Del Mar Businessman, 6 Others Arrested in Massive Fraud Case

NEW YORK —  A San Diego County businessman and six associates were arrested and charged Tuesday in connection with alleged schemes involving the sale of fraudulent oil and gas and real estate tax shelters, the fraudulent takeover of a Utah bank and the bribery of officials at an Upstate New York bank, prosecutors said.

John P. Galanis of Del Mar and the associates face a variety of federal and state charges stemming from the tax shelter sales and the other alleged illegal activities, which occurred between 1982 and 1984. The oil and gas shelters may have cost the government as much as $172 million in lost tax revenues, prosecutors said, while the Atlantic City, N.J., real estate shelters bilked investors out of millions of dollars.

The Salt Lake City bank, which was purchased amid false representations, prosecutors said, is now in receivership. Rudolph W. Giuliani, U.S. attorney in Manhattan, described the alleged schemes as “one of the largest white-collar crimes the FBI has had.”

Galanis, 44, the alleged mastermind of the activities, was arrested Tuesday in Del Mar and is scheduled to be arraigned in federal court in San Diego today and also to appear at an extradition hearing in a California court. He and John F. Landon, 39; Anthony J. Marchese, 46, and Daniel S. Brier, 57, face federal charges that carry maximum penalties of $500,000 in fines and up to 25 years in prison.

Galanis and associates Samuel Rosengarten, 66; Louis Rosen, 60, and Laurence Klusky, 40, face separate New York state charges in connection with the Atlantic City real estate tax shelter. Comedian Eddie Murphy was among the investors allegedly victimized in that case.

None of the accused could be immediately reached for comment.

Galanis, the son of a Massachusetts restaurant owner, built a fortune and a national reputation with his financial know-how but has more recently become the subject of increasing negative publicity and a variety of lawsuits by disappointed investors. A longtime resident of Greenwich, Conn., Galanis moved to California in 1985 and purchased two luxurious homes in Del Mar and Rancho Santa Fe.

Prosecutors said apparently most of his investors live in the New York City area.

According to the complaint filed by federal prosecutors, Galanis and his associates set up a gas and oil limited partnership called Transpac Drilling Venture, then conspired to create false tax deductions for investors by making it appear that the partnership’s expenditures far outweighed its profits.

The prosecutors said the partnership’s officers ran up expenses through business transactions between entities involved in the tax shelter program, all of which were secretly controlled by Galanis.

The shelter’s promotion was fraudulent, according to the charges, because Transpac officials did not disclose that the entities involved in the shelter program were directly managed and controlled by Galanis. According to prosecutors, Galanis controlled the shelter at arm’s length because he did not want investors to learn that he had previously been convicted of two securities-related felonies, had been indicted in a pending case for alleged violation of Canadian securities law and was the subject of Securities and Exchange Commission injunctions.

The federal complaint also charges that Galanis and two associates bribed officials of People’s National Bank, in Monsey, N.Y., to obtain loans that they planned to use in tax shelter activities. The bank officials, who were not named in the court papers, allegedly received $370,000 in bribes between May, 1983, and November, 1984.

The Galanis organization fraudulently took control of the Heritage Bank & Trust Co. in Salt Lake City by failing to disclose the identities of some prospective purchasers of bank stock, prosecutors said, and concealed the fact that the bank would be used to help fund the organization’s activities.

The bank was declared insolvent in September, 1985.

A 57-count New York state indictment issued Tuesday charged that Galanis and his associates also bilked investors through a corporation called the Nashua Trust Co., which they said would acquire and rehabilitate non-casino hotels in Atlantic City. Nearly 1,400 investors contributed more than $75 million to 10 Nashua Trust tax shelters in 1985, but construction work was never begun.

The investors’ money was spent on other debts and, when Nashua defaulted on mortgage payments, the company was declared bankrupt. Galanis and his family were directly paid more than $6 million of the funds, and more money was used in other ways for his benefit, such as to cover credit card charges, prosecutors said.

The Nashua Trust tax shelters were also promoted without mentioning Galanis’ convictions, pending indictment and Securities and Exchange Commission injunctions, according to the indictment. The investors were misled about Nashua Trust’s assets, the size of the hotels it said it would refurnish and the income that could have been expected from them, the state indictment said.

Times staff writer Tom Furlong in Los Angeles contributed to this story.