grand jury for his part in a massive bribery scandal at the Board of Appeals.
At this writing, 13 men and one woman stand indicted, and the Federal Bureau of Investigation reportedly has evidence on more than 100, including judges, Chicago aldermen and state legislators. People in a position to know have described it as "potentially the biggest political corruption case in the history of the country, in terms of the number of indictments resulting from activity at a single governmental agency."
The Board of Appeals
The Board of Appeals is a small agency occupying a suite of offices down the corridor at the north end of the sixth floor of the County Building, a squat, gray structure in the heart of the Loop. The board has been in existence for 48 years, and for most of that time it has had a reputation as a place where good old Chicago-style clout really counted. It has been known as a place where some lawyers and real estate appraisers had what is euphemistically known as "good connections." And within the Democratic Party machine it was common knowledge that when a ward committeeman wanted to give a special reward to a hard-working precinct captain, he'd line him up with a patronage job at the Board of Appeals. The pay wasn't very good, but the "benefits" were.
The board ignores a law requiring it to hold a public hearing on each complaint. In practice, the property owner (or his attorney) simply sits at the desk of a hearing officer and presents his argument informally, and no record is made of the meeting.
The board ignores a law mandating that it publish standards used in determining property values.
The board ignores a law requiring it to specify the reason for each assessment reduction it makes.
The Cook County Board of Appeals receives more than 20,000 complaints a year. Its two members one-time Chicago postmaster Harry H. Semrow and Seymour Zaban, a protege of ex-alderman and ex-convict Thomas E. Keane personally hear only the major cases and delegate to their deputy commissioners the authority to decide the rest. The deputies, in turn, rely heavily on the recommendations of the board's nine hearing officers.
It is a system which has been
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criticized for years by reformers, who complain that it breeds disrespect in taxpayers and leaves the door wide open for corruption. With no public hearing, no standards, no reasons given for decisions, and not much supervision of hearing officers, there is little to stand in the way of a property owner passing an envelope across the desk.
And that, said the federal government in announcing the initial indictments in September, is precisely what happened in more than 2,100 cases at the board from 1974 through 1980. The price tag: $33 million worth of bogus assessment cuts.
A property owner
One property owner who was unhappy with his assessments was a Southwest Side man named Alexander Dirkis. One day early in 1975, Dirkis called a friend who had connections at the board. Dirkis had just been assessed at a total of nearly $100,000 for a small building he owned on Archer Avenue three stores and an apartment and for a drug store and adjoining living quarters on West 69th Street. He figured the two properties would cost him $40,000 in taxes over the next four years a lot more than he cared to pay. Could the friend do anything for him, Dirkis wondered. "Of course," he was told. An investigation in 1978 indicated this chain of events took place:
A hearing was set for April 25, but Dirkis says he did not appear for the hearing. He says he was told not to worry about it. (By law, no one may appear at a hearing except the property owner himself or his attorney, and there was no attorney on these complaints.)
Apparently, neither Siegel nor anyone else presented any documentation to the board in support of the complaints (such as appraisals of the properties). The board files on the two complaints are empty, and Siegel refused to show a reporter what, if anything, he had submitted.
On May 19, the board granted a 56 percent reduction in the assessment on the 69th Street property and a 41 percent cut on the Archer Avenue building.
On September 10, Siegel's son, Myron, office manager of the Siegel accounting firm, submitted a bill to Dirkis' friend for $2,660.38 for "local tax service." The bill stated that the assessment reductions would save Dirkis $18,622.62 in taxes over the next four years.
After the Dirkis case and other questionable cases were disclosed, a federal grand jury began looking at the Board of Appeals. One of the first people subpoenaed was Marvin X. Siegel.
A public accountant
Marvin Siegel has been a certified public accountant for 30 years. He formed a partnership in 1969 with accountant Louis Zalman, who had a lucrative property tax practice. When Zalman died six months later, Siegel became involved in a lengthy court dispute with the Zalman estate. Early in 1972 Siegel formed a partnership with Melvin H. DeGraff and Burton R. Kaplan, but it broke up acrimoniously later that year. Siegel sued DeGraff and Kaplan, charging they locked him out of the firm's office on West Madison Street. DeGraff and Kaplan countersued, claiming that Siegel had failed to fulfill the partnership agreement and "was found to be sleeping at the office of a client on several occasions rather than performing accounting service." The case was settled out of court.
Records in the office of the clerk of the U.S. District Court in Chicago reveal that Siegel was an associate of Louis Steinberg and Frank Baum, operators of the Steinberg-Baum discount store chain, who were convicted of a multi-million-dollar embezzlement. Siegel appeared before a grand jury which investigated Steinberg and Baum, and when they were indicted for tax fraud in February 1972, Siegel was named by the government as a participant in the conspiracy. (The U.S. attorney several years later agreed to remove his name from the case records.)
Records of the Cook County Circuit Court reveal a suit relating to Siegel's practice of assisting property owners seeking assessment cuts. Attorney Robert Cleveland, who represented the Herman Hettler Lumber Company before the Board of Appeals at Siegel's request, contended that he was entitled to a portion of the $23,342 Hettler paid Siegel for obtaining a $231,632 assessment reduction in 1975. Siegel eventually agreed to an out-of-court settlement.
Among Siegel's clients was John A Caputa, an announcer on Polish-language radio station WOPA, who built a retirement village for Polish immigrants in South Texas. Caputa sued Siegel, his son Myron, and Myron's wife Charlotte in 1976, accusing them of tricking him into surrendering control of one of his development companies, Laguna Madre Beach Corp. Also involved in the case was a Siegel associate, Donald E. Erskine, an official of the Board of Appeals who maintained a private law practice across the street from the County Building. Caputa said he gave Siegel and Erskine power of attorney to represent him in an audit of his companies by the Internal Revenue Service, and Caputa executed a $100,000 judgment note in favor of Siegel and a $35,000 note to Erskine as payment for their services. Caputa died before his case against the Siegels came to trial.
A deputy commissioner
Donald Erskine worked as a government lawyer in Washington until June 1970, when he was hired by Tom Keane's brother George at the Board of Appeals. When George resigned as a commissioner and Seymour Zaban was
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appointed to replace him in January 1973, Erskine became Zaban's deputy.
In May 1978, Erskine was linked to several board cases of the previous year in which large reductions were granted in property assessments, although apparently no hearings were held. Attorney Robert Cleveland, who was handling the cases, said Erskine told him it would not be necessary to hold hearings. (Erskine said he had no recollection of the cases.) Later that year, Erskine abruptly resigned from the board and went to work for the Illinois Bureau of Employment Security, where he currently is employed as a referee in unemployment compensation hearings.
On September 2, 1980, Erskine was indicted by the federal grand jury, along with former deputy commissioner Thomas J. Lavin, hearing officer Jimmie M. Smith, and six persons accused of acting as middlemen, or "runners," between the board personnel and property owners. Two other board officials and three middlemen were named in four other indictments.
Assistant U.S. Atty. Stephen Senderowitz said the nine named in the main indictment conspired "to solicit Cook County property owners for the purpose of filing assessment reduction complaints at the Board of Appeals from 1974 through 1979. The complaints, once filed, were fraudulently processed at the Board of Appeals by Lavin, Erskine and other co-conspirators. The Board of Appeals hearing and review processes were circumvented. The assessment reductions achieved resulted in tax savings to the individual property owners. A percentage of the tax savings, usually 50 percent of the first year's tax savings, was paid to the 'runners' by the property owners. The 'runners,' in turn, split the fees with Lavin and Erskine."
Senderowitz, a veteran of the public corruption-busting team established by Gov. James R. Thompson when he was U.S. attorney, and Les V. Olson of the FBI headed a group of 14 lawyers, FBI agents, and IRS agents in a 20-month investigation that led to the initial indictments.
On the afternoon of September 9, Donald Erskine appeared in the courtroom of Judge James B. Moran on the 19th floor of Chicago's Federal Courthouse for arraignment on one count of racketeering, 81 counts of mail fraud and one count of tax fraud. His lawyer, Joseph A. Lamendella, entered a plea of not guilty on his behalf on all charges. If convicted of all, he could be sentenced to 428 years in prison and fined $111,000.
Missing from the list of persons indicted was Marvin X. Siegel. But Siegel was named in the main indictment as a co-conspirator as one of the runners. He is expected to be granted immunity to testify against his old friend, Donald Erskine.
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