Oil Investor Zukerman Dodged $45M in Taxes, US Says

(Bloomberg) - Morris Zukerman spent 16 years at Morgan Stanley, at various points overseeing its energy and merchant banking practices, before starting his own investment firm in the late 1980s. His firm’s partners have included ConocoPhillips, ExxonMobil and Kinder Morgan. He endowed a Harvard sociology professorship. He collected dozens of expensive paintings, including works he loaned to the Metropolitan Museum of Art.

Along the way, he evaded more than $45 million in taxes, the U.S. now alleges.

Zukerman avoided income and sales taxes by hiding his gains in phony commercial and charitable transactions, according to an indictment made public on Monday by a federal court in Manhattan.

The indictment arrives as tax evasion draws renewed attention from law enforcement agencies and policy makers, prompted by leaked Panama law firm documents showing how networks of international shell companies are used by the ultra-rich to shield assets. But the Zukerman allegations are a reminder of the continued prevalence of methods that are far more old school.

Zukerman failed to report profits from the sale of an oil company, lied to his accountants, created phony and backdated documents and shipped paintings to addresses in Delaware and New Jersey to avoid New York state sales tax on artwork that hangs in his Park Avenue duplex, according to the indictment. He also took charitable tax deductions for donations he didn’t make, it says.

Zukerman, with a full head of white hair and wearing tortoiseshell glasses, pleaded not guilty in a Manhattan courtroom Monday. The judge approved his $2.5 million bond, secured by works in his art collection. The government had already taken $1 million in art from Zukerman during a search, according to Stanley J. Okula, the prosecutor at the hearing. Zukerman’s attorney, James Bruton of Williams & Connolly LLP, said that he was in talks with the government to resolve the case.

“Morris Zukerman cheated on virtually all of his various tax obligations,” Manhattan U.S. Attorney Preet Bharara said. “To top it off, when the IRS auditors examined his returns, Zukerman allegedly schemed to defraud and obstruct the IRS auditors who were examining his false tax returns.”

If convicted of all three counts against him, Zukerman could face up to 28 years in prison. A message left with his office in Manhattan was not returned.

Energy Investor

Zukerman, 71, is the chairman of M.E. Zukerman & Co. Inc., which invests in “stable assets used to produce, gather, process, transport, store, refine or distribute crude oil, natural gas and related products,” according to the company’s website.

He is a graduate of Harvard College and Harvard Business School, where he was a prestigious Baker Scholar, and studied economics at Cambridge University, according to a biography on his firm’s site. He worked in the Nixon White House, under George P. Shultz in the Office of Management and Budget, according to published biographies. He worked at Morgan Stanley from 1972 to 1988. Since then he has served as a member of the Board of Overseers at Harvard University and as a trustee of Phillips Academy, among other positions.

Along with Kinder Morgan and ExxonMobil, Zukerman’s firm, through a subsidiary, owns a significant stake in the Cortez Pipeline Company, which operates a 500-mile carbon dioxide pipeline running from Texas to Colorado.

None of those companies is accused of any wrongdoing in connection with tax charges against Zukerman. Zukerman is not accused of any wrongdoing during his time at Morgan Stanley.

Court filings show that the indictment was first filed under seal on May 11.

Unreported Gains

Securities filings show that in 2008, Zukerman’s company sold for $267 million a firm it owned with ConocoPhillips called Penreco, a maker of specialty solvents and refined petroleum products.


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