Through the years, Ben Friedman's victims included local furniture tycoon Murray Goodman and even Jerry Colangelo, but he usually targeted the pension plans of small medical practices.
Starting in the late Seventies and continuing on through the Eighties, Friedman bought cheap land using fake names--once he used his dead mother-in-law's name--then sold that land at inflated costs to investors whom he'd pooled into partnerships. He pocketed the difference.
Friedman had a legal obligation to tell the members of the partnership that he owned the property in question, and that he would profit from the sale.
He didn't. That's fraud, a Class 2 felony under Arizona law.
Last year Friedman, 55, pleaded guilty to three of 73 felony counts of securities and tax fraud. In the next two months, he'll likely be sentenced to prison time.
Authorities estimate that during a 10-year period, Friedman bilked his investors out of more than $2.5 million and the State of Arizona out of more than $5 million in unpaid taxes.
An unrelated case--allegations in 1989 that Friedman had bribed a public official for a measly $29,000--led to the search warrant that dumped an 18-foot-tall stack of Ben Friedman's financial records on the desk of Maricopa County Attorney Rick Romley.
Romley instigated a five-year investigation that led the state Department of Revenue to conclude in a letter to the court, "This is the largest tax prosecution involving personal income taxes the department has ever undertaken. All of the Arizona personal income tax cases prosecuted to date would not equal what Mr. Friedman evaded."
Friedman was the only one indicted, but he insists he didn't act alone. Two of his alleged partners in crime were Leonard Miller and Carlos Wagner, owners of one of the largest accounting firms in town.
To hear Friedman tell it--and he has, in deposition and on the record to New Times--the owners of Miller-Wagner and Co. knew the details of Friedman's wheeling and dealing, provided him office space, offered up victims--er, clients--and shared in the profits.
Friedman has the check stubs from payments he made to Miller and Wagner in exchange, he says, for referrals of investors. Also bolstering his claim is Miller-Wagner and Co.'s recently settling its part in a class action lawsuit filed by a number of Friedman's victims who alleged the accountants participated in the act to defraud them. The settlement, rumored to be in the millions, is sealed.
Along with the sealed settlement comes a confidentiality agreement; that means none of Friedman's victims is talking.
Dr. Avi Ben-Ora, a now-retired radiologist who's a plaintiff in the civil suit, says, "A lot of people got caught in a deal where we thought we were dealing with an honest guy and it turned out to be not so honest. The relationship that Friedman and Miller-Wagner had was not something I was aware of until the lawsuit was filed. . . . I really wouldn't want to say anything that would be defamatory. Obviously I'm unhappy with the results" of the investment.
Miller-Wagner's and Friedman's victims may not have much to say, but Roger Brown does. Brown, a CPA, was hired by the court to review financial documents and figure out how much restitution Friedman should make. Most of Friedman's victims have already been paid by Miller-Wagner and Co., Brown argued in court documents. No need to pay them twice. The prosecution agreed, and the final details are being worked out.
In the course of examining the voluminous documents subpoenaed by Romley's office, reviewing the civil case and talking to Friedman, Brown realized that apparently no one had taken a look at Miller-Wagner and Co.'s involvement in Friedman's scheme.
"They just missed it. They missed the Miller-Wagner connection," Brown says of the prosecutors and Department of Revenue.
Friedman's allegations raise questions about criminal and civil wrongdoing and possible violations of the state board of accountancy's rules, on the part of Leonard Miller and Carlos Wagner.
This is the first the public's learned of any alleged wrongdoing on the part of Miller-Wagner and Co.
The 20-year-old firm won a prestigious award in 1986 from an industry newspaper, Accounting Today, for "demonstrating an extraordinary commitment to quality, initiative and customer satisfaction."
Leonard Miller is a leader of the Phoenix Jewish community. Carlos Wagner sits on the board of a local bank.
Miller-Wagner and Co. has admitted no liability as part of the settlement of the civil suit. It has not been indicted of any crime. Neither Miller nor Wagner responded to calls and a written request from New Times.
The only one talking is Friedman.
Ben Friedman is no Ben Franklin. Terrified of prison, he's repeatedly offered to roll over on his former friends Len Miller and Carlos Wagner, hoping to avoid serving time.
No one's interested.
In the late Seventies, a young tax lawyer named Ben Friedman got a hot tip that a company called Westcor was going to build a big shopping center in northeast Phoenix. Friedman put together a partnership and bought some land around the proposed mall site.
The investors made a killing when Paradise Valley Mall was built.
Overnight, Ben Friedman was a real estate guru. He quit practicing law and started selling land.
Friedman had a friend, Leonard Miller, an accountant with his own firm and a lot of wealthy clients. Friedman and Miller began making referrals back and forth.
By the early Eighties, Friedman was officing with Miller-Wagner and Co. "I talked to Len Miller, and he and I agreed that it would be a good idea if I moved in right next to them," recalls Friedman. "If he came across somebody who wanted to invest, he could just walk them in next door."
Len Miller and his partner, Carlos Wagner, were there for the inception of many a deal and followed those deals all the way to the piles of cash at the end, according to Friedman, who orchestrated the transactions.
"We would have a meeting and talk about the piece of property [in question]," Friedman says. "We'd talk about the sizzle of the property and how salable it was to investors. . . . How far away are existing developments? Where are sewer lines, where are the water lines? And we'd talk about these things and then decide, 'Okay, for what price can the property be acquired and then what will the property bear, what do we think the market value of the property really is to the syndication and how much can all of us really make out of it?'"
Friedman bought the property using a fictitious name. He would then assemble a limited partnership of investors. Friedman, as the general partner, would negotiate the sale of the property to the partnership. In effect, he was bartering to buy the property from himself--and making a healthy profit.
An example, from the 73-count indictment against Friedman:
Using the name of his dead mother-in-law, Mary Kotik, Friedman bought land for $150,125. He then created a limited partnership called Saddleback Properties, which included a number of doctors. As the general partner, Friedman bought the land supposedly owned by Mary Kotik (but really owned by Friedman himself) for $480,000.
Friedman says he didn't pocket the entire profit. His check registers show substantial payments to Miller-Wagner and Co.
According to documents filed in criminal court by Friedman's attorney, Michael Black, Miller-Wagner got a 10 percent cut for bringing in customers between 1977 and 1980.
By 1981, Miller-Wagner was demanding a 15 percent cut.
By 1982, the accountants had established Carlen Partnership "and requested that all checks be written to Carlen so that Miller and Wagner would not have to share their profits with their other partners at the accounting firm," Black wrote in the court papers.
Black further alleges: "After 1984, Miller-Wagner also insisted that Friedman buy property for them or make other 'non-traceable' payment arrangements for their 15 percent. It is estimated that Friedman paid Miller-Wagner the following monies as finders fees: $342,661.89 in 1986; $528,997.39 in 1987; $393,518.41 in 1988; and $82,522.48 in 1989. Management fees [Miller-Wagner's], fees for office space and fees for business expenses were paid for out of Miller-Wagner's 15 percent. Miller-Wagner was always aware of the exact amount of markup on each property and that straw parties were used to effectuate the sales. While Miller-Wagner did not provide all investors for every limited partnership, they did provide the majority of investors for most of the limited partnerships. Moreover, Miller-Wagner prepared all but six of the limited partnerships' tax returns through 1992."
Then the real estate market crashed, so Friedman went back to practicing law and Miller-Wagner and Co. focused on its accounting business.
And everything went along just fine--albeit more frugally--until 1994, when Ben Friedman was indicted on the 73 land-deal counts as well as the unrelated bribery charges.
In 1996, a jury found Friedman guilty of bribery and sentenced him to probation and community service.
The bribery conviction stemmed from a 1988 zoning case, in which Friedman gave City of Phoenix Deer Valley Planning Committee member Elaine Lefevre $29,000 in exchange for her agreement to not oppose a zoning application.
Lefevre was also found guilty and sentenced to probation.
But the bribery case exposed Friedman's records and led prosecutors to the larger fraud case. A year later, Friedman came to an agreement with prosecutors, and offered his guilty plea to three of the 73 additional charges--two fraud charges and one charge of falsifying income tax records.
Because Friedman is already on probation, it's highly unlikely he will escape prison time. His last shot, he figured, was to cut a deal with prosecutors by offering up two prominent local accountants, Len Miller and Carlos Wagner.
Don Conrad, the prosecutor on the case (he brought it over to the AG recently, when he made the switch from the Maricopa County Attorney's Office), refuses to comment until after the sentencing, now scheduled for July 7.
Attorney General spokeswoman Karie Dozer spoke briefly about Friedman's offer.
"We're looking at a guy whose credibility is questionable," Dozer says of Friedman. "He's already been convicted of this crime--he's just awaiting sentencing--so it's really not a 'strike a deal' type of situation. And frankly, we did look at what he provided. What he provided was a bunch of copies of checks and check registers. That's it. It was his word and some checks, which does not add up to enough reason to look into somebody else."
Maricopa County Attorney spokesman Bill FitzGerald, who would only speak in hypotheticals, adds, "When people bring us check stubs and things of that nature, to go back and corroborate what the stubs would say on them is really difficult because banks have destruction schedules for old records that are in the five-year period of time."
In other words, it was too little, too late.
Roger Brown--the CPA hired by the criminal court to review Friedman's case from a restitution viewpoint--is shocked that the authorities aren't taking Friedman up on his offer to rat out Leonard Miller and Carlos Wagner.
"The argument that you can't trust Mr. Friedman because he's a convicted felon goes against everything the Attorney General's Office does," Brown says. "They rely on convicted felons daily. That's the game. The game is you get 'em to plead guilty and then have 'em turn."
As for the available evidence, Brown admits he's not a lawyer, but says, "From an accounting standpoint, you see Mr. Friedman's allegation that Miller-Wagner went out and sold these partnerships, brought the money in to him . . . and then you see checks going to Miller-Wagner."
And in Brown's mind, "It would be almost herculean for Mr. Friedman to have manufactured this evidence."
But the Attorney General's Office has made its decision.
Miller-Wagner and Co. has settled a civil suit. It would seem that the firm doesn't have to worry about prosecution. That leaves it to the rules of the state's Board of Accountancy.
According to the board's rules, accountants are prohibited from taking referral fees or commissions for steering clients toward investment possibilities like Ben Friedman's limited partnerships. The offense can result in disciplinary action up to and including suspension or revocation of the certificate to practice.
In addition, Brown says, the accountant has a fiduciary role to protect his client. If the accountant is taking large (10 to 15 percent) cuts of profits made on straw deals that suckered in his own clients, he is not protecting the client.
To this day, Ben Friedman doesn't understand what the big deal is. If the market hadn't crashed, everyone would be happy--and no one would have been after him.
"Everybody was paying finder's fees, and everybody was paying CPA firms. It's just that the Department of Revenue picked on me," he says, his watery eyes and whiny voice detracting from any sympathy he may conjure. "No, I didn't do anything unusual. This wasn't something ingenious that nobody else had thought of."
Contact Amy Silverman at her online address: [email protected]