5,000 Investors : Schulman Is Target of 2nd Suit Over Shelters

Indicted North Hollywood businessman Gerald L. Schulman, who has already been sued in New Jersey for securities fraud by investors seeking to recover $200 million spent on real estate tax shelters they allege were fraudulent, is the target of a similar lawsuit filed in New York by investors also seeking to recover $200 million.

The second suit, a class-action lawsuit, was filed Oct. 30 in U.S. District Court in New York City on behalf of an estimated 5,000 investors who claim to have bought real estate limited partnerships organized and promoted by Schulman. The suit, filed against Schulman and nine individuals and firms, seeks unspecified punitive damages in addition to the return of the money they invested.

Separately, Los Angeles County records show that investors in one Schulman limited partnership included director Woody Allen, his frequent collaborator and “Annie Hall” co-author Marshall Brickman; Allen’s producer, Charles Joffe, and his manager, Jack Rollins.

Allen, star and director of such movies as “Annie Hall” and “Hannah and Her Sisters,” invested $49,500 to receive 3.09% of the profits, the records show. Robert Satin, an accountant representing the four, confirmed that they had invested in the partnership but would not comment further.

Allen and his associates have lost money in other tax shelter deals. In the early 1980s, the four were part of a group of investors who put $445 million into phony tax deductions sold by Edward A. Markowitz, a former part owner of the Washington Capitals professional hockey team. He pleaded guilty in 1985 to selling the phony shelters.

Ballplayers Sue

Schulman is scheduled to face trial in U.S. District Court in Los Angeles on Dec. 1 for federal tax fraud charges stemming from the partnership programs.

Two weeks ago, Schulman was sued in U.S. District Court in Newark, N.J., by 477 investors, including major league baseball stars Rick Sutcliffe, Shane Rawley and Frank Tanana, in an attempt to recover money invested in the Schulman partnerships. Besides the $200 million in actual damages, that lawsuit seeks $500 million in punitive damages.

Attorneys say investors have lost or will lose about $200 million in tax deductions disallowed by the Internal Revenue Service. They also allege that Schulman told people that the investments were tax-deductible because money technically was used to pay interest on a short-term loan, even though investors were buying interests in buildings housing post offices and public utility offices.

Denies Any Wrongdoing

They allege that Schulman created the illusion that interest payments were being made through a complex series of check swaps in bank accounts in Panama and the Netherlands.

Schulman’s attorney, Bruce I. Hochman, could not be reached for comment Monday but has said previously that the money ultimately went toward the purchase of buildings and that Schulman has committed no crime.

Last month, in a separate lawsuit filed in U.S. District Court, the Los Angeles office of Peat Marwick & Main was sued by brothers Sheldon, Warren and Leo Becker, who allege that the accounting firm recommended they they invest $670,500 in the Schulman partnerships.

The attorney handling the suit for Peat Marwick was not available for comment Monday.