CASE BACKGROUND
They
already have taken similar action to "crush" others who stand in the
way of their scheme,
and
thus their threats against Greenberg are credible and serious.
INTRODUCTION
Kelley
Lynch, Leonard Cohen’s personal manager for approximately 17 years, is a party
to the above-entitled action. She was not served or notified of the summons
& complaint in this matter and the proof of service is evidence of
extrinsic fraud. On May 12, 2006, a default judgment (that she was neither
served nor notified of) was entered against her. Her trial, related Case
No. 2CA045539, relates to this matter.
Ann
Diamond’s article, written for Rolling Stone, provides an overview of what has
generally occurred since Lynch and Cohen parted ways in the fall of 2004.
Once this article was published on the internet, Cohen threatened the journalist
with litigation and made an extraordinary flight from Europe (where he was in
the midst of a tour) into Boulder, Colorado to obtain yet another fraudulent
restraining order against Lynch. Cohen, according to his testimony in
Lynch’s 2012 trial, evidently believed Lynch might attend his concert.
The Boulder hearing took place on September 2, 2008. Cohen’s
concert was not scheduled for at least another 9 months - July 2009.
Clearly, the extraordinary flight proves that there was more at hand than
the lame excuse that Lynch might attend his concert. There was zero
possibility of that in any event.
Leonard Cohen has used abusive
restraining orders against defendant and has availed himself of the legal
system in order to obtain orders, judgments, and verdicts via fraud, perjury,
and concealment. It is Lynch’s opinion that all of this was done in an
attempt to obstruct justice.
There
is also no doubt that this activity was undertaken to silence Lynch; conceal
what has actually occurred; prevent her from requesting information she
requires to file her 2004 and 2005 federal and state tax returns; prevent her
from amending those returns that the default judgment fraudulently altered;
undermine her credibility and discredit her; and, for other reasons. Cohen has
used fraudulent restraining orders to prevent her from participating in
litigation matters. Leonard Cohen has also used the present case to
retaliate against Lynch for reporting his tax fraud, that she was told is
criminal, to the Internal Revenue Service. The IRS is raised in Robert
Kory’s August 18, 2008 letter to Ann Diamond: “A review of your posting
reveals that it contains numerous false statements regarding Mr. Cohen, some of
which allege that Mr. Cohen has engaged in criminal conduct, including
statements that imply that Mr. Cohen had engaged in tax evasion and tax fraud.”
The letter then addresses some of the extraordinary actions Cohen has
taken since Lynch report his tax fraud to the IRS. The activity extends
to quite a number of individuals and entities.
http://www.scribd.com/doc/57416024/ann-diamond-defamatory-publications
Thursday,
July 3, 2008
Whatever
Happened to Kelley Lynch by Ann Diamond
http://www.scribd.com/doc/57415959/Ann-Diamond-Article-Corrected-by-KL-Leonard-Cohen-Criminal-Cover-Up
In
June 2005, Neal Greenberg, Cohen’s investment and financial adviser, filed a
lawsuit against Leonard Cohen and his lawyer/manager, Robert Kory. Allegations
of blackmail, insurance fraud, conspiracy, and extortion were raised: “The
claims in the case -- on all sides -- get even more disturbing. The lawsuit
alleges that Cohen and Kory employed 'tactics to terrorize, silence, or
disparage' Lynch if she didn't take Cohen's side against Greenberg. One of the
suit's wildest-sounding charges accuses the pair of instigating an incident in
which the Los Angeles Police Department SWAT Team descended on Lynch's home and
arrested her in her bathing suit; later, Lynch was involuntarily admitted to a
psych ward and drugged. Lynch supplied documents and information to
support Greenberg's case against Cohen and Kory.”
http://www.westword.com/2005-06-30/news/hellalujah/full/
On
Aug 17, 2005, an article entitled “A Devastated Leonard Cohen” appeared in
Canada’s MacLean’s Magazine. This article was clearly coordinated with
the filing of Cohen’s lawsuit against Lynch. This article highlights the
sordid tale involving a “broke” Canadian music icon, lawsuits that were flying,
allegations of extortion, SWAT teams, forcible confinement, betrayal, and, tax
troubles.
http://www.macleans.ca/article.jsp?content=20050822_110877_110877
What
most of these articles failed to mention is the fact that Lynch had reported
the allegations of Leonard Cohen’s criminal tax fraud to the Internal Revenue
Service on April 15, 2005 and Cohen retaliated against her after spending
months attempting to force her into a settlement that would presumably involve
testifying that his advisers defrauded him, fraudulently induced him, and so
forth and so on. Leonard Cohen was by no means broke. In the fall of
2004, he received $1 million advance for the delivery of his studio album, Dear
Heather, was contractually committed and planned to tour; pursued a
multi-million lithograph deal Lynch had been negotiating; was planning to
release Book of Longing, and, had many other lucrative opportunities.
Cohen also had the option of repaying the loans and/or advances he took
from Traditional Holdings, LLC (the alleged “retirement” account) and other
entities.
The
MacLean's article addressed two intellectual property transactions and the use
of corporations and/or trusts to avoid an upfront tax hit: “From the
first sale, about $5 million was transferred to trusts that Greenberg had been
enlisted to manage and that would protect Cohen from an upfront tax hit.” It
also raises issues related to Cohen and Kory’s attempts to enlist Lynch’s
participation in their plan to go after Cohen’s advisers: “Greenberg's
suit alleges that when Lynch refused to participate, Kory and Cohen vowed to
‘crush her.’ It goes on to say their ‘tactics to terrorize, silence, or
disparage Lynch’ included threatening her that she would go to 'jail.’
“But he ran into a glaring, immediate problem: had he done nothing, he
would have legally been responsible for the funds that had gone missing. And on
that money, he'd owe millions in taxes, a sum he no longer had.” This
addresses Leonard Cohen’s motive. No funds had gone missing, including
Leonard Cohen’s millions in loans and/or advances that he has conveniently
concealed.
These
articles continually raise Leonard Cohen’s tax troubles which are the driving
force behind his targeting of Lynch.
On
August 17, 2005, MacLean’s ran a companion interview, entitled “Up Close and
Personal: Cohen's Lifestyle Seems Anything But Lavish,” written by awe-inspired
journalist, Brian D. Johnson: “Through interviewing him over the years,
I've developed a bit of a relationship with Leonard Cohen. That night he
told me what he'd hinted at months earlier in an email -- that he'd been stripped
of most of his assets, and was mired in a legal battle with his money managers,
who would accuse him of extortion. He said it would get nasty and personal, and
that his name would be dragged through the mud.” Cohen moved offensively
and has attempted to throw Lynch under the proverbial bus.
http://www.macleans.ca/culture/entertainment/article.jsp?content=20050822_110882_110882
Cohen,
a man with access to the news media, is an expert at manipulating the press and
dazzling adoring fans, sycophants, and others. Pico Iyer, who interviewed Cohen
for the Shambhala Sun’s September 1998 edition, describes some of the tricks
Cohen uses with the news media: “I could see the coyote trickster who’s been
working the press for three decades or more. I felt disconcerted, almost, by
his very niceness, his openness, his courtesy, as he continually kept thanking
me for ‘being kind enough to come here,’ and tended to my every need as if I
were the celebrity and he the poor journalist and referred to ‘what you’re nice
enough to call my career.’ I felt there was something excessive to his modesty,
his unusually articulate and quick-witted sentences bemoaning his lack of
articulateness and sharpness (‘I’m sorry. You get this kind of spaciness at
moments in retreats. They say zazen brings short-term memory loss.’), his
claiming not to know, after twenty years in L.A., how long it takes to drive to
Santa Barbara.” These are the tricks of Cohen’s trade and they work well in
courts of law, with law enforcement, jurors, and others. People are usually
spellbound by Cohen’s exceedingly studied “courtly good manners.” He uses
manners and props to disarm people. Some of those props include: popsicles,
tuna fish sandwiches, a stick of incense, his modest abode, worry beads, matzo
ball soup, Zen robes, expensive liquor, his valise, the word “darling,” and
Joshu Sasaki Roshi.
TAX
FRAUD
Because if they ruin her
credibility, well, that helps Mr. Cohen. And they have done everything in their
power to hurt Ms. Lynch’s credibility. (RT 45) They wanted to go and they went
and tried to hurt her economically and to put a restraining order so they
couldn’t have any contact during the litigation. That was their intent. That
was their purpose. (RT 45)
What
Leonard Cohen actually understood in the fall of 2004 was that his personal
manager, Kelley Lynch, was reporting his tax fraud to the Internal Revenue
Service. Lynch worked as Cohen’s personal manager (and in other capacities
although never as his business manager) since the death of legendary music
industry manager and attorney, Marty Machat, in April 1988 until October 21,
2004. Having suspected Cohen of tax evasion and other illicit activity, Lynch
naively informed a number of individuals that she intended to report Cohen’s
tax fraud (that she was told is criminal in nature) to the IRS and provide them
with evidence supporting the allegations. This decision followed inconceivably
bizarre conduct on the part of Leonard Cohen and his representatives. Much of
the extremely aggressive tax planning and evasion is documented in letters,
emails, documents, and memoranda.
In
September 2004, Lynch hired accountant Dale Burgess who referred her to the law
firm of DiMascio & Berardo. Lynch believed that Leonard Cohen had committed
tax fraud; used her egregiously as an unwitting pawn; employed a variety of
techniques to evade taxes; had a history of such conduct dating back until 1977
or earlier; and, appeared to have tax and residence problems in Canada as well
as the United States. In fact, one of Canada’s national treasures is
unable to reside in Canada.
In
mid-October 2004, Cohen (who had flown in from Montreal) and Lynch met
privately on a number of occasions. He appeared hysterical and demanded that
Lynch hand over the corporate books and records for Blue Mist, LC Investments,
LLC, and Traditional Holdings, LLC. Lynch refused. Cohen also demanded that
Lynch assist with the unwinding of these entities and offered her anything she
wanted. The issues Lynch addressed with her lawyers, accountant, and Leonard
Cohen are detailed in DiMascio & Berardo’s October 27, 2004 letter to
Richard Westin c/o the University of Kentucky Law School:
Re: Kelley Lynch, Traditional Holdings,
LLC; LC Investments, LLC; Leonard Cohen, et al.
Dear Mr. Westin:
This law firm has been retained by
Kelley Lynch to represent her interests in connection with various corporations
including, but not limited to, Traditional Holdings and LC Investments, LLC. We
will be working with Dale Burgess, Ms. Lynch’s CPA, to reconcile and correct
Kelley Lynch’s status as a corporate owner with significant tax liability and
to unwind Ms. Lynch’s involvement in Mr. Cohen’s businesses.
We note that you are the architect of
Mr. Cohen’s business structures and have had significant involvement with the
above-referenced limited liability companies. It is our understanding that you
will be in Los Angeles, California, the weekend of October 30 through October
31, 2004 and we would like to meet with you while you are in town to discuss
the structure of the above-referenced companies, significant transactions and
what we understand to be your position on Ms. Lynch’s current tax liability.
It would be appropriate to meet in our
offices on Saturday, October 30, 2004 at 10 AM as we believe we have a good
portion of the corporate documents in our offices. If you have any corporate
documents that belong to either of the companies, we would appreciate it if you
would bring these document when you travel to LA.
In addition, we have been advised that
Mr. Cohen has issued numerous threats to Ms. Lynch and members of her family
within the past 24 hours. We also understand that Mr. Cohen has tried to force
himself into Ms. Lynch’s office this morning, even though Ms. Lynch is not in
her office. Advise Mr. Cohen to immediately cease threatening Ms. Lynch and her
family members and to either call this office or have his lawyer call if there
are any personal items in Ms. Lynch’s office that he would like to retrieve.
Please contact this office at your
earliest convenience so that we can discuss the contents of this letter.
We look forward to hearing from you.
On
April 15, 2005, Lynch reported Cohen’s tax fraud to Agent Bill Betzer of the
IRS. Agent Betzer initially advised Lynch to bring the allegations of
fraud into the IRS with a lawyer. He then advised her to phone the IRS
Fraud Hotline which she did. Lynch also reported the tax fraud via an IRS
website and, due to the high profile nature of this matter and the aggressive
and abusive tactics being used against her, phoned the Internal Revenue Service
in Washington, DC. After receiving a confirmation from the IRS of her
complaint, in or around July 2005, Lynch began emailing the IRS Commissioner’s
Staff evidence. She also began documenting the destruction of her life,
targeting of her family and others, in emails for the IRS, FBI, DOJ, Treasury,
FTB, Doron Weinberg, Dennis Riordan, and others.
A
1977 memo, prepared for Leonard Cohen, addresses tax and residence strategies.
The memo argues that Cohen did not have to pay income taxes in Canada, Greece,
or the United States; cautions him that his stays in the U.S. should be
conducted under a non-resident H-1 visa; instructs him to funnel royalties and
performance income from outside the U.S. into a “tax haven” country; advises
him to continue to reside outside of Canada while accomplishing acts which
establish Canada as his domicile; and, appears to be a document that is nothing
other than a blatant blueprint for planning and committing tax fraud and
evasion.
Leonard
Cohen Tax Planning Memo to Bill Dubey/Elmer, Fox, Westheimer & Co., CPAs
from Ken Fratco dated August 22, 1977
Basis
for Taxation
Leonard Cohen has ties with several
jurisdictions which could serve as a basis for taxing income earned by him.
These jurisdictions are Canada, Greece, and the United States. I would like to
set-out the basis for taxation in each of these countries. Canada taxes the
world-wide income of its residents. Canada defines residents as those
individuals physically residing in Canada. Greece also taxes the world-wide
income of its residents; however, the Greek law defines residents as those
individuals who have an actual dwelling place in Greece and who are domiciled
in Greece. The U.S., on the other hand, taxes both citizens and residents on
their world-wide income. The U.S. definition of residents is much broader and
more encompassing than that of Canada or Greece. Any individual who resides in
the U.S, for other than on a temporary basis or any individual who considers
himself a domiciliary of the U.S., whether or not physically present in the U.S.,
is considered to be a resident of the U.S. All three countries tax income from
a source within their respective jurisdiction paid to non-residents; there are,
however several exceptions established by treaty.
Because of the facts of Leonard Cohen’s
case, a closer examination of what is considered U.S. source income and how it
is taxed is necessary. Any compensation paid by a U.S. corporation is
considered to be U.S. source income. If that compensation is paid in connection
with the performance of personal services in the U.S. by a non-resident alien
then such income is considered to be effectively connected with a U.S. trade or
business and is taxed at the graduated income tax rates which apply to citizens
and residents (IRC Sec. 871 (b)(1)).
If the non-resident alien does not
perform personal services within the U.S. then such compensation paid will be
taxable at a flat 30% rate (Reg. 1.864-3 and IRC Sect. 871(a)(1)).
Recommendations
Leonard Cohen, while remaining a
Canadian citizen, should continue to reside outside of Canada. He should,
however, from time to time, accomplish acts which establish Canada as his
domicile - the place he truly considers his home. Such actions, of course, must
not include actually staying in Canada for other than temporary, short-term
trips. Because Canada only taxes individuals who are residents, continued
citizenship and domicile will not subject him to Canadian taxes and will aid
him in preventing taxation by the U.S. or Greece on world-wide income.
Because the U.S. taxes non-resident
aliens on U.S. source income and because compensation paid from a U.S.
corporation is considered U.S. source income, only royalties and performance
income from services performed in the U.S. should be funneled into the U.S.
corporations. Royalties and performance income from sources outside the U.S.
will not be taxed by the U.S. as long as Leonard Cohen remains a non-resident
alien and as long as such income is not funneled through the U.S. corporation.
Leonard Cohen’s stays in the U.S. should
be continued under a non-resident visa (H-1 qualifies as such) and should be
temporary in nature. Temporary residents, even of long duration, merely for the
purpose of transacting business or engaging in employment is not sufficient to
establish residency. Hutchins v. Commissioner, 8 TCM December 18, 178. It
should be noted, however, that residing in the U.S. for one year sets up a
presumption of residency. Even though such presumption may be rebutted by
proper evidence Leonard Cohen’s stays should be monitored and should not extend
to a year. Income from royalties and performance income outside the U.S. should
be funneled through a corporation incorporated in a “tax haven” country. This
will prevent taxation by the U.S. and will most likely limit withholding by
other countries where royalties and performance income are earned.
As far as Greece is concerned, so long
as Leonard Cohen’s domicile can be established for being elsewhere, there is no
basis for taxing any income other than from Greek sources. The fact that
Leonard Cohen maintains a house in Greece and will, from time to time, stay in
Greece will not in and of themselves cause taxation. His trip to and ties to
Greece should be reviewed periodically to prevent any presumption of domicile.
While
Leonard Cohen’s 1977 tax planning memo advised him that his stays in the U.S.
“should be continued under a non-resident visa (H-1 qualifies as such) and
should be temporary in nature,” a review of his U.S. immigration history shows
that he entered the U.S. as a permanent resident on January 17, 1970. After
Marty Machat’s death in 1988, Cohen planned to return to Canada as a resident.
He abandoned his green card in 1989 and began carefully documenting the lengths
of his stays in both the United States and Canada. In 1991, due to the
residence and tax issues Cohen faced in Canada, Cohen began taking the steps
necessary (first through documents filed by Stranger Music as his employer) to
become a U.S. resident once again. On June 1, 1992 Cohen applied for permanent
residence with the U.S. Department of Justice. On January 5, 1993, Cohen filed
an Abandonment of Lawful Permanent Resident Status form and formally
surrendered his 1970 green card. Howard Kushner, an immigration attorney in
Niagara Falls, confirmed that Cohen had once again obtained Lawful Permanent
Resident Status in the United States. The stamp in Cohen’s passport was dated
July 4, 1993.
In
the fall of 1988, Leonard Cohen asked Kelley Lynch to consult her
brother-in-law, Canadian attorney F. Van Penick, about his residence and tax
status in Canada. Thereafter, Cohen frequently had Lynch consult Penick about
sensitive matters, including but not limited to, his concern about Canadian
statutes of limitations involving sex with a 15-year old minor; Freda Guttman
and Ann Diamond’s conversation about Lorca Cohen’s public statements (while
attending Concordia University) that her father molested her; and, the absurd
scenario whereby Cohen demanded a U.S. tax credit in exchange for the donation
of his body of work to the University of Toronto. Van Penick’s October 16, 1988
letter addresses the tax and residence issues that concerned Cohen at the time:
Letter
from F. Van Penick to Kelley Lynch dated October 26, 1988 re. Leonard Cohen's
Canadian Residence & Tax Issues
Dear Kelley:
It doesn’t speak too well of me to have
my first communication with my sister-in-law to be a starch-fronted exposition
on Canadian residence (and I hope you will let us make amends when you visit
Halifax), but here it is:
1. “Residence” may have different
definitions for different purposes; 2. For Income Tax purposes, if you are
resident in a country which levies Income Tax, then generally your tax is
calculated on your world-wide income from all sources. If you are not, you will
be taxed only on the income derived from that country, for example, capital
gains on the sale of real estate in that country or evidence income from a
corporation resident in that country. Accordingly, the residence status is
crucial; 3. Residence is not a defined term but will be determined as a
matter of fact, ultimately by a judge; 4. Factors in the residence equation
are: a) location of dwelling places; b) location of spouse and dependents; c)
location of personal property and social ties; d) intention to be resident in a
particular country, shown, for example, by renting out your home (not selling
it) and retaining your resident club memberships when you move to another
country; 5.
Everyone must be resident somewhere and you can have more than one residence;
6. These principles are applied fairly consistently in most countries; 7. If
you leave a country in which you were resident, it is generally by a more
difficult test that your loss of residence will be determined; 8. If you leave
a country in which you were resident but maintain an intention to return, you
will continue to be resident in that country throughout your absence; 9. The
only good news in all of this is that return to a country in which you were,
but have ceased to be resident, does not automatically mean that you must have
intended to return during your entire absence.
These are general principles and should
only serve as a guide to anyone’s actual reference. In an effort to emphasize
this point, to encourage future work for lawyers and accountants and to protect
ourselves against undesirable claims, we caution you to seek and obtain
specific professional advice based on full knowledge of all relevant residence
criteria.
Babs, Douglas, Emma, and I look forward
to meeting you and Rutger, and I hope you will let me know if I can bore you
further on the question of residence.
Yours very truly.
F. Van Penick
According
to Cohen, the risks he faced with respect to Canadian tax and residence issues
were the fact that he owned a home in Montreal, Quebec; owned numerous
properties in Montreal; maintained a Canadian bank account; had a paid
assistant (Lee Taylor) in Montreal; was a member of Congregation Shaar
Hashomayim in Montreal; was a member of SOCAN, the Canadian performing rights
society; had grave concerns about being viewed as a Canadian roster artist by
Sony Music; was one of the only artists on the Sony roster who was not signed
to his home country (Canada); and had other badges of residency. Cohen’s high
profile awards from the Canadian government and recording industry also became
increasingly problematic: 1989 nominated for Juno Awards for Canadian
entertainer and male vocalist of the year; 1991 appointed Officer of the Order
of Canada; 1991 inducted into the Canadian Music Hall of Fame; 1991 nominated
for a Juno Award for songwriter of the year; 1992 honorary degree from McGill
University, Montreal; 1993 June Award for male vocalist of the year; and, the
1993 Governor General Award for Lifetime Artistic Achievement. The Order of Canada
recognizes the achievement of outstanding merit or distinguished service by
Canadians who made a major difference to Canada through lifelong contributions
in every field of endeavour, as well as the efforts made by non-Canadians who
have made the world better by their actions. Membership is thus accorded to
those who exemplify the order's Latin motto, taken from Hebrews 11:16 of the
Bible, desiderantes meliorem patriam, meaning “they desire a better country.”
Cohen
decided that returning to Canada was simply too risky. According to Cohen, the
deciding factor in his decision to reapply for a U.S. green card was the fact
that Canada Revenue asks where you paid your prior year’s taxes while Internal
Revenue Service does not. Marty Machat’s death in April 1988 afforded Cohen the
ideal opportunity to unwind his residence and tax issues. Cohen, who has a long
history of falsely blaming advisers and others, shamelessly began bad-mouthing
Mr. Machat after his death. He has a long history and pattern of falsely
accusing people, particularly his representatives, of ripping him off in an
attempt to breach contracts. In fact, Cohen appears to have defrauded Steven
and Marty Machat, Phil Spector, and possibly record producer Bob Johnston.
http://www.scribd.com/doc/57415308/Kelley-Lynch-s-Conversation-With-Steven-Machat-Leonard-Cohen-and-Phil-Spector
Immediately
following Mr. Machat’s death in April 1988, Leonard Cohen and his
representatives began addressing many problematic issues: closing off-shore
holding accounts (through which royalty income was funneled); resolving issues
with respect to Cohen’s numerous social security numbers; addressing the
allegedly inadvertent assignment of certain recording contracts to Leonard
Cohen Productions, Ltd. (Nevada) with Sony; purchasing his partners’ shares of
a residence located on Tremaine Avenue, Los Angeles, California; creating an
entity known as Leonard Cohen Productions, Inc. (Delaware) in June 1988;
carefully documenting his stays in both the U.S. and Canada (so as not to stay
longer than 6 months in either country while he and his representatives sorted
his residence/tax problems out); changing the name of Leonard Cohen
Productions, Inc. to Blue Mist; changing the name of Stranger Music, Inc. to
Leonard Cohen Stranger Music, Inc.; registering Blue Mist to do business in
California; enrolling his daughter in a high school in Los Angeles; encouraging
his son to relocate to Los Angeles; ultimately closing his Swiss bank account;
and, establishing a high-profile media relationship with Mt. Baldy Zen Center
in California; etc.
While
these details were made apparent and evident to Lynch over the 20 plus years
she knew and worked with Cohen, as of 1993, he seemed to temporarily resolve
his U.S. and Canadian residence/tax problems. In or around 1996, that would
change when he, Neal Greenberg, and Richard Westin met and decided to work
together.
As
of 1991, Cohen had abandoned his green card, decided not to return to Canada,
planned to re-apply for U.S. permanent residence status, and was forced to
confront problems involving his numerous social security numbers and previously
filed U.S. tax returns. Cohen’s accountant, Burt Goldstein, resolved this
dilemma with the Internal Revenue Service. Cohen testified at Lynch’s 2012
trial that he didn’t realize an individual could change their social security
number and yet he personally had done so.
Letter from Ken Eisner/Burton Goldstein
to Kelley Lynch dated April 19, 1991 re. Leonard Cohen's Social Security Number
& Tax Returns
Dear Kelley:
I visited the Internal Revenue Service
this morning and discussed with them the quickest method to resolve Leonard
Cohen’s social security number problem. They assured me that if Leonard signs
this Power of Attorney and sends me a copy of his social security card that I
can resolve this matter with a letter to the Philadelphia office of the
Internal Revenue Service.
If I provide the new number
[614-xx-xxxx] we can correct both the returns that you sent me and prior years
returns that employed the social security number 225-xx-xxxx.
Please send me the signed Power of
Attorney and card as soon as possible.
Thank you for your assistance.
Very truly yours,
BURTON GOLDSTEIN
Kenneth J. Eisner
Over
the years, Lynch wondered about Cohen’s tax and residence problems. He always
had a plausible explanation or excuse. When Cohen, Greenberg, Westin, and
others, began discussing extremely aggressive tax planning techniques, Lynch
once again became concerned.
In the fall of 2004, after hearing
that Lynch was reporting his tax fraud to the IRS, Cohen began to scheme. He
falsely accused Lynch of a number of things including having sex with Oliver
Stone, Richard Rutowski, and his tax lawyer - in a clear attempt to stir up a
custody matter with her younger son's father; attempted to force her into a
settlement agreement that involved unwinding certain entities and probably
lying about others; offered her palimony (50% community property); attempted to
engage her in criminal activity - including what she believed to be fraud,
extortion, conspiracy, insurance fraud, and obstruction of justice; and, has
used utterly abusive legal tactics against her that have permitted him to
obtain court orders, a default judgment, and a verdict through the use of
fraud, perjury, concealment, and lies. All of this was done in an effort to
conceal his long history of wrong doing. Cohen has publicly noted that his
reason for legally pursuing Lynch was his major tax hit. Cohen has also used
highly abused restraining orders in an attempt to silence Lynch; prevent her
from addressing litigation and business matters; prohibit her from addressing
matters related to various corporate entities; prevent her from requesting IRS
required form 1099 for the years 2004 and 2005; prohibit her from asking that
illegal K-1s issued by LC Investments, LLC, an entity wholly owned by Leonard
Cohen, be rescinded; prevent her from requesting a complete and proper
accounting; obstruct her demands for payment for work she has done; advise
Cohen to cease and desist with respect to the slander, defamation, and false
statements he continues to disseminate, etc. The restraining orders now prevent
Lynch from addressing many of these issues and have placed her in a position
where she is unable to file her 2004 and 2005 federal and state tax returns or
amend others wrongfully altered by the default judgment. The entire situation
has exposed Lynch to blackmail, extortion, false accusations, slander,
defamation, and threats.
When Cohen retaliated against Lynch
by filing the complaint in the instant matter, he clearly understood that there
was a pending proceeding in the U.S. District Court for the District of
Colorado: Greenberg & Associates, Inc., et al. vs. Leonard Cohen, et al.,
Civil Action No. 05-V-1233-LTB-MJW. Greenberg & Associates filed suit
against Cohen and his lawyer, Robert Kory, raising allegations related to
extortion and conspiracy. Lynch was a witness to matters involving Cohen and
Kory’s attempts to extort monies from Greenberg and Westin, possibly others,
and their insurance companies. Lynch was deeply disturbed when Robert Kory
personally advised her that Arthur Indursky, Don Friedman, Stuart Fried, and
Greg McBowman committed fraud in the inducement. Nothing could be further from
the truth. At the time Cohen filed his proceeding against Lynch in Los Angeles,
he was aware that she had reported his tax fraud to the IRS and State of
Kentucky Revenue Cabinet. Greenberg’s lawsuit against Cohen was on June 5, 2005
in the Boulder County Court. The Complaint in the instant matter was filed on
August 15, 2005, nearly two full months later. Greenberg’s lawsuit was removed
to the U.S. District Court in Denver on July 1, 2005. The complaint was
subsequently amended on August 2, 2005 and May 23, 2006, following the entry of
the default judgment against Lynch.
The
following article appeared in Billboard Magazine on or around March 3, 2006.
Based on this, and other inaccurate accounts repeated in the news media, Lynch
(who was homeless at the time) believed that the default judgment had been
entered against her. Lynch did not siphon any monies from Cohen's accounts; his
nest egg was not reduced to $150,000; Scott Edelman and Robert Kory refused to
take Lynch's calls during litigation; Cohen never made arrangements with Lynch
to pick up the boxes she stored as a courtesy for him (including after her
lawyers wrote Westin that Cohen should contact them regarding any belongings he
would like to arrange to pick up); and, Lynch did not hire Westin or any other
representative of Cohen‘s. Leonard Cohen personally hired both Neal Greenberg
and Richard Westin. He then proceeded to wrap them in attorney/client privilege
with him, essentially leaving Lynch in the dark as to their activities and
ulterior motives. Lynch remains unaware of the details of the mediations
between Westin and Cohen and the settlement that reached in this matter.
The details of that settlement agreement, which may involve further false
accusations against Lynch, are clocked in secrecy. Leonard Cohen evidently
obtained a substantial settlement from Westin.
Billboard Magazine - Cohen's Ex-Manager
Ordered To Pay $9.5 Million: Singer/songwriter Leonard Cohen may never
see $9.5 million a court ordered his former business manager to pay after she
failed to respond to allegations of stealing from his savings, Cohen's attorney
said yesterday (March 2). A California Superior Court judge granted Cohen, 71,
the default judgment Monday against Kelley Lynch in response to a lawsuit
alleging she siphoned $5 million from the musician's personal accounts and
investments. By late 2004, the suit alleges, his nest egg was reduced to about
$150,000. Cohen, known for such reflective songs as "Suzanne," may
never be able to collect, according to his attorney, Scott Edelman. "She's
hard to get in touch with. I don't know where she lives now, and I don't have a
phone number for her," Edelman said. "We don't know what she did with
the money ... But she knows what's going on because she leaves me phone
messages at all hours." Lynch could not be located for comment. Another
defendant in the suit, tax professor and lawyer Richard Westin, reached an
out-of-court settlement with Cohen on Feb. 13, details of which were not
revealed. Lynch allegedly hired Westin to help defraud Cohen. Westin's attorney
did not immediately return calls for comment. "Leonard is sad that this
whole thing took place, but glad that this leg of the litigation is
completed." Edelman said. "He would prefer to spend his time on his
creative endeavors. Copyright March 2006 Associated Press.
Cohen,
Kory, Greenberg, Westin, and others, endeavored to obstruct justice, acted
corruptly, and had the specific intent to interfere with a number of
proceedings. Cohen’s conduct had the natural and probable effect of interfering
with various proceedings (as evidenced by the use of the default judgment
against Lynch in an attempt to assassinate her character and discredit her).
Furthermore, Cohen, Kory, Steven Clark Lindsey (the father of Lynch‘s younger
son), and others, have threatened Lynch with jail since 2005. With the
assistance of the City Attorney and District Attorney of Los Angeles that plan
was put into action when Lynch was arrested on March 1, 2012 in Berkeley,
California. The District Attorney’s role relates to Phil Spector.
Lynch has known Phil Spector for over 30 years, was dragged into his
trials by the District Attorney’s office, was very public about the fact that
Leonard Cohen lies about Phil Spector, and, she filed a complaint with the DA’s
Major Fraud Unit regarding Cohen’s fraud and theft with respect to her.
THE
MT. BALDY PHASE
Cohen's
Complaint alleges that: “In late 1994, after completing a successful tour
following his album release in 1993, Cohen decided to spend some time at the
Mount Baldy Zen Center in Los Angeles, California. Cohen remained there for
nearly five years leading a life of rigorous religious discipline. Cohen left
the Zen Center in January 1999.” This is an entirely misleading and
self-serving allegation. It is also blatantly false as Cohen was actively
involved in his business and artistic affairs throughout this entire period and
most definitely in constant contact with Lynch. In fact, he testified at
Lynch's 2012 trial that they were in touch with one another on a daily basis.
From
approximately 1994 through 1999, Cohen went through his Mount Baldy phase. He
had a contractually obligated studio album due and was working on a book of
poems, drawings, and other business and artistic endeavors. During Cohen’s Mt.
Baldy phase, he frequently stayed in Los Angeles where he recorded material for
a number of albums, devoted time to his artwork (including album artwork),
worked with Lynch on cataloguing his body of work, micro-managed these deals,
and, was actively involved with his business affairs. This was most certainly
not a Buddhist retreat. Some of Cohen’s endeavors are summarized in interviews
and articles from that period. Cohen released two live album, promoted his book
Stranger Music: Selected Poems and Songs, worked on and completed material for
his 2001 studio album and 2005 book of poems, "Ten New Songs" and
"Book of Longing," devoted time to artwork he planned to sell,
participated in the 1996 documentary, "Leonard Cohen: Printemps 96,"
began submitting material to the Leonard Cohen files "Blackening
Pages" section (which he understood was a valuable marketing tool), and
micro-managed these deals.
During
his Mt. Baldy phase, Cohen remained exceedingly involved in the marketing and
promotion of his work. Contrary to his cover story, Leonard Cohen was
most definitely not in a strict Buddhist retreat. He frequently stayed in
Los Angeles, was constantly in contact with Lynch, and spent a great deal of
time at Lynch’s office. While Cohen did have a deluxe guest cabin
and took formal monks’ vows renouncing all material possessions, Mt. Baldy
served as the perfect environment for Cohen to complete work on his music and
poetry, entertain the news media, and participate in a documentary. Cohen’s
deluxe guest cabin included a computer, fax, phone, and portable recording
unit, and other items one would be hard pressed to find in any retreat
environment.
Lynch
was convinced that Leonard Cohen’s tax strategies were undertaken for the sole
purpose of evading taxes.
THE
ENTITIES
Anyone
who assisted me with the business was hired or engaged by Ms. Lynch.
So
any accountants would have been hired by Ms. Lynch? Leonard Cohen: Correct. (RT
272)
The
corporations DiMascio & Berardo referred to in their October 27, 2004
letter include but are not necessarily limited to:
Leonard Cohen Productions, Ltd.,
a Nevada corporation, was formed on or around May 15, 1970, and evidently had
been assigned certain record contracts between Leonard Cohen and Sony/Columbia.
After Marty Machat’s death, Cohen advised Sony/Columbia that his recording
agreements had been inadvertently assigned to this entity.
Stranger Music, Inc.,
a New York corporation, was formed on February 27, 1967, and owned certain
compositions. On September 28, 1990, Stranger changed its name to Leonard Cohen
Stranger Music, Inc. (“Stranger Music”). Stranger Music, according to Cohen,
was wholly owned by him.
Stranger
Music, Inc. was an “S” corporation within the meaning of Section 1361(a) of the
Internal Revenue Code at all times from February 1, 1990 through November 10,
1996. The IRC prohibits non-residents from being shareholders of an “S”
corporation. Shareholders are restricted to individuals who are citizens of the
United States or resident aliens. This restriction is explicitly stated in the
IRC at section 1361(c). A nonresident alien cannot be a shareholder of an “S”
corporation due to the fact that profits and losses pass through to a
shareholder's personal income tax return in proportion to his or her ownership
interest and are taxed at the individual tax rate. A nonresident alien does not
pay taxes to the United States; he/she pays taxes to his own country. Leonard
Cohen obtained a green card in 1970; abandoned his green card in 1989; and did
not obtain a new green card until 1993. Cohen, therefore, an unlawful
shareholder of an “S” corporation from approximately 1989 until sometime in
1993. Cohen also has a pattern of engaging in what appears to be unlawful
and/or criminal conduct.
Leonard Cohen Productions, Inc.
(“LCPI”), a Delaware corporation, was formed on June 23, 1988. In March 1993
LCPI changed its name to Blue Mist Touring Company, Inc. Blue Mist registered
as a foreign entity in California on March 18, 1993 and its status has been
forfeited. According to the California Secretary of State’s website, Blue Mist
lists its business address as 419 N. Larchmont Blvd., #91, Los Angeles, CA
90004. This address was Kelley Lynch’s former business PO Box. Lynch continues
to be listed as the registered agent.
Entity Name:
|
BLUE
MIST TOURING COMPANY, INC.
|
Entity Number:
|
C1854203
|
Date Filed:
|
03/18/1993
|
Status:
|
FORFEITED
|
Jurisdiction:
|
DELAWARE
|
Entity Address:
|
419
N LARCHMONT BLVD STE 91
|
Entity City, State, Zip:
|
LOS
ANGELES CA 90004
|
Agent for Service of Process:
|
KELLEY
LYNCH
|
Agent Address:
|
1044
S KENISTON AVE
|
Agent City, State, Zip:
|
LOS
ANGELES CA 90019
|
LC Investments, LLC, a Delaware LLC,
was formed on October 19, 1999. It was specifically created to facilitate a
bond securitization deal as UCC Lending Corp/CAK Universal Credit Corp. (“CAK”)
demanded a bankruptcy-proof entity. LCI, a Delaware LLC, registered as a
foreign entity in California on November 9, 2000 and its status is active.
According to the California Secretary of State’s website, LCI lists its
business address as 419 N. Larchmont Blvd., #91, Los Angeles, CA 90004. This is
Kelley Lynch’s former business PO Box. Kelley Lynch continues to be listed as
the registered agent.
Entity Name:
|
LC
INVESTMENTS, LLC
|
Entity Number:
|
200032610011
|
Date Filed:
|
11/09/2000
|
Status:
|
ACTIVE
|
Jurisdiction:
|
DELAWARE
|
Entity Address:
|
419
N. LARCHMONT BLVD., #91
|
Entity City, State, Zip:
|
LOS
ANGELES CA 90004
|
Agent for Service of Process:
|
KELLEY
LYNCH
|
Agent Address:
|
419
N. LARCHMONT BLVD., #91
|
Agent City, State, Zip:
|
LOS
ANGELES CA 90004
|
The
purpose for which the Company was organized “is to engage exclusively in any of
the following activities: 1) to execute and perform under a loan agreement …
with the Lender and enter into the other Loan Documents.” This language relates
to the CAK deal Leonard Cohen was examining.
Traditional Holdings, LLC,
a Kentucky LLC, was formed on December 18, 2000. Traditional Holdings failed to
register as a foreign entity in California and had no ties to California.
Richard Westin is listed as the Kentucky registered agent. The State of
Kentucky lists Leonard Cohen and Kelley Lynch as members.
General Information
Organization
Number
|
0507175
|
|
Name
|
TRADITIONAL
HOLDINGS, LLC
|
|
Profit
or Non-Profit
|
Unknown
|
|
Company
Type
|
KLC
- Kentucky Limited Liability Company
|
|
Status
|
I
- Inactive
|
|
Standing
|
B
- Bad
|
|
State
|
KY
|
|
File
Date
|
12/18/2000
|
|
Organization
Date
|
12/18/2000
|
|
Expiration
Date
|
12/30/2050
|
|
Last
Annual Report
|
9/3/2003
|
|
Principal
Office
|
3141
WARRENWOOD WYND
LEXINGTON,
KY 40502
|
|
Managed
By
|
Managers
|
|
Registered
Agent
|
RICHARD
A. WESTIN
3141
WARRENWOOD WYND
LEXINGTON,
KY 40502
|
Current Officers
Member
|
||
Member
|
Individuals / Entities listed at time of formation
Organizer
|
The
Articles of Organization refer to Lynch and Cohen’s capital contributions with
respect to this entity. According to these Articles, Lynch owns 100% of
Class B common shares and 99.5% of Class A common shares. Cohen owns .5%
of Class A common shares. No membership interest may be “assigned” without
the consent of a majority in interest. The LLC is governed by the laws of
the State of Kentucky.
Traditional
Holdings was administratively dissolved by the State of Kentucky on November 9,
2004.
Old Ideas, LLC,
a Delaware LLC, registered as a foreign entity in California on April 26, 2011
and its status is active. According to the California Secretary of State’s
website, Old Ideas, LLC lists its business address as c/o Robert Kory, 9300
Wilshire Blvd., Suite 200, Beverly Hills, CA 90212. Robert Kory is listed as
registered agent.
BACKGROUND
THE DEALS
"I
was representing myself at this point. [Cohen took over his own affairs after
the death of his lawyer.] That was very refreshing and made them rather uneasy
because usually the artists don't come in and negotiate the contract. I started
undertaking that function. I found it very invigorating and refreshing. I'll
never let a lawyer do that for me again. This is one of the bonuses of the
whole enterprise, to actually sit with the guys and talk about how much you're
worth."
The
Stranger Music of Leonard Cohen” by William Ruhlmann
Goldmine,
February 19, 1993
A brief history of how the
intellectual property deals and Cohen’s aggressive tax and corporate strategies
came into existence is extremely relevant to the adversarial situation Lynch
now finds herself in with respect to Leonard Cohen and many others.
In
or around 1994, Leonard Cohen became vitally interested in selling his
intellectual property. At least four entities were used as the proposed
vehicles with which to pursue intellectual property sales and to achieve
Leonard Cohen’s entirely aggressive tax planning goals: Stranger Music, Blue
Mist, LCI, Traditional Holdings, and Old Ideas. The entities essentially served
the following functions: Blue Mist, Old Ideas, LLC, and possibly other
entities, own all the intellectual property assets; Leonard Cohen, LCI, and
possibly other entities, collected the royalty income; and, Traditional
Holdings, and possibly other entities, sold intellectual property assets to
Sony that it did not own or have the right to sell. It was and remains Lynch’s
unshakeable conviction that these steps were taken in an attempt to evade
ordinary income taxes and remain under the radar of the Internal Revenue
Service, State of Kentucky, and Franchise Tax Board. Lynch eventually heard
from Cohen’s lawyer, Robert Kory, that there was tax fraud on every Cohen
related entity, including Stranger Music.
Throughout
the 1990s, the entertainment industry underwent a flurry of activity with
companies actively purchasing music catalogues and pursuing bond securitization
deals. Of great importance to Cohen was the fact that he had released two of
his most successful albums, “I’m Your Man” and “The Future” in 1988 and 1992
and understood the importance of including those sales figures in any potential
asset sale/bond securitization deal. In 1997, investment banker
David Pullman entered into a high profile $55 million bond securitization deal
with David Bowie that became known as the Bowie Bond. The bonds were securities
backed by current and future revenues related to intellectual property rights.
The intellectual property owner received a securitized loan. Bowie’s
intellectual property assets were bought for US$55 million by the Prudential
Insurance Company of America. Deals with other artists, such as James Brown,
Ashford & Simpson, the Isley Brothers, and songwriting team
Holland-Dozier-Holland followed. Charles Koppelman, former chairman of EMI
Records Group North America, founded CAK Universal Credit Corp. that also
offered bonds to famous individuals in the entertainment industry.
The
late 90s also saw an unforeseen internet phenomenon that would send chills
throughout the entertainment industry. In June 1999, Napster was introduced as
a pioneering peer-to-peer file sharing internet service that allowed people to
easily share their digital files. Due to the outrageous international success
of Napster (who at one point had approximately 1 billion users) artists,
labels, studios, and politicians became exceedingly concerned about the future
of the entertainment industry and the damage to potential sales. This is an
extremely relevant footnote to the matter at hand as Leonard Cohen was keenly
aware of this phenomenon and had grave concerns about digital downloading and
the future of the music industry itself. This is what motivated Cohen with
respect to the 2001 sale of intellectual property.
Sometime
around 1996, financial and investment adviser Neal Greenberg, an alleged
Buddhist, visited Los Angeles to meet His Holiness Kusum Lingpa. At that time,
Kelley Lynch, Oliver Stone, and others, sponsored a Buddhist center for His
Holiness. Cohen and Greenberg became acquainted with one another during that
visit. Cohen liked Greenberg immensely, decided to work with him, and, hired
Greenberg and his investment companies to help structure the deals Cohen was
interested in pursuing; propose strategies to reduce or evade taxation; advise
Cohen on business and financial matters; and, ultimately invest the proceeds
from the sales. Lynch did not know Greenberg well, was friendly with his
ex-wife, and had heard rumors about his shady business dealings, possible
securities violations, sexual harassment of her friends, and abusive treatment
of his employees. She discussed these matters with Cohen who seemed unfazed.
Cohen and Lynch phoned Greenberg’s client, Peter Goldfarb, for confirmation
that Greenberg had successfully invested his substantial assets. Once this was
confirmed, Cohen decided to invest with Greenberg. Greenberg brought two
lawyers onboard to assist him: Richard Westin, who would become Cohen’s
personal tax lawyer, and Ed Dean. Westin represented Cohen until approximately
April 2005.
In
anticipation of the sale of certain intellectual property assets to Sony/ATV,
Leonard Cohen, Richard Westin, Neal Greenberg, Ed Dean, and others,
restructured Stranger Music and issued stock to the Leonard Cohen, Cohen Family
Charitable Remainder Trust, the Sabbath Day Trust, and the Mt. Baldy Zen
Center. According to Cohen, he was the sole shareholder of LCSMI.
Leonard
Cohen’s letter from the summer of 1996 addressed the questionable assignment of
copyrights to his d/b/a Bad Monk Publishing Company ("Bad Monk").
Cohen and Westin took the position that the copyrights were inadvertently
assigned to Bad Monk and should be assigned “back” to Stranger Music. This type
of questionable activity with respect to the assignment, transfer, and/or
removal of copyrights to and from various entities was a constant cause of
concern to Lynch, as were the holding periods. At their luncheon in the spring
of 2005, Kory confirmed that the holding periods were “illegal.” The
letter, addressed to Lynch, reads as follows: “Dear Kelley: Based on the
advice of Richard Westin, I do feel, as I did from the beginning, that a
mistake has been made with respect to the assignment of the copyrights to Bad
Monk Publishing due to poor legal advice. Peter Shukat should be instructed to
correct this error by assigning the copyrights back to the corporation.
Needless to say, I am highly disappointed at having received such advice
particularly in light of the fact that I questioned the assignment of these
copyrights to Bad Monk from the moment it was brought to my attention and
suggested. Sincerely, Leonard Cohen .” On July 9, 1996, due to Cohen’s
concern about these assignments to Bad Monk, the copyrights were transferred to
Stranger Music. These copyrights were part of the 1997 Stranger Music sale to
Sony/ATV and Cohen. On October 30, 1996, also in anticipation of the 1997
Stranger Music sale to Sony/ATV, Cohen created two charitable remainder trusts:
the Sabbath Day Charitable Trust (the "Sabbath Day Trust") and the
Cohen Family Charitable Remainder Trust (the "Cohen Family Charitable
Remainder Trust") (collectively, the “Trusts.”).
Other
suspect, and potentially illegal, conduct was continuously raised by Cohen and
his representatives. That would include, but is not limited to, self-dealing,
collapsible corporations, pre-payments or down payments handled as loans for
tax purposes, the assignment of personal service contracts to corporate
entities, the need for Cohen’s loans to be documented with promissory notes and
the failure to document them, the possibility that the Internal Revenue Service
could view these corporate entities as shell corporations and the transactions
themselves as sham transactions, and so forth and so on.
Ed
Dean’s fax of November 1996 raises issues with respect to Cohen’s charitable
remainder trusts, the tax-exempt status of these trusts, and self-dealing. The
relevant parts of Ed Dean’s letter are as follows: “I am confident that the IRS
could not successfully argue that the charitable trusts are receiving
compensation income or unrelated business taxable income that would disqualify
them for tax-exempt status. Also, since none of Leonard’s new album obligations
affect the amount of sales proceeds payable to the trusts I do not believe we
face a potential self-dealing issue either, especially since I am signing all
agreements as an independent trustee.”
Leonard
Cohen’s November 20, 1996 letter to Scott Francis (Sony/ATV) is further
evidence that he is knowledgeable of and articulate about contractual
obligations and deal points. In this letter, Cohen urges Sony to address their
“matching rights” with respect to the 1997 Stranger Music deal that had been
negotiated with BMG for approximately a year. Cohen was the driving force
behind these deals: “Dear Scott Francis, I know you are very busy in
Spain but I would appreciate swift action on the part of Sony in regard to
their matching rights. You must understand that much is at stake for me at this
moment. I would appreciate a swift reply. Sincerely, Leonard Cohen”
On
June 27, 1997, the Stock Purchase Agreement between Leonard Cohen, Cohen Family
CRT, Sabbath Day CRT, Mt. Baldy Zen Center and Sony/ATV was fully executed. The
assets Stranger sold consisted of musical works written by Leonard Cohen, all
copyrights therein throughout the world, and, other rights and interests
therein.
Since
Marty Machat’s death in 1988, Steven Machat has alleged that Machat &
Machat owned 15% of Stranger Music, Inc. After Lynch and Cohen parted
ways, she found a number of letters from Marty Machat to Carter/Irving Trust,
New York City, New York. One letter transmitted Machat & Machat’s check for
$30,000 representing Machat & Machat and record producer Bob Johnson's
respective 15% interest in Stranger Music. This evidence supports Steven
Machat’s position that Machat & Machat owned 15% of Stranger Music, Inc.
and the intellectual property owned by that entity. Cohen concealed this
information from Lynch throughout the negotiations and sale of the stock of
Stranger Music to Sony/ATV.
Marty Machat’s letter to Cannon
Carter/Irving Trust, NYC dated November 25, 1970
Dear Cannon:
The following are the relevant details
on Stranger Music, Inc. Stranger Music, Inc. is presently owned by a client of
ours, Leonard Cohen, who owns 70%. I own 15% and Bob Johnston of Sincere
Productions, Inc. owns 15%. In order to acquire this ownership we recently
purchased 49% of the stock of the company for $130,000. Therefore, in my most
conservative opinion, the company is worth in excess of $300,000 but I believe
it is worth in excess of $500,000.
We have paid $50,000 on account of the
purchase and owe $30,000. The $30,000 is due December 1st and the balance of
$50,000 is payable $25,000 on July 1, 1971 and $25,000 December 1, 1971. In
1971 we have in excess of $85,000 in foreign advances coming in in addition to
current income for mechanicals and performances which exceed $50,000 a year.
Since it is a recent acquisition and we
have changed accountants it will be a little while before I can get you a
financial statement on the company.
As I advised you, we intend to borrow
$30,000 in order to meet the payment due December 1st of $30,000. The $30,000
will be repaid as follows:
a. I have been advised by Leonard Cohen
that our French sub-publisher has applied through his bank in France for the
transmittal of $15,000 which should be in your hands momentarily;
b. The balance of $15,000 will be paid
out of current earnings of the company.
Therefore, I would appreciate it if you
would place the loan of $30,000 on the books of Stranger Music Inc. for which I
enclose a promissory note.
Sincerely,
Martin J. Machat
An
alarming a number of tax inquiries, audits, and demands for tax returns followed
the close of the Stock Purchase Agreement on June 27, 1997. Leonard Cohen
continued to aggressively pursue intellectual property deals, including a bond
securitization deal with both David Pullman and CAK.
On
June 30, 1998, Lynch received an outrageous fax from Cohen. Lynch had
accompanied Adam Cohen (Cohen‘s son), whom she managed, to Toronto for a press
junket. She also met with Corky Laing (drummer for the band “Mountain“) who was
working with Alliance Canada on intellectual property purchases. Cohen was
jealous of Corky Laing and many other individuals Lynch did business with.
Lynch’s meeting with Laing ran late and this caused her and Adam Cohen to miss
their flight to Los Angeles. This fax also proves that Leonard Cohen was
obsessed with every aspect of these deals: “Dear Kelley, I did wonder for
a while (until I remembered who it was) about that call I was supposed to get
after your meeting with Alliance. Multi-million dollar deals in the air still
manage to capture my attention, although I realize they must be peanuts to you.
And you did mention (several times) that you’d be in the office Tuesday
morning, so I came down [from Mt. Baldy] last night in order to talk to you
this morning. I’m back on the mountain now. News about Adam’s performance on
that important Canadian TV show would have been welcome, but not obligatory.
It’s tough to get to a phone in Toronto, and I know how late into the night
these meetings with The Artist and The Executives can run. And the airports are
a mess. I miss you, too. Leonard”
Leonard
Cohen’s arrogance, aggression, jealousy, and misogynistic tendencies are all
self-evident in this letter. Furthermore, Adam Cohen would have been the
individual to report back to his father the details of his performance in
Canada - not Lynch. Leonard Cohen micro-managed his business affairs and
exerted extreme control over Lynch.
Concerns
about the effect of a stock purchase rather than an asset purchase plagued the
negotiations. Based on Leonard Cohen’s personal demands, these matters were
handled by Neal Greenberg, Richard Westin, and others. The following letter
addresses some of the concerns potential buyers had with respect to Cohen’s
insistence upon the sale of stock rather than a straightforward asset deal. The
unattractive and problematic stock deals limited the parties willing to
purchase the intellectual property assets and reduced the potential sales
price. The stock deals also substantially reduced Lynch’s commissions.
A
fax from Jonas Herbsman/Shukat to Richard Westin dated February 6, 1998
addresses the tax issues related to the sale of the writer‘s share of
publishing: “Dear Richard: The tax advisors at Sony have informed us that
they will incur a substantial tax liability in the event they purchase stock in
the company instead of purchasing the writer’s share from Leonard directly.
They believe under the old tax law this would not have been the case, but under
the revised tax law this is the case. Would you please call Frank Caveney at
Sony #. He is in the Sony accounting department and he will direct you to the
appropriate person to discuss this issue with. Regards.”
During
the CAK negotiations and due diligence process, Cohen and his representatives
continued to engage in negotiations with other parties (including Sony Music)
interested in acquiring certain properties and/or rights. Ultimately, CAK
offered to advance Cohen $5.8 million as part of a proposed loan transaction.
This was a highly attractive offer that ultimately permitted Cohen to maintain
ownership in the intellectual property assets while off-setting taxes until the
royalties were paid through over a period of years. Sony, Leonard Cohen’s
record label, was opposed to a potential bond securitization deal and took the
position that these types of bond deals potentially interfered with their
relationship roster artists. The bond securitization deal Cohen contemplated
denied Sony the opportunity to pay artist royalty advances which they viewed as
the currency of the music industry.
Throughout
the 1990s, Cohen and his representatives engaged in discussions with various
parties regarding potential intellectual property deals. Greg McBowman
and Lynch met with Cohen regarding his interest in these deals. Cohen was
adamant about these deals as the effects of digital downloading were a cause of
concern.
In
early November, 1999, Stuart Bondell (Sony Business Affairs) phoned Lynch to
propose an asset buy-out with respect to Cohen’s intellectual property. After
speaking with Cohen about this proposal, he advised her that he would only
entertain an agreement with Sony if they made a solid, substantial,
non-refundable, good faith down payment on the royalty buy-out. After speaking
with Cohen, Lynch phoned Stuart Bondell to advise him of Cohen’s terms and
conditions. Sony agreed to pay Leonard Cohen a $1 million down payment or
pre-payment against the intellectual property deal.
In
a letter dated November 5, 1999, Paul Gilbert/Sony Music Int’l confirmed the $1
million wire transfer to Leonard Cohen's personal account: “This is to inform
you that we have transferred $1 million to Leonard’s account pursuant to the
instructions received from you. This amount is deemed a partial prepayment
against the proposed $8 million buyout of Leonard’s future royalty interests in
his master recordings and compositions under all of his agreements with Sony
Music and Sony/ATV. If this buyout is not concluded, this amount represents a
general advance recoupable from any and all monies payable to Leonard under
those agreements.” Cohen personally retained the entire $1 million prepayment
and never signed a promissory note documenting this debt to Traditional
Holdings. This prepayment, handled as a loan on Cohen’s 1999 tax return, became
the subject of an IRS audit and FTB inquiry. Leonard Cohen, based on the
advice of his advisers/representatives, elected to handle this income as a loan
for tax purposes.
On
November 8, 1999, CAK advised Kelley Lynch that in light of Sony’s potential
offer to purchase certain intellectual property rights, they were offering an
alternative proposed Loan structure which they were willing to close the
following day. CAK offered Cohen the option to fully prepay the Loan without
penalty if pre-payment was within the first six months of the Loan. Cohen
decided not to pursue the loan securitization deal with CAK and advised them
that he intended to pursue an asset sale with Sony. On or about February 14,
2000, CAK filed a lawsuit against Cohen alleging breach of contract and
demanded full payment of their $290,000 Origination Fee as well as
reimbursement of an additional $73,902.88 in expense payments.
Richard
Westin’s letter to Kelley Lynch of December 4, 1999 confirmed the details of a
conference call he had with Greg McBowman and Don Friedman. Westin noted
that Leonard Cohen was helped by the fact that Lynch was a shareholder of Blue
Mist. According to Westin, this allowed Cohen to assert the defense that his
transfer to the company was a non-taxable contribution to capital under IRC
Section 118.
In
a letter dated December 13, 1999, Don Friedman (Grubman, Indurksy) advised
Cohen that CAK was demanding payment of the origination fee of $290,000 plus
expenses. CAK ultimately filed a lawsuit against Cohen for, among other things,
breach of contract. Cohen and CAK entered into a settlement agreement on
December 7, 2000. Cohen has a pattern of breaching contracts. It
arises from his sense of entitlement.
Westin's
January 10, 2000 fax to Leonard Cohen and Kelley Lynch addressed the federal
income tax implications regarding the properties transferred to Blue Mist as
well as Cohen and Lynch's ownership interests. Excerpts from that Option
are as follows:
Opinion re. federal income tax
implications of the transfer of the following properties to BMT, a Del. company
(which is Cal. admitted) in which Kelley holds 15% of the stock and Leonard
owns 85%. LC plans to transfer the following properties to BMT as a
contribution under IRC Section 118.
Whether the properties are property for
purposes of IRC Section 118. The transfers may be disregarded as not having
occurred in substance or as a mere unsuccessful attempt to assign income from
personal services. A related issue is whether you have retained excessive
controls after the transfer to BMT to invalidate the transfer for federal
income tax purposes.
The IRS might argue that the transfer
of the right to be paid for subsequent record sales is really a payment for
your services, rendered in the past, and that you should continue to be taxed
on such income on the theory that you engaged in failed attempt to assign away
income from personal services.
This
letter is evidence of Cohen and his representatives concerns about the IRS tax
issues related to these deals and confirms Lynch's 15% ownership interest in
Blue Mist and the intellectual property it owns.
Leonard
Cohen’s intense interest, aggressive demands, and micro-managing of these deals
continued, as evidenced in this May 19, 2000 email: “Dear Kelley, I
received Don’s email which you kindly forwarded to me. I must confess I
am losing patience, and frankly losing interest in this deal. The dragging of
feet is deafening. I don’t know if it’s you, or the lawyers, or Sony, but
something is very wrong. I had a good bond deal on the table with CAK until
Sony spoke up, and now I am in litigation with CAK and Sony is busy revising
the figures downwards. For several weeks now you have promised me
“tomorrow” the figures on the live albums. I have my engineer working overtime
in the studio preparing the first one, at considerable expense. Am I the only
one here with a sense of time? And what am I doing in this hotel room
polishing the last few songs for the studio album, as if it mattered to
someone? I am working on two albums at the same time, both of which are about
to be undervalued. The least I will do is adopt a more leisurely working pace.
In fact, I feel like waiting for the seven year jubilee, and then quietly
excusing myself from the whole matter. In other words, Kelley, this is
bullshit. Sony destroys my deal with CAK (so as not to establish any precedent
of their artists leaving the fold), dumps me into litigation, then they
postpone the closing of their deal for seven months until they can discover
that my catalogue sales are lagging, and then they lower the price. This is too
obvious and too familiar. It is time to consider other options. I know
you’re doing your best, and I appreciate your efforts, but the playing field
has suddenly tilted to an unacceptable degree.
Let’s
talk soon. Leonard”
Richard
Westin’s Facsimile Message to Lynch dated May 23, 2000 contains Kelley Lynch's
shorthand notes of the conversation that followed her receipt of this fax.
Issues that concerned Westin and other advisers were collapsible
corporations, capital gains tax treatment, the bond deal and litigation (Westin
noted that “the secret is to sue them first; get in some newspaper”), SOCAN and
performing rights assignments to Blue Mist Touring, and the fact that the
assignments to Blue Mist Touring were non-revocable. At the end of the
conversation, Westin advised Lynch: “If I saw it, I Richard Westin would
rip up the papers. That is what I would do.” Richard Westin advised
Kelley Lynch to rip up the non-revocable Blue Mist assignments. She refused to
do so; believed this was illegal; and, maintained the assignments in a safe
place. The SOCAN assignments became problematic because the performing right's
society refused to pay Blue Mist royalties for intellectual property it owned
because its policy is to only pay the writer. Cohen and his representatives
then decided to contact SOCAN and have them pay the royalties for intellectual
property owned by Blue Mist to LC Investments. This arose initially with
respect to the CAK deal because they wanted the properties assigned to a
company that they viewed as bankruptcy-proof.
The
following excerpts of Leonard Cohen’s Declaration filed in the UCC Lending
Corp/CAK Universal Credit Corp v. Leonard Cohen (United States District Court
Southern District of New York, 00 Civ. 1068 DAB) matter dated August 30, 2000
confirms that Cohen understood he received substantial royalties on a regular
basis; Cohen decided to terminate the bond securitization loan deal; and that
Cohen personally decided to pursue a deal with Sony: “I receive what I view to
be substantial royalties, on a regular basis, from sales of my albums and uses
of my compositions. On June 24, 1999, my transactional counsel advised
plaintiffs in writing, as follows: As we discussed earlier today, due to the
significant changes concerning the possible loan amount, our client Leonard
Cohen and his manager Kelley Lynch have decided to terminate the previous
engagement letter with CAK … and to pursue another opportunity. My
representatives subsequently discussed with Sony Music the possibility of
Sony’s acquisition of the Rights … plaintiffs offered to advance $5.8 million
as part of a proposed loan transaction. It is my understanding that in November
of 1999, my representatives informed plaintiffs that I was seriously
considering selling the Rights to Sony, if acceptable financial and related
terms could be reached. In response, on or about November 8, 1999, plaintiffs
wrote to my personal manager and advised her that “In light of the recent
events regarding Sony and their potential offer to purchase Leonard Cohen’s
assets, we offer an alternative to the proposed Loan structure. I ultimately
decided not to proceed with the loan and my representatives so advised
plaintiffs. I declare under penalty of perjury that the foregoing is true and
correct. Dated: August 30, 2000. Signed: Leonard Cohen.”
As
of August 30, 2000, Leonard Cohen was well aware that he received substantial
royalties, understood that Lynch was his personal manager, and was clear that
he decided to terminate the CAK deal and pursue an asset sale with Sony Music
International.
Don
Friedman’s memorandum of September 19, 2000 to Stu Bondell/Sony re. Blue Mist
confirmed that “Blue Mist is a Delaware corporation, the capital stock of which
is owned 85% by Leonard Cohen and 15% by Kelley Lynch. Cohen owns 425 shares
and Lynch owns 75 shares. Sony will purchase Cohen and Lynch’s stock in Blue
Mist (representing 100% of the equity interest in any other unreleased
recordings or in Cohen’s future recording services).” This memorandum is a
confirmation that the parties intended to sell their ownership interests in
Blue Mist and the intellectual property assets as of September 2000.
On
September 21, 2000 Don Friedman confirmed that Sony had begun their due
diligence with Blue Mist. They also understood that the beneficial owners of
Blue Mist were Leonard Cohen (85%) and Kelley Lynch (15%). The ongoing problems
with respect to Cohen's demand for stock deals were also raised. Re:
Leonard Cohen/Sony Music. “Paul Gilbert of Sony called to ask us to
provide Sony with some “due diligence” materials regarding Blue Myst Touring,
Inc. He has asked for copies of the following: Tax returns. He did not
specify how far back they want to go, but we should try to go back five (5)
years. Bank Records. Are there any for this corporation? Any other
financial records, audited financials, etc. I would assume that there is
nothing of this kind, but please let me know. Please let me know what, if
any, records there are, and please forward such records to me so that we can
furnish them to Sony. Gilbert also indicated to me that Sony’s tax people
may have some concerns about the effect of a stock purchase deal, rather than
an asset purchase deal, on Sony’s treatment of the transaction. He is going to
let me know if this really is an issue for them; if so, I will suggest that
Richard address these issues with the Sony tax people. Finally, as
previously predicted, Gilbert said that, if Sony is willing to do the
transaction as a stock purchase, it will expect some portion of the purchase
price to be held back in order to protect Sony against tax and other corporate
liabilities.”
By
October 10, 2000, the parties anticipated at least two separate asset sales:
one involving the writer’s share of royalties for $4.1 million through a stock
sale of LCI (or another entity) and another involving the record royalties for
$8 million through a stock sale of Blue Mist. The Traditional Holdings deal
(the assets of which were in Blue Mist) closed in 2001 and Sony/ATV put in a
solid offer for the writer’s share on or about October 21, 2004. The publishing
from the studio album Dear Heather was also being discussed as a possible
property that could be included in one of the forthcoming deals. The income
from the Blue Mist stock sale (as of October 2000) was broken down between
Lynch and Cohen, based on their respective ownership interests, as follows: LC
- $6,089,750.00; KL - $1,076,250.00. The precise intellectual property
assets these figure addresses are not enunciated in this memorandum - with
respect to the proposed Blue Mist Touring Company, Inc. and/or LC Investments,
LLC sales or Lynch’s ownership interest in intellectual property.
In
a fax dated October 10, 2000, Greg McBowman asked Richard Westin to come up
with a breakdown on the ordinary income/capital gains tax breakdown on both of
the sales. In response, Richard Westin issued a memo proposing that the deal be
broken out as part asset sale, part stock sale and also discussed the need to
allocate expenses incurred in the sales of Blue Mist and LCI between cap gains
and ordinary income and strategies to soften the blow from the taxes on the
Blue Mist sale. Two separate and distinct sales were anticipated at this
time. Greg McBowman's memorandum addresses Kelley Lynch's ownership
interest in Blue Mist and the properties owned by that entity.
On
October 15, 2000, Leonard Cohen as assignor attempted to assign his writer’s
share of royalties on selected songs (listed on Exhibit “A”) to LCI. This is
the same assignment that was previously given to Blue Mist. Leonard Cohen did
not own these assets and had nothing to assign. LCI merely collected royalties
that belong to Blue Mist.
On
November 19, 2000, Richard Westin detailed a strategy he and Neal Greenberg
envisioned involving a annuity scheme in a letter to Leonard Cohen. According
to this letter, the company issuing the annuity could be owned 1% by Kelley
Lynch and 99% by Cohen’s children. Payments under the annuity were to be in the
approximate amount of $600K per annum. Westin suggested that to make the
company more solvent, Leonard Cohen’s children should contribute notes for
about $150K each, that Lynch would control how much money was distributed from
the company to Leonard Cohen’s children and Kelley Lynch would be paid a
management fee for her services. The money would be managed in a secure fashion
so that the company would be able to make payments on the annuity. Richard
Westin suggested that the structure be put in place before a contract was
entered into. Leonard Cohen rejected this plan as he did not want his children
involved or named beneficiaries. Additional issues, some related to
self-dealing, were discussed. Leonard Cohen and Kelley Lynch then sent Richard
Westin an email with questions and a new plan was devised.
Cohen
participated, at his request, in conference calls with Greenberg, Westin,
Lynch, and others, during which the structure was carefully reviewed. In
addition to several explanatory faxes he received from Westin describing
Traditional Holdings, Cohen and Lynch communicated specific questions relating
to Traditional Holdings’ ownership and transactional structure, which questions
Westin answered these questions in a letter dated December 4, 2000.
On
December 4, 2000, Richard Westin laid out the specifics of the newly conceived
transaction that involved an annuity and new company, Traditional Holdings.
Westin and Greenberg’s plan had the following basic components: A limited
liability company, which eventually became Traditional Holdings, would be
created. Blue Mist would sell and transfer certain record royalty assets to
Traditional Holdings in exchange for a deferred annuity, to be paid to Cohen
beginning in about 10 years. Traditional Holdings would then sell the assets it
received from Blue Mist to Sony. The tax plan prevented Cohen, the annuitant,
from owning more than a de minimus
interest in Traditional Holdings. Therefore, Cohen would own less than 1%, and
another person, who ultimately was Lynch, would own the remaining LLC interest
(more than 99 percent). In these written communications, Westin explicitly
warned Cohen that the annuity plan gave significant transactional control to
Lynch, placed significant tax and other burdens upon her as majority
shareholder, and “the plan” would work only if Cohen and Lynch maintained their
long-term relationship of personal and professional trust which would secure
their mutual obligations as manager of the obligor (Lynch) and annuitant
(Cohen). Cohen carefully reviewed, understood, and signed off on the ownership
structure of Traditional Holdings, including the fact that Lynch owned 99.5%
percent of Traditional Holdings’ membership interests, so as (among other
reasons explained by Westin) to avoid any suggestion of self-dealing. The
“scheme” would put off the income tax to Cohen until some time in the future or
entirely.
On
December 7, 2000, Westin confirmed that Cohen and Lynch had decided to go ahead
with the annuity deal. He prepared a list of all items that must be completed
in connection with the transaction. Westin instructed Lynch to attach the
recording contracts to the annuity contract with a face page stating, “Assigned
to TH LLC on [the date the annuity was signed].” The assignments to Traditional
Holdings are not valid and the assets are owned by Blue Mist.
On
December 7, 2000, Cohen and Lynch signed a Private Annuity Agreement which
document set forth the annuity obligations to Cohen. Lynch was instructed to
sign the Private Annuity Agreement on Traditional Holdings’ behalf. Westin
maintained that the company and its annuity contract with Cohen were legitimate
under prevailing interpretations of the federal tax code. To purchase her
ownership interest in Traditional Holdings, Lynch was required to submit to
Traditional Holdings a promissory note for $240,000. Other than a face page which
was supposed to be prepared at Richard Westin’s instruction evidencing an
Assignment from Leonard Cohen to Traditional Holdings of the record royalties,
there is no documentation transferring the right to receive record royalties
out of Blue Mist. Specifically, Blue Mist was designated as the assignor of the
assets. Traditional Holdings allegedly issued a Private Annuity (the Annuity)
to Leonard Cohen in exchange for a transfer of certain intellectual property
assets. The Annuity Agreement was signed on December 7, 2000 by Kelley Lynch
(for Purchaser, Member, Traditional Holdings) and Leonard Cohen (Annuitant).
The document was notarized on December 7, 2000 by Richard Bernstein, Los
Angeles County Notary Public. However, the assets Cohen attempted to transfer
were the record royalty rights which were assigned to Blue Mist. Furthermore,
unbeknownst to Lynch (until June 2013), Traditional Holdings did not exist as
of December 7, 2000 and could not enter into a legally binding agreement.
Therefore, the Annuity Agreement itself is null and void.
On
December 7, 2000, Leonard Cohen and Richard Westin instructed Lynch to sign a
Promissory Note prepared by Westin. Lynch promised to pay Traditional Holdings
$240,000, with interest on the unpaid balance until the date of maturity. The
interest rate was set at 6.1% per annum. The payment schedule was in 30 annual
installments beginning on December 7, 2001. The Note was agreed to and signed
by Kelley Lynch and Leonard Cohen on behalf of Traditional Holdings. Traditional
Holdings did not exist on December 7, 2000 and this agreement is null and void.
Furthermore, Westin (on Cohen’s behalf) extinguished Lynch’s promissory note
from the 2002 federal tax return without bringing it to the attention of Lynch.
Richard
Westin structured Traditional Holdings so that Kelley Lynch would be paid
$44,000 per annum which would repay the promissory note and provide her with
the monies to pay taxes due on that fee. He prepared a Promissory Note in favor
of Traditional Holdings in the sum of $240,000 representing the amount Kelley
Lynch owed for the issuance of her 99.5% member interest. Payments were to be
made in 30 annual installments. No documents were prepared with respect to
Leonard Cohen’s alleged capital contribution with respect to Traditional
Holdings. Lynch was given no instructions or direction with respect to the
Promissory Note, etc. In 2002, when she inquired about this matter, Cohen,
Westin, and Greenberg essentially had a meltdown.
On
December 18, 2000, after inducing Lynch to execute the Annuity Agreement,
Richard Westin formed Traditional Holdings and caused it to issue member
interests to Kelley Lynch (99.5%) and Leonard Cohen (.5%).
Kelley
Lynch requested and received, after discussions with Leonard Cohen personally,
an Indemnity Contract dated January 8, 2001, whereby Kelley Lynch agreed to
assist Leonard Cohen with personal financial arrangements that entailed the
creation of Traditional Holdings in exchange for Leonard Cohen’s agreement to
indemnify her for any and all claims arising with respect to the promissory
note.
Indemnity Agreement - Kelley Lynch,
Leonard Cohen & Traditional Holdings dated January 8, 2001
Whereas Kelley Lynch has agreed to
assist Leonard Cohen with certain personal financial arrangements that entail
the creation of Traditional Holdings and in so doing has provided and will
provide value assistance to Leonard Cohen.
Now therefore:
For value received, the undersigned
Leonard Cohen (“Indemnitor”) agrees to indemnify, save, and hold harmless Kelley
Lynch (“Indemnitee”) from any and all claims, actions, damages, liabilities, or
litigation arising out of the following circumstances: any obligation on her
part to make good on a certain note for $240,000 in favor of Traditional
Holdings (TH) in the event that TH is for any reason unable to:
1. Pay in the full the promise of full
payment of a “put” described in the said; or
2. Causes her to have to make any
payment to TH (or the assignee or transferee or successor of TH) with respect
to the note, but only to the extent Indemnitee has not theretofore in the year
in which indemnification is claimed, received sufficient cash from TH, net of
any and all income taxes payable by Indemnitee on such cash, to make good on
such liability as to which indemnification hereunder is sought by Indemnitee.
In the event of any cause of action or
claim asserted by a party to this Agreement or any third party, the Indemnitee
will provide the undersigned timely notice of such claim, dispute or notice.
Thereafter, the undersigned shall, at
its own expense, faithfully and completely defend and protect the Indemnitee
against any and all liabilities arising from this claim, cause of action and/or
notice, and shall at once stand in the shoes of Indemnitee and pay all amounts
due as they become payable with no right offset or to her claim for immediate
and full payment.
If the undersigned should fail to so
successfully defend, the Indemnitee may defend, pay or settle the claim with
full rights of recourse against the undersigned for any and all fees, costs,
expenses and payments, including but not limited to attorney fees and
settlement payments, made or agreed to be paid, in order to discharge the
claim, cause of action, dispute or litigation, Indemnitor shall pay, to or for
the benefit (as she may direct) Indemnitee, all costs and attorneys’ fees with
the enforcement of this agreement.
This agreement is binding upon and is
to inure to the benefit of the parties, their successors, assigns, and personal
representatives.
Signed under seal this 8 day of January
2001.
Leonard Cohen, Indemnitor
Kelley Lynch
Notarized: January 8, 2001, Richard
Bernstein
The Indemnity Agreement is relevant
and material due to the fact that Cohen extinguished Lynch’s promissory note
from the federal tax returns in the year 2002. Richard Westin, Leonard
Cohen's tax lawyer, prepared the Traditional Holdings tax returns. In 2001, he
failed to report the income from the stock sale to Sony Music; in 2002, he
extinguished Lynch's Promissory Note (using a separate tax ID); and, in 2003,
he extinguished the annuity itself. These steps were taken without Lynch's
knowledge, awareness, permission, or authorization. They were brought to her
attention by Dale Burgess and DiMascio & Berardo.
On
April 18, 2001, Don Friedman and Stuart Fried summarized the transaction. As
Kelley Lynch advised the IRS, she was asked to read this entire document to
Leonard Cohen while he soaked in a bubble bath. This letter confirmed the fact
that Richard Westin and Neal Greenberg provided the financial and tax-related
advice for Leonard Cohen with respect to this transaction: “As a separate
matter, we also want to advise you and Holdings that this firm is not a
financial or tax advisor and has not provided any tax-related advice to you or
holdings in connection with this transaction. In addition, we have had no role
in the formation of Holdings (and have not reviewed or been provided copies of
any of its formation documents) or in structuring the legal arrangement between
you and Holdings. While we have prepared certain documents required to
implement the tax and financial advice of your other advisors, we have done so
at their request and direction. We have also assisted your tax and financial
advisors by providing explanations of the relevant entertainment industry and
intellectual property issues raised by the transaction. With respect to
tax-related issues presented by the Agreement, we have, pursuant to your and
Holdings’ request, consulted with and followed the advice of Richard Westin and
Neal Greenberg. It is our understanding that you are relying on their advice
regarding these matters.” Lynch provided no financial or tax advice and
had no role in the formation of any corporate entity or the structuring of legal
arrangements with respect to Cohen-related entities.
A
letter from Richard Westin to Leonard Cohen and Traditional Holdings dated
April 23, 2001 addressed the transfer of assets, under California and federal
laws, and how annuities exchanged for properties are taxed. No properties were
actually transferred to Traditional Holdings. A federal controversy appears to
have arisen because Lynch has asked the IRS for an opinion on this transaction,
the default judgment that wrongfully altered her tax returns, and other
matters. As Traditional Holdings, LLC was not held in trust for Leonard
Cohen, the “trust” referred to in the default judgment is not addressed.
“You have requested my opinion as to
whether the transfers of the following properties and contractual rights are
effective under California law, whether the assignments are effective for
Federal income tax purposes and as to how private annuities in exchange for
such properties are taxed. The subject of the transfers are described below and
in the contract with Sony Music under which Sony obtained the properties.
Facts: Traditional Holdings (an entity
you do not control, but have an equity interest in) indicated its acceptance of
the following contracts by assignment (purchase) at their fair market value
(reduced by associated expected fees and charges in the event of subsequent
sale) from their holder (yourself) as described in the pertinent documents.
It is not a guarantee that this type of
arrangement would not be audited; a guarantee of the outcome of any federal tax
controversy, or an undertaking to represent any taxpayer in any federal tax
controversy.
Whether the rights you have transferred
are “property” - If the sale under the annuity were to be attacked as a sham,
then it might be argued that the real transfer was a disposition taxable to
Leonard Cohen and not to Traditional Holdings in exchange for a private
annuity. Kelley Lynch - as an unrelated majority co-owner has a material stake
in assuring that the transaction is genuine. Sony is an adverse party,
bargaining against Leonard Cohen and Traditional Holdings and has bargained
firmly with the sellers. The documentation shows a genuine transfer.
At a deeper level, the trouble with the
assignment of income cases is that the taxpayer is typically at work trying to
subvert the progressive income tax by shifting income to a lower bracket family
member.
The royalties were paid to a trust that
the recording artist DID NOT CONTROL. Sony has repudiated Cohen’s claims to
ownership and forced you to declare the works to be “works for hire.” Your
lawyers believe your works were not works for hire and question the validity of
the contract effort to retroactively recharacterize the works. If they were
indeed works for hire, then their character as property as opposed to deferred
compensation for services would be less certain. Cole case - was indifferent to
whether the works were original with the author or performed at the direction
of another (apparently the case). Either way - there was a completed transfer
to the entity (a trust in Cole’s case and TH in Cohen’s case).
How the private annuity is taxed. There
is no taxable event (hence no income tax) at the time the assets were
transferred to the LLC in exchange for the private annuity, provided the transaction
was properly structured. The concept of the private annuity is that any tax is
deferred until payments begin.”
This memorandum addressed many
issues related to the IRS, tax implications of this transaction, potential tax
problems, and addresses why Lynch was asked to help Cohen with this transaction
as well as her ownership interest in Traditional Holdings, LLC. The
transaction obviously was not properly structured and Cohen did not validly
transfer assets to Traditional Holdings, LLC in exchange for the private
annuity. Leonard Cohen, pursuant to the Annuity Agreement he entered
into, was obligated to repay his substantial loans and/or advances (with
interest) within 3 years. Otherwise, Lynch (on behalf of Traditional Holdings,
LLC) could withhold future annuity payments until the loans/advances were
repaid in full.
Excerpts from Annuity Agreement dated December 7, 2000 between
Traditional Holdings, LLC (Buyer) and Leonard Cohen (Annuitant):
2. Advances at Discretion of Purchaser: 2.1.
Advances. Upon the written
request of Annuitant, Purchaser agrees that it will consider whether it can
make advance payments of amounts due under this Agreement. Any advances shall be repaid no later than
three years after the date of the advance.
Until an advance has been paid in full, the unpaid portion thereof shall
bear interest at the lowest rate permitted by the Internal Revenue Code without
having to impute interest thereunder under Section 7872. At the discretion of Purchaser, such advances
may be repaid by withholding payments otherwise due under this Agreement. If Annuitant shall die with advances due and
owing Purchaser, then such advances shall be satisfied by Annuitant's estate.
Agreement signed by
Kelley Lynch, on behalf of Traditional Holdings, LLC, and Leonard Cohen. Notarized.
Leonard Cohen owes loans
and/or advances to Traditional Holdings, LLC totaling millions of dollars. Cohen understood that these loans and/or
advances were to be repaid within 3 years at 6% interest. His loans and/or advances include his
personal transaction fees, miscellaneous loans and/or advances, and all
commissions/fees paid to his financial and investment adviser as Cohen insisted
on using Greenberg while Lynch felt his investments were reckless, fraudulent,
and aggressive. Lynch also believes that
Cohen is responsible for all assets wasted by Traditional Holdings, LLC,
including with respect to all corporate distributions, etc. due to the fact
that she agreed to assist Cohen with this entity based on fraudulent
misrepresentations and for other reasons.
Leonard
Cohen’s decision to handle the down payment or pre-payment with respect to the
Traditional Holdings, LLC deal as a loan became the ongoing source of problems
with both the IRS and FTB. An IRS Notice to Leonard Cohen dated August
13, 2001 questioned the 1999 $1 million Sony pre-payment to Leonard Cohen: “In
our review of your 1999 tax return, we found what appear to be differences
between income and/or deduction amounts you reported on your tax return and
amounts reported to us by others. (Sony) Please use the enclosed envelope to
send any supporting documents you want us to consider.”
On
December 21, 2001, Richard Westin prepared and sent Kelley Lynch a Traditional
Holdings Management Agreement dated December 21, 2001 addressing her role as
manager of this entity. The management agreement is very clear as to
Lynch's compensation which is addressed in two different sections of the
agreement although these fees were fraudulently addressed on the expense
ledger.
As
of January 2002, the IRS continued to address Leonard Cohen's tax deficiency
with respect to the $1 million down payment or pre-payment Cohen personally
received with respect to the 2001 Traditional Holdings stock deal. On
January 8, 2002 the IRS sent a Notice to Leonard Cohen. This notice
referred to a tax deficiency for the period December 31, 1999. The
proposed taxes Cohen owed at that time were $587,925.00. This Notice
related to the $1 million pre-payment and/or down payment on the Traditional
Holdings, LLC deal that Cohen personally received from Sony.
The
tax issues became alarming in or around February 2002 when Leonard Cohen
received a 1099 from Sony (with respect to the Traditional Holdings, LLC stock
sale) in the amount of $7 million. On or around February 7, 2002, Kelley
Lynch faxed Ken Cleveland, Cohen‘s accountant, the 1099 and asked him to phone
her the following Monday. Instead, Cleveland immediately sent the
following letter to Leonard Cohen. After consulting with Richard Westin over
this matter, Cohen personally phoned Ken Cleveland. Cleveland later advised
Lynch, in a conference call with Stuart Fried of the Grubman, Indursky firm,
that this was a “cover your ass letter.”
Excerpts
of Ken Cleveland’s letter to Cohen dated February 7, 2002: “When your
management team retained my services in 1998 my first task was the settlement
of the IRS audit of substantial stock donations you have made to your trust and
various charities in previous years … 1) In 1999, you received a $1 million
advance from Sony. Your management team told me this was a deposit that you had
to pay back. The IRS notice states that it is not a deposit but a taxable
advance; 2) Tax returns are due April 15th; 3) With regards to the year 2001,
we have just received notice that your Sony deal closed and you received over
$7 million in income. If this is true, I shudder to think of the money that
will be wasted paying penalties to the IRS for underpayment of taxes.”
Clearly,
Lynch became concerned by Cleveland’s statement that he shuddered to think of
the penalties due with respect to Cohen’s underpayment of taxes with respect to
the Traditional Holdings, LLC deal. Sony ultimately provided Cohen with a
corrected 1099 for the year 2001 which replaced the mistake in the $7 million
1099 previously issued. The income noted on the new 1099 was set at $0. Sony
also acknowledged that the $1 million set forth on the 1099 (which became the
subject of IRS and FTB inquiries) was a deposit against future royalties and
confirmed that the 1099 was mistakenly issued.
Due
to the hysteria and conduct on the part of Leonard Cohen, Richard Westin, Ken
Cleveland, Neal Greenberg, and others, following the receipt of the $7 million
1099 from Sony and Kelley Lynch's inquiries re. paying down the promissory
note, she asked Richard Westin to prepare a letter clarifying these entities
and the assistance she provided Cohen with respect to these deals and these
corporate structures. Leonard Cohen acknowledged receiving this letter:
Richard
Westin letter to Leonard Cohen dated March 6, 2002:
Dear Leonard,
I have now reviewed all the documents
that were forwarded me in order to prepare the Traditional Holdings return. I
would like to point out that I did not notice any sloppy record keeping and all
the documents were delivered to me in a timely manner.
I would like to review the structure of
TH at this time because it is ornate you may need further clarification. I will
start at the beginning. TH came about as the result of Neal and myself being
approached by Kelley at your request to search for a tax structure that would
benefit you with respect to the Sony royalty buy-out. At that time, you were
looking at ordinary income that would have been taxed at the rate of 47%. Traditional
Holdings purchased your royalty buy-out properties using a private annuity. A
private annuity is a contract under which a person sells property in exchange
for deferred payments that end when the seller dies. The deferred payments are
payments to you (which I will address later in this letter) and it is these
deferred payments that allow the tax to be deferred. The payments cease upon
your death. Private annuities have been around for decades and are not
controversial.
In the year 2011, you will begin
receiving about $38,000 a month for the remainder of your life. You will then
pay taxes yearly on this amount at whatever the tax rate is on ordinary income.
You have therefore saved tremendously
in taxes because you avoided the ordinary income tax of approximately $3.5
million in the year of the sale and will pay taxes as you receive your deferred
payments. In the interim, your money is invested and if well managed it is also
growing.
All monies you take from TH until 2011
need to be documented as loans. This is why some confusion arose for Kelley in
the year 2001 with respect to your personal tax return payment. Neal made the
decision that the funds should come from TH and Kelley then contacted me in
order to determine what paperwork, if any, was required. I had to prepare a
note that was to be placed in the file with a copy of the return. It is
important to have these “loans” documented by notes.
To reiterate, TH obtained the
properties with a private annuity in order to defer taxes. Kelley had to be brought
in, and agreed to do so in order to help you, because you need a third party’s
involvement so that this transaction is not viewed as your selling something to
yourself. The third party should not be a relative of yours therefore Kelley
was selected. We had Kelley sign a promissory note in the amount of $245,000 to
TH which shows that she invested in TH. She is to receive $24,000 a year for
the first 17 years, then $31,250 a year, which allows her to repay the note;
and, $20,000 a year which allows her to pay taxes on the amount she has
received.
It complicates things for Kelley and
possibly eats into her lifetime gift tax exemption that would benefit her
children.
It is possible that estate taxes will
change in the future and Kelley will not suffer any penalties. To summarize,
Kelley was brought into this situation in order to help you accomplish a
beneficial tax structure.
At this time, Kelley needs to begin
repaying the note to TH. She must pay $24,000 debt service on the note this
year so that the entity remains legitimate. The way we anticipated handling
this was to allocate $240,000/year of TH profits to Kelley each year which
allows her to pay the taxes on the income that has created for Kelley.
Unfortunately, because Kelley did not
make the $24,000 payment in 2001 (she was not aware that she had to do so),
this may create hardship for her with respect to taxes. In order to resolve
this situation, I propose that Kelley be allocated the sum of
$___________________ for the years 2001 and 2002. Out of this amount, Kelley
will pay the note (by writing a check to TH) and pay the taxes she incurs by
receiving these monies from TH, which we will call a fee for the sake of
simplicity.
It is often the case that once a
structure has been established and taken out of the realm of theory, it takes
time for all parties to understand what its function is and how it operates. I
have basically raised three points here: (1) that a private annuity has been
established in order to defer taxes; (2) you will eventually begin receiving
monthly payments and until that time, all withdrawals from TH need to be
documented as loans; (3) Kelley’s participation was essential and requires a
yearly payment to her which allows her to repay the note and the taxes she
incurs because of the payment.
On a separate note, I am giving some
thought to your gift tax situation. I understand that you are giving Adam
approximately $42,000 a year in support. This cancels out the possibility of
gift him $11,000 a year (which is now the yearly gift amount) with respect to
the property you have purchased. I also understand that Anjani Thomas has been
given sums possibly in excess of $11,000 permitted yearly gift and need to
rethink how the loan to her for the house should be handled.
I would like to take some time and
review the larger picture of your gifts with Kelley - this would include your
voluntary monthly gift to the children’s mother which comes to $45,600 per
year.
Kelley has advised me that you would
like to know if there is some way for you to give gifts to your children in a
manner that does not create a gift tax. This is something Reeve Chudd and I
need to think through.
Since my involvement in your tax
planning, several entities have been created: two charitable remainder trusts (which
I understand Neal will address with you separately), and Traditional Holdings.
These three entities - the two charitable remainder trusts and TH are really
the essence of your tax and estate planning. Last year was a very complex year
but going forward everything should be quite smooth and uncomplicated.
The
above letter essentially addresses Cohen’s use of corporations in an attempt to
evade taxes. It also addresses the fact that Cohen elected to use Lynch
to assist him and created grave ambiguities for her. Furthermore, Lynch
learned in hindsight that her role in the Traditional Holdings, LLC deal would
harm her.
Stuart
Friend's fax to Richard Westin dated April 1, 2002 transmitted Sony's letter
regarding the $1 million 1099 Cohen received in 1999: Dear Mr. Cohen: As
you requested, this letter is to confirm that the $1,000,000 paid to you by
Sony Music Entertain, Inc. in November of 1999 was a deposit towards a possible
royalty buyout by SMEI and mistakenly reported on Form 1099-Misc as royalty
income for the calendar year 1999. Sincerely, Paul Gilbert”
Leonard
Cohen hired Hochman, Rettig to handle the IRS audit of the $1 million 1099 for
the year 1999. Lynch once again became very suspicious of Cohen, the IRS
matters that continued to arise, the Traditional Holdings deal, and the
annuity. She provided Hochman, Rettig with certain documents and asked them to
review the annuity agreement and advise her if there was anything wrong with
it. When Richard Westin heard about Lynch's discussion with Steve Blanq of
Hochman, Rettig he raised issues regarding Leonard Cohen's attorney/client
privilege and Steve Blanq advised Lynch that he could not discuss this matter
with her. It was around this time that Blanq advised Lynch that Richard
Westin's evasiveness made the Ogden, Utah IRS agent "nervous." His
activity, conduct, memorandums, etc. made Lynch nervous as well. After
parting ways with Cohen, Lynch contacted Steve Blanq who asked her “Are you
being blamed for Richard Westin’s actions?”
In
2003 and 2004, the Franchise Tax Board sent notices addressing the fact that
Leonard Cohen failed to file state tax returns with respect to LC Investments,
LLC, a company wholly owned by him. Cohen and Westin also failed to file tax
returns with respect to Traditional Holdings in the State of Kentucky.
The FTB’s demands for tax returns created paranoia on the part of Leonard
Cohen and Richard Westin and, in turn, caused Lynch to further question the
situation with respect to Leonard Cohen, taxes, these deals, and the
corporations that were being used. Hochman Rettig also handled the FTB’s
inquiry into Leonard Cohen's 1999 tax return and the ongoing problems with the
$1 million 1099 and the apparent tax deficiency.
Lynch’s
concerns with respect to many issues, including Cohen’s failure to file state
tax returns, continued to grow. Westin’s September 24, 2004 email was
deeply disturbing to Lynch. She had no idea what the reference to Neal
Greenberg meant but understood that there were serious legal and tax issues with
respect to the various entities. The September 24, 2004 Lynch received
from Richard Westin addressed matters related to Traditional Holdings, LLC, LC
Investments, LLC, federal and state tax returns, and, Neal Greenberg:
“Nothing is owed for 2003 to the feds as to LCI. I paid the State the
$1,131 (please pay me) for LCI for 2002. There will be a small tax due to the
State for 2003, according to my slightly out-of-date book on California taxes,
for LCI. I have no clue yet as to what TH does to him. Incidentally, this year
I plan to stand up and fight for you over your position in TH. Out of kindness
(or something) you got into that deal for LC’s benefit and then Neal tried to
(pardon me) fuck you. That has to stop. We need to put our heads together about
that. Perhaps I am wrong. I hope so.”
Richard
Westin's letter to Cohen and Lynch dated October 4, 2004 re. Traditional
Holdings' 2003 federal tax returns and K-1s raised further alarm on the part of
Lynch who had decided, by this time, that she was reporting what she believed
was tax fraud on the part of Leonard Cohen (and others) to the IRS: “Kelley
Lynch or Leonard Cohen can sign and file it with the Cincinnati IRS - he
provides a cover letter and SASE for that purpose. The return reports quite a
lot of income to Kelley. He has no information to indicate that there is a
compliance with the duty to pay Kelley Lynch a $20,000 management fee. The
obligation arises out of a management agreement in the TH binder; the agreement
has not been signed. It has been in the binder since 2001 along with an
unsigned amendment to the management agreement. This is in here to give KL some
help with the tax burdens this entity creates for her. She should have been
paid it and the agreement should have been signed by LC. There is also an
unsigned promissory note [It was signed and notarized] issued by KL for
$240,000, prepared for signature December 2000. The LLC agreement calls for a
special allocation of profits to KL of at least $24,000. That is why the profit
and loss sharing ratios are the odd number 99.55 and .45. The operating
agreement calls in Section 9.1 for the distribution in cash of at least $24,000
to Class B shares (all in KL’s hands). TH is a complicated structure. It is
important to adhere to it because if it is audited and the Revenue Agent looks
closely, what he or she will find will be a disregard for form that could
result in significant tax adjustments and deeper tax inquiries that are not
desirable.” At this point in time, Lynch felt she had no alternative but
to ask the IRS to review the corporate structures, private annuity agreement,
and related tax returns.
On
October 6, 2004, Richard Westin wrote Cohen and Lynch regarding a 2003 Kentucky
tax return of LC Investments, LLC. LCI is a Delaware entity registered in
California and is not, as Westin clearly understood, a Kentucky entity. Lynch
believes this was an intentional "mistake" on Westin's part that
relates to his absolute concerns about the IRS and FTB with respect to these
entities at this point in time. The K-1s, which reflect a 99.5% ownership
interest on Lynch's part with respect to LCI, are clearly fraudulent. This
letter encloses the 2-page LCI tax return for Kentucky. Attached are Kentucky
Schedule K-1s. One is for Leonard Cohen and one for Kelley Lynch. The K-1 for
Cohen indicates that he is a .45% owner and shows no share of income. The K-1
for Lynch shows that she is a 99.5% owner. It also shows no ordinary income or
net income due. Westin does not explain why Kelley Lynch is listed as a member
of LC Investments, LLC in the same percentages as Traditional Holdings. He also
does not explain why LCI is filing a Kentucky return when it is a Delaware LLC
registered as a foreign entity in California. Lynch remains convinced that this
was an intentional mistake. The K-1 with respect to Lynch, transmitted to
the State of Kentucky, is unlawful. The same is true for the K-1s LC
Investments, LLC transmitted to the IRS (with respect to Kelley Lynch) for the
years 2004 and 2005. Lynch LC was not a partner and has no involvement,
whatsoever, with LC Investments, LLC although she is still listed as registered
agent.
Lynch
is convinced that the steps with respect to these corporations are a step
transaction. She is also convinced that the steps on the Traditional
Holdings, LLC federal tax returns are further evidence of a step transaction.
The step transaction doctrine is a judicial doctrine in the United States
that combines a series of formally separate steps, resulting in tax treatment
as a single integrated event. The doctrine is often used in combination with
other doctrines, such as substance over form. The doctrine is applied to
prevent tax abuse, such as tax shelters or bailing assets out of a corporation.
The step transaction doctrine originated from a common law principle in Gregory
v. Helvering, 293 U.S. 465 (1935) that allowed the court to recharacterize a
tax-motivated transaction. Gregory v. Helvering was a landmark decision by the
United States Supreme Court concerned with U.S. income tax law. The case is
cited as part of the basis for two legal doctrines: the business purpose
doctrine and the doctrine of substance over form. The business purpose doctrine
is essentially that where a transaction has no substantial business purpose other
than the avoidance or reduction of Federal tax, the tax law will not regard the
transaction. The doctrine of substance over form is essentially that, for
Federal tax purposes, a taxpayer is bound by the economic substance of a
transaction where the economic substance varies from its form.
In
the instant matter, Leonard Cohen and Kelley Lynch owned shares of a company
called Blue Mist. Blue Mist, in turn, owned intellectual property. On October
19, 1999, Leonard Cohen created a new company called LC Investments, LLC for
the sole purpose of pursuing a bond securitization deal with CAK. On October
15, 2000, Cohen attempted to transfer intellectual properties owned by Blue
Mist Touring Company, Inc. to LC Investments, LLC. All shares of LC Investments
were owned by Leonard Cohen, as trustee. Sometime after this failed attempt to
transfer the assets to LCI, Richard Westin wrote a letter or memorandum
confirming that Lynch should have been compensated with 15% of LC Investments.
She was not. On September 19, 2000, Don Friedman confirmed that “Blue
Mist is a Delaware corporation, the capital stock of which is owned 85% by
Leonard Cohen and 15% by Kelley Lynch. Cohen owns 425 shares and Lynch owns 75
shares. Sony will purchase Cohen and Lynch’s stock in Blue Mist (representing
100% of the equity interest in any other unreleased recordings or in Cohen’s
future recording services)." This memorandum is a confirmation that the
parties intended to sell their ownership interests in Blue Mist and the
intellectual property assets to Sony. On September 21, 2000 Don Friedman
confirmed that Sony had begun their due diligence with Blue Mist. They
understood that the beneficial owners of Blue Mist were Leonard Cohen (85%) and
Kelley Lynch (15%). The ongoing problems with respect to Cohen's demand for
stock deals were also raised. On December 7, 2000, Leonard Cohen entered
into a Private Annuity Agreement with Traditional Holdings, an entity that did
not exist and induced Lynch to execute that document as well as a Promissory Note
that his tax lawyer extinguished from the federal tax return in 2002. On
December 18, 2000, Traditional Holdings was formed as a Kentucky LLC. Lynch was
made a 99.5% member and Cohen a .5% member. Leonard Cohen attempted to sell
intellectual property owned by Blue Mist to Lynch in exchange for an Annuity
that his tax lawyer extinguished in 2003. Lynch asked for and received an
Indemnity Agreement that was executed on January 8, 2001. Leonard Cohen, whose
tax lawyer prepared the Traditional Holdings income tax returns failed to
report the income from the 2001 Sony sale. Lynch and her lawyers were
ultimately advised, by Robert Kory, that Leonard Cohen planned to roll
Traditional Holdings, LLC into LC Investments, LLC. Lynch maintains that this
convoluted set of transactions is a step transaction whose sole purpose was to
avoid and evade taxation. Leonard Cohen controlled all entities.
Leonard
Cohen did not own the assets he ultimately attempted to assign and/or sell to
both LC Investments, LLC and/or Traditional Holdings, LLC. Cohen had
nothing to assign and/or sell to either of these entities. These assets
are owned by Blue Mist Touring Company, Inc. No trust documents exist
with respect to Blue Mist Touring Company, Inc. and/or Traditional Holdings, LLC
and Lynch’s ownership interest in these entities was not held in trust for
Leonard Cohen.
The
step transaction doctrine states that: interrelated yet formally distinct steps
in an integrated transaction may not be considered independently of the overall
transaction. By thus linking together all interdependent steps with legal or
business significance, rather than taking them in isolation, federal liability
may be based on a realistic view of the entire transaction. The Traditional
Holdings tax returns also appear to involve a step transaction: In 2001, Cohen
failed to declare the income from the Sony sale; in 2002 (using a separate tax
ID number) Cohen extinguished Lynch's Promissory Note; and, in 2003, Cohen
extinguished the annuity itself. Lynch was unaware of this activity and it was
brought to her attention by her lawyers and accountant in the fall of 2004.
In
Gregory v. Helvering , the U.S. Supreme Court ruled as follows with
respect to elaborate and devious forms created to conceal the real nature of a
transaction and addressed the fact that the activity was tax motivated and
nothing other than a contrivance. The same is true with respect to Leonard
Cohen and his related entities: "It is earnestly contended on behalf
of the taxpayer that since every element required by [the statute] is to be
found in what was done, a statutory reorganization was effected; and that the motive
of the taxpayer thereby to escape payment of a tax will not alter the result or
make unlawful what the statute allows. It is quite true that if a
reorganization in reality was effected within the meaning of [the statute], the
ulterior purpose mentioned will be disregarded. The legal right of a taxpayer
to decrease the amount of what otherwise would be his [or her] taxes, or
altogether avoid them, by means which the law permits, cannot be doubted. [ . .
. ] But the question for determination is whether what was done, apart from the
tax motive, was the thing which the statute intended. The reasoning of the
court below [i.e., the reasoning of the Court of Appeals] in justification of a
negative answer leaves little to be said. When [the statute] speaks of a
transfer of assets by one corporation to another, it means a transfer made 'in
pursuance of a plan of reorganization' [ . . . ] of corporate business; and not
a transfer of assets by one corporation to another in pursuance of a plan
having no relation to the business of either, as plainly is the case here.
Putting aside, then, the question of motive in respect of taxation altogether,
and fixing the character of the proceeding by what actually occurred, what do
we find? Simply an operation having no business or corporate purpose-a mere
device which put on the form of a corporate reorganization as a disguise for
concealing its real character, and the sole object and accomplishment of which
was the consummation of a preconceived plan, not to reorganize a business or any
part of a business, but to transfer a parcel of corporate shares to the
petitioner. No doubt, a new and valid corporation was created. But that
corporation was nothing more than a contrivance to the end last described. It
was brought into existence for no other purpose; it performed, as it was
intended from the beginning it should perform, no other function. When that
limited function had been exercised, it immediately was put to death. In these
circumstances, the facts speak for themselves and are susceptible of but one
interpretation. The whole undertaking, though conducted according to the terms
of [the statute], was in fact an elaborate and devious form of conveyance
masquerading as a corporate reorganization, and nothing else. [ . . . T]he
transaction upon its face lies outside the plain intent of the statute. To hold
otherwise would be to exalt artifice above reality and to deprive the statutory
provision in question of all serious purpose."
Lynch
obviously has many legal issues with respect to Leonard Cohen. In 2005, Boies
Schiller, who reviewed three boxes of, advised Lynch to sue Cohen for
conversion, fraud, and intentional torts. Boies Schiller also believed
Cohen and Kory attempted to engage her in criminal conduct. In 2011,
after speaking with Lynch, Steven Machat advised her to sue Cohen for theft.
She clearly has issues related to malpractice with respect to Richard Westin
who advised her by email in October 2004 that he never represented her and only
represented Leonard Cohen. Cohen and his representatives set up an invalid
legal structure potentially exposing Lynch to liability. They failed to
properly advise Lynch how to implement the legal structure which she does not
feel was her job in any event. Leonard Cohen and Westin failed to obtain conflict
waivers needed to represent me, Traditional Holdings, and Leonard Cohen.
Westin, working on behalf of Leonard Cohen negligently (and probably
intentionally) prepared the Management Agreement causing uncertainty (or, at
the very least, allegations of "uncertainty" which have now arisen)
in the amount of Lynch's management fees with respect to Traditional Holdings.
Westin, on behalf of Leonard Cohen, negligently and fraudulently prepared tax
returns with respect to Traditional Holdings, LC Investments, and issued a
fraudulent K-1 to Lynch with respect to LCI and the State of Kentucky. Leonard
Cohen, on behalf of LCI issued fraudulent K-1s to Lynch with respect to LCI and
the Internal Revenue Service. These are just some of the issues Lynch has attempted
to address with Cohen and his representatives.
Robert
Kory advised DiMascio & Berardo that Blue Mist is an issue and the
Assignments should not be respected. He advised DiMascio & Berardo that the
assignments were part of a bigger scheme and that there was never an intention
for Blue Mist to own the assets. Lynch understood that she was given stock in
Blue Mist to compensate her for her services (unrelated to her commissions as
Cohen's personal manager) and if the assignments are invalid and the stock is
worthless, she was defrauded. Lynch owns 15% of Blue Mist and/or all assets,
wherever they have gone. She also owns, according to the corporate books and
records 99.5% of Traditional Holdings. Lynch is entitled to a 15% commission,
dating back to 1988, for her services as Cohen's personal manager, including
those commissions he continues to wrongfully withhold from her. Lynch and
the corporate entities themselves are entitled to an accounting.
In
order for Cohen to explain his wrongful conduct, he had to raise fraudulent
allegations of fraud and/or recission. This is one of the only ways in which
Cohen could attempt to unwind the transaction involving the sale of assets to
Sony re. the 2001 Traditional Holdings stock sale while taking the position
that Lynch's ownership interest in Blue Mist is invalid. Lynch relied on Cohen
and his representatives misrepresentations of many facts which turned out to be
false and were known by these parties making the representations to be false.
This has resulted in tremendous damage to Lynch, her sons, and others. On a
final note, Leonard Cohen and Richard Westin never discussed a trust with Lynch
regarding Traditional Holdings. No trust was set up and no trust documents
exist. No verbal promises were made between Lynch and Cohen with respect to a
trust, preserving assets (that Cohen raided) in Traditional Holdings, or with
respect to other entities, and no document evidences any such alleged promises.
In
a meeting with DiMascio & Berardo, Kory referenced the fact that this was a
community property state and Lynch may be entitled to palimony (50% of LC’s
assets). At that time, Kory was working towards a meditation with Westin,
Greenberg, and others. Ira Reiner was handling the litigation aspects of the
proposed meditations. Kory He "invited" Lynch and her representatives
to attend the mediations. DiMascio & Berardo and Kory were attempting to
reach a mutually beneficial settlement between you and Cohen and Lynch and were
evidently discussing how to unwind Traditional Holdings. These parties agreed
that Traditional Holdings should be unwound and Lynch has asked the IRS for a
formal opinion with respect to that plan which involved merging Traditional
Holdings into LCI. Kory also confirmed that Lynch was entitled to her 15%
commission and owns 15% of the intellectual property. He advised Lynch
personally that she has a cause of action against every one of Cohen’s
representatives/advisers and assured her that he and Cohen would assist her
with those matters.
In
January 2005, DiMascio & Berardo set forth the criminal and civil liability
Cohen was facing with respect to his tax fraud re. Traditional Holdings, LLC
alone. It seems overwhelmingly obvious that Cohen’s criminal tax fraud,
penalties and interest, and civil penalties show bias and motive on his part.
It does not, however, explain why Cohen would further defraud Lynch and
attempt to profit from his tax fraud and wrongdoing.
“Criminal Liability: Leonard Cohen used
an Annuity in order to defer the payment of taxes on the asset sale. There is
nothing inherently wrong with an annuity transaction. However, criminal tax
liability could arise if the IRS makes a determination that the annuity
transaction had no substance and was designed for the sole purpose of evading
tax liability. [IRC Section 7201 (the IRS is referred to as “the Code”).] In
order to convict under Section 7201 of the Code, the basic elements that must
be proven are (1) the existence of a tax deficiency, (2) an affirmative act
constituting an evasion or attempted evasion of the tax, and (3) willfulness.
An example of an affirmative act is the filing of a false return. Proof of
willfulness is often unavailable and must be proven by circumstantial evidence,
such as failure to report a substantial amount of income, the expenditure of
large amounts of cash that cannot be reconciled with reported income, keeping
false account books or other badges of fraud set forth in the Internal Revenue
Manual. Reckless disregard for the truth or negligent failure to inquire into
the facts underlying criminal activity is insufficient to support a conviction.
A good faith misunderstanding of the law is a defense to a tax crime. Further,
good faith reliance on the advice of counsel, after complete disclosure of all
relevant facts, is also a defense to tax evasion. Under the Code, the defendant
may be fined, imprisoned not more than 5 years, or both and made to pay the
costs of prosecution and any special assessments. The maximum fine is $250,000
for individuals and $500,000 for corporations. The statute of limitations is 6
years from the commission of the offense. [IRC Section 6531.] In addition,
there are two separate offenses under Section 371 of Title 18 that are
typically asserted in cases of tax code violations involving several
defendants, such as where corporate officers participate in the filing of the
corporate tax returns. These offenses are (1) conspiracy to commit an offense
against the U.S. and (2) conspiracy to defraud the U.S. Both offenses require
(1) an agreement between two or more persons; (2) to achieve an illegal goal;
(3) with knowledge of the conspiracy and with actual participation in the
conspiracy; and, (4) at least one conspirator committing an overt act in
furtherance of the agreement. In a tax conspiracy case, it must be shown that
each defendant was not only aware of the tax consequences of his actions, but
also that he had the specific intent to violate the tax laws. The conspiracy
statute, along with the charge of aiding and assisting in the preparation of
false returns (IRC Section 7206(2)), is among the government’s most used tools
in prosecuting attorneys, accountants, and other tax advisors who may have been
involved in the activities of a taxpayer. Under a Title 18 violation involving
conspiracy, each conspirator faces a fine, or imprisonment for up to 5 years,
or both. The maximum fines are generally the same as those noted above.”
“Civil Tax Penalties: There are over
150 civil penalties in the Code. They cover everything from the failure to file
or pay a tax, to accuracy-related penalties, to information returns, to special
penalties covering the activities of tax return preparers, tax shelter
activities and beyond: Focusing solely on the obvious, we see the following
potential problems with TH: (1) Accuracy Related Penalties where the amount of
the penalty is 20% of the underpayment, (2) Substantial Understatement of
Income Tax where the amount of the penalty is 20% of the underpayment, (3)
fraud where the amount of the penalty is 75% of the portion of the underpayment
attributable to the fraud, and (4) failure to pay taxes due where the penalty
is ½ of 1% for each month the tax is unpaid for a maximum penalty of 25%.
Applying these penalties and acknowledging that the math is extremely rough,
there is potential approximate tax liability as follows: $880,000 for
substantial understatement and accuracy related penalties; $440,000 for fraud
and $1,100,000 for failure to pay taxes for total penalties of approximately
$7,260,000. This does not include interest which, at a rate of 5% per annum
compounded and without effective compounding, equals about $650,000 for a total
penalty and interest bill of $7,910,000. In addition, if the transaction is
unwound and LC is determined to be the owner of the assets, he would have to
pay tax on the sale which is the basis for the penalties and interest which
amounts to about $2,500,000 (state and federal combined). Thus and in summary,
at the end of the day, if the TH transaction is reported to the IRS, Leonard
Cohen will be liable for taxes on the sale in the sum of about $2,5000,000,
penalties of $7,260,000 and interest of $650,000 totaling $10,410,000.”
Additionally,
among other issues, there is a tax deficiency resulting from Cohen’s failure to
report the income from the Sony sale; an affirmative act constituting an
evasion or attempted evasion of the tax; and willfulness involving, among other
things, the fact that Cohen the annuity obligation to disappear from the 2003
federal tax return; Cohen’s failure to document and repay his loans within 3
years as required; and, Cohen’s failure to report the sale of certain assets to
Sony on the 2001 tax return. Pursuant to Lynch’s lawyers, similar penalties and
interest existed with respect to at least two other Cohen entities.
On
February 7, 2005, DiMascio & Berardo wrote Lynch that they met with Kory
and his associate. DiMascio & Berardo advised them that Lynch always relied
on Cohen's advisers, Cohen was fully informed, and Lynch owned 99.5% of
Traditional Holdings. Kory acknowledged that he did not have any clarity on
what to do in the tax arena, had not been able to identify any causes of
action, did not know the extent of the potential liability for any of the
parties, let alone how the 2001 transaction was reported, and did not know how
to unravel the entities so that the parties could go their separate ways. Kory
was meeting with Michael Mesnick, a CPA formerly with the IRS, for guidance and
assistance in evaluating the situation. DiMascio & Berardo further advised
Lynch that Traditional Holdings had been suspended in Kentucky for failure to
file statement of information and state tax returns had not been filed.
DiMascio & Berardo discussed the fact that three sets of federal tax
returns existed with respect to Traditional Holdings. These returns were dated
March 3, 2001, March 5, 2001, and March 9, 2001. Lynch does not know what
return was filed. Neither Kory nor DiMascio & Berardo felt comfortable
contacting the IRS for copies of filed tax returns as they did not know whether
this would alert the Service to possible inquiry into Traditional Holdings.
They all agreed that they wanted to avoid this result. DiMascio & Berardo
advised Robert Kory, once again, to look closely at the Indemnity Agreement
Leonard Cohen and Traditional Holdings provided Lynch, at her request.
Lynch felt that this letter, including the discomfort all parties felt
with respect to contacting the IRS, was further evidence that she should report
Cohen’s tax fraud to the IRS.
In
September 2010, the SEC charged Neal R. Greenberg with fraud and breach of
fiduciary duty in the marketing and recommendation of his firm's hedge funds to
investors.
“Greenberg
misrepresented the diversification, risks and fees involved with investing in
the Agile hedge funds to conservative investors who were dependent upon their
investment income for some or all of their living expenses” said Donald M.
Hoerl, Director of the SEC's Denver Regional Office. “Greenberg's unsuitable
recommendations and misrepresentations deceived his advisory clients into
believing their money was safe with him.”
Lynch met with representatives of City National Bank, and other
investors, in an attempt to move the investments from Greenberg to a more
reliable and suitable company but Cohen refused to entertain this
possibility.
Lynch
remains convinced that Cohen, Greenberg, and Westin, planned and coordinated
their lawsuits and responses.
In
the instant matter, Leonard Cohen, filed a declaration which states, in
pertinent part: “I am the sole owner of ... Leonard Cohen Investments, LLC
(LCILLC), a limited liability company established in 2000 to hold certain of my
intellectual property assets” and “I am also the beneficial owner of
Traditional Holdings, LLC (Traditional Holdings), a limited liability company
formed in 2000 to hold the proceeds of a sale of certain of my artist royalties
to Sony and to provide an annuity income to me for the remainder of my life.”
The attachment to the judgment, Item 6, reads, in pertinent part: “It is
declared that (1) Lynch is not the rightful owner of any assets in Traditional
Holdings, LLC, Blue Mist Touring Company, Inc., or any other entity related to
Cohen; (2) that any interest she has in any legal entities set up for the
benefit of Cohen she holds as trustee for Cohen’s equitable title; (3) that she
must return that which she improperly took, including but not limited to
“loans,” and (4) that Cohen has no obligations or responsibilities to her.”
Leonard
Cohen is not the sole beneficial owner of either Traditional Holdings, LLC or
Blue Mist Touring Company, Inc. Lynch does indeed have an ownership
interest in these entities which were not held in trust for Cohen.
Furthermore, Leonard Cohen owes Lynch commissions and fees for services
rendered so he does indeed have obligations and responsibilities to her.
He also had obligations and responsibilities to Traditional Holdings, LLC
and Blue Mist Touring Company, Inc., and other entities, as well.
Leonard
Cohen is indeed the sole owner of LC Investments, LLC.
In
his 2008 book, Gods, Gangsters & Honour, Steven Machat (entertainment
industry manager, attorney, Marty Machat’s son and former partner), highlights
some of Cohen’s questionable attributes and illicit conduct. This side of Cohen
is concealed from the news media, adoring journalists, fans, and others.
Excerpts
from Gods, Gangsters & Honour by Steven Machat
The headline wasn’t promising: “Leonard
Cohen’s Troubles May Be A Theme Come True.” But the story was outrageous. Cohen
had filed suit against his personal manager Kelley Lynch, accusing her of
stealing more than $5 million while he spent five years at a Zen Buddhist
retreat.
I first met Leonard Cohen in October
1970 when I was at the University of Miami and I wasn’t impressed.
I found his songs and records
depressing and, worse, Cohen seemed to wallow in his morbid tales of unrequited
love, loss and so on. He always seemed to cast himself as the helpless victim.
Leonard was desperate to get rid of his
two managers, Judy Berger and Mary Martin, who he believed had stolen the
rights to his songs and records early on in his career. Even back then, Cohen
was convinced that women were ripping him off. He signed an agreement, and when
he wanted to get rid of the contract, he accused everyone of ripping him off.
You could say it became repeat behavior. My father duly got rid of Berger and
Martin, set up a new company called Stranger Music for Cohen and agreed to
manage Leonard for 15% as well as 15% of Stranger. The idea of the company was
twofold: one, to maintain ownership of the copyrights duly created; and two, to
minimize Leonard’s exposure to American tax, just like any other rich
individual trying to minimize their tax liabilities.
Then I got a call from Leonard, and it
was a perfect example of how to tell when someone is lying. He said: “Steven,
you have a best friend in me forever. I will never harm you and I will always
be there for you …” Why would he offer not to harm me? It suggested to me that
he was thinking of harming me, and if he was thinking it, he would probably do
it.
Leonard sees truth only inside his
illusions.
I met up with Leonard at a Chinese
restaurant on Wilshire in LA. Even by his standards, he was nervous. He was
drinking whiskey, which I’d never seen before, and it was only 12 PM. He
appeared terrified. Unable to even look me in the eye, Cohen came to the point
quickly: “Your Dad ripped me off.” Leonard told me he was convinced that my
father had failed to exploit Cohen’s copyright to its full potential. But to me
it was all bullshit. Leonard had to justify to himself why he was fucking us.
Cohen controlled his copyright, not my
father. The irony was that Cohen had total control over my father … Do you know
what happened to the $400,000 worth of bearer bonds in my father’s office?
Bearer bonds are just unregistered bonds or paper money that are used to
conceal ownership and, with it, tax liabilities. Cristini told me (who knows if
this is true?) that he had found the bonds in my father’s office hours after he
had died but the next day they disappeared.
Cohen denied any knowledge of these
bonds. I was unsure if they existed or were part of my father’s schemes cooked
up to conceal Leonard’s money.
I’ve no problem with people trying to
avoid tax, but as the years have passed, I couldn’t help but smile at the
apparent contradiction between Leonard’s public persona and his private
business arrangements.
This was a supposedly devout Buddhist
with no interest in material possessions, who was all the same happy to put his
trust in business managers and companies he created with his knowledge and
consent whose sole aim was to minimize tax liability.
Leonard then sold Stranger Music for a
small fortune and I’ve seen nothing from Cohen.
Cohen said: “Steven, you remember the
1988 tour? Flemming extorted $100,000 from me. He wanted 20% managerial
commission, in addition to his promoter’s fees. He thought he was doing extra
work for me and wanted me to pay him.” Later, Flemming told me that Cohen was
lying … Leonard told me he would pay me a management commission. When I went to
get the money after the tour, Leonard told me he couldn’t pay me because he
owed it to the Machats. So we settled on $100,000.
Far from being the poet of the spirits,
Leonard was a hustler using Buddhism as a facade.
The next time I would see Leonard …
We’d just seen The Hand That Rocks The Cradle where Rebecca De Mornay plays the
psychopathic nanny who stalks this family. Who should walk along but Cohen, who
was holding hands with DeMornay, his girlfriend at the time. Cohen was
extremely uncomfortable because he knew he had stolen from me and it was clear
he couldn’t get away quick enough. Neither could my son, because he took one look
at DeMornay and ran. He was terrified because he thought she was the nanny in
the film!
It was clear that Leonard was also wary
of me because, I guess, he thought I might be planning to sue him.
Leonard told me that when he had gone
off on his Buddhist retreat Kelley was left managing his business interests. He
said: “She started believing this money was hers and she started spending it.
All of it. When I got back from my pilgrimage, I went to withdraw money left in
the account to cover the draft. I was speechless. I didn’t know where to look,
where to turn or what to think.” Cohen told me that with the help of his
daughter, Lorca, he managed to piece together what had happened.
All Leonard had to do to avoid U.S.
taxes was tear up his green card, and stop living in and using the U.S. as his
base.
It’s no secret that Leonard has also
made a killing on the art market by selling his paintings, plus his touring of
the last two years … If that’s true, it doesn’t really tally with the clear
implication from Cohen that he is a man who has been robbed of everything.
Leonard told me before I left that he
had actually offered Kelley a settlement …
It’s clear that Cohen and his lawyers
want to heap the blame on Kelley’s shoulders for more than just revenge.
Because Cohen’s pension assets were cashed in … ahead of schedule they are
liable to tax so they need to establish that this situation is her fault. The
penalties could actually be greater than the tax itself.
Leonard has cast himself into a hell of
his own making.
Leonard
Cohen does indeed enter into agreements and then attempt to breach them by
accusing people of ripping him off. That is precisely what has occurred
in the present matter. It is my understanding that Machat & Machat
had an agreement with Leonard Cohen that they would receive 15% commission for
their management fees and they owned 15% of Stranger Music, Inc. The
evidence supports precisely what Steven Machat has alleged for years. Leonard
Cohen is consumed by greed and he uses corporations to evade taxes.
Leonard Cohen is a hustler now using both Buddhism and Judaism as
facades. He has now stolen from me, Steven and Marty Machat, and possibly
Phil Spector and record producer Bob Johnson.
Leonard Cohen did not return from a
religious pilgrimage, attempt to withdraw money from a bank account to cover a
draft, and discover that he was left without anything. This is merely a
cover story that he has repeated for the news media, in court documents, and on
the witness stand in Lynch’s related trial. Cohen could not simply
abandon his green card, stop living in the U.S., and return to Canada. He
faced tax and residence problems in Canada as well. Leonard Cohen has
made a fortune by touring and selling his paintings and other merchandise.
Cohen has taken the position that he terminated Lynch and due to the
wrongful termination, he owes her a tremendous amount of money. Cohen did
indeed offer Lynch a settlement and as part of that settlement wanted her
assistance in going after his advisers and/or representatives. The
instant legal matter is a scheme on Cohen’s part due, in part, to the fact that
Cohen used and/or wasted assets (including pension assets) ahead of schedule
and he is liable for tax and penalties. Cohen also appears to have other
tax problems with the IRS. He needed to establish that this situation was
Lynch’s fault which it was not. Leonard Cohen had many professional
advisers handling the corporate, tax, accounting, and financial matters on his
behalf. Leonard Cohen has simply attempted to blame his own conduct and
wrongdoing on Lynch and possibly others.
THE
IRS AND FEDERAL TAX MATTERS
Leonard Cohen's motive for
relentlessly targeting Lynch has to do with his tax fraud that Lynch reported
to the IRS. She was used horrendously by
Cohen and others. Mike Taitelman, who
briefly represented Lynch in the spring of 2005, spoke to Robert Kory and
advised Lynch that if she agreed to assist Cohen, they would say she was used
as a pawn; otherwise, they would accuse her of orchestrating this
situation. This targeting continued in
Lynch's 2012 trial. The following
excerpts from Lynch’s related 2012 trial before LA Superior Court relate to the
default judgment in this matter and various tax issues that are at issue with
respect to Leonard Cohen. They also address tax, financial, accounting,
and business documents that Cohen steadfastly refuses to provide Lynch.
Prosecutor Sandra Jo Streeter does not represent the Internal Revenue Service
and is not in a position to falsely accuse Lynch of engaging in an alleged
“ruse” that involves federal tax matters.
Furthermore, Leonard Cohen does indeed have the information required to
prepare and provide Lynch with the IRS required form 1099. Leonard Cohen
steadfastly refuses to withdraw the K-1s issued to Lynch by his entity, LC
Investments, LLC, although Lynch was never a partner on that entity. These K-1s were transmitted to the State of
Kentucky and Internal Revenue Service for the years 2003, 2004, and 2005. Cohen also testified about the default
judgment and alleged that the IRS accepted the default judgment. No
evidence exists to support that testimony but the reason for the instant matter
is wholly apparent.
Prosecutor Sandra Jo Streeter: And
indeed one of the things, the evidence will show, that she talks a lot about is
tax fraud and the need to have the tax return. But the people will submit to
you or show to you that this so-called business relationship, or not honoring
their business relationship, indeed the most important thing that she mentions
every so often the tax statement is merely a ruse. For example ... the evidence
you will see ... that Ms. Lynch specifically asked for her K-1 form ... Let’s
talk a little bit about Ms. Lynch’s need for the tax form or tax returns -- the
evidence will show that Ms. Lynch was Mr. Cohen’s business manager. The
evidence will show that Mr. [sic] Lynch -- Mr. Cohen has no clue as to what a
W-2 form is, a 1099 is, a K-1 form. The evidence will show that Ms. Lynch is
the one that had all of that information, knew all that information. Mr. Cohen
did not have it, does not have it and does not understand what it means. Okay.
(RT 43)
Leonard Cohen Testimony: Q: Now, there
is a mention of the K-1. The people ask you about some other documents. Do you
know what a W-2 is? A: W-2? No, I don’t. Q: How about a 1099? A: A 1099, yes,
is issued by an employer to an employee. Pages 83-84: Page 280: Q: Okay. Now,
do you know what a K-1 is now? A: I have a perfect -- a sense of what it is,
but I wouldn’t be able to teach it. Q: Okay. And is it fair to say that you’ve
gotten emails through the years
referencing a K-1. A: That’s correct.
Leonard Cohen Cross: Two courts had
given me a default --- or one court had given me a default judgment; the other
court affirmed the default judgment. But, more significantly, the IRS accepted
the results of that default judgment and awarded me a tax refund, so Ms. Lynch
had no cause to ask me for any taxation information. (RT 282) That is the
forensic report that Ms. Lynch has been asking for. The only problem is she
doesn’t like the results. (RT 282) [Traditional Holdings] So you had no
involvement with the creation of this company? Cohen: I wasn’t -- it was -- it
was created in some -- some tax purposes. RT 286 The funds in that account …
they were running low? Cohen: I - I discovered that they were being dissipated.
Kelly: And in fact you had actually taken money from that account to buy homes,
correct? Cohen: Yes, I had. Kelly: You took money from that account to buy a
house for your son, correct? RT 287 Cohen: That’s correct. Kelly: To buy a
house for your girlfriend? Cohen: Yes. Kelly: It’s fair to say that you did
take money from that account? Cohen: That’s correct, sir. RT 288
Leonard
Cohen testified that the IRS accepted the results of the default judgment but
no evidence, including with respect to the documents in the IRS binder, support
this position. Leonard Cohen's fraudulent refund was obtained on or around
December 2005, well before the default was entered against Lynch in May 2006.
In March 2007, over a year after Cohen received confirmation of this tax
refund, Lynch met with Agent Sopko and her partner from the U.S. Treasury.
Following that meeting, Lynch received an email from Agent Sopko advising her
to report the allegations of Cohen's criminal tax fraud to Agent Tejeda/IRS and
to provide him with evidence. Lynch has provided the IRS, FBI, DOJ, Treasury,
and FTB with ample evidence supporting these allegations. She also provided the
IRS Commissioner's Staff with the passwords to her email accounts and
authorized the IRS to review and use any pertinent emails in any potential
proceeding. Leonard Cohen suffered no theft loss and has attempted to convert
his tax fraud into a profitable enterprise. Under IRC §165, an individual may
deduct losses arising from “fire, storm, shipwreck, or other casualty or from
theft.” Lynch has now formally challenged the fraudulent refund Cohen received
since discovering it in the IRS binder in April 2012.
It
is now abundantly clear that these transactions were fraudulent sham
transactions and the corporate structures nothing other than shell companies
set up for the sole purpose of Leonard Cohen’s tax evasion and avoidance. In
summary, Leonard Cohen hired Neal Greenberg, Richard Westin, and others, to put
together a tax strategy that would allow him to convert ordinary income to
capital gains tax treatment on the sale of stock.
On
May 12, 2006, a default judgment (that she was neither served nor notified of)
was entered against her. The attachment to the judgment, Item 6, reads, in
pertinent part: “It is declared that (1) Lynch is not the rightful owner of any
assets in Traditional Holdings, LLC, Blue Mist Touring Company, Inc., or any
other entity related to Cohen; (2) that any interest she has in any legal
entities set up for the benefit of Cohen she holds as trustee for Cohen’s
equitable title; (3) that she must return that which she improperly took,
including but not limited to “loans,” and (4) that Cohen has no obligations or
responsibilities to her.”
The
default judgment itself is evidence that Leonard Cohen is the “alter ego” of
these corporate entities and has engaged in self-dealing. Cohen has
failed to adhere to corporate formalities, failed to treat these entities as
separate legal entities, and personally regards the entities themselves as an
extension of himself and the assets as his personal assets.
Disregarding a corporate entity is
known as “piercing the corporate veil.” The following factors are
relevant with respect to the Cohen related entities and his relationship to
them. Cohen testified that the corporate books and records related to these
entities were handled by his lawyer. There is an absence of and
inaccuracies with respect to corporate records; Cohen has concealed and
misrepresented members and/or shareholders; Cohen failed to maintain arm's
length relationships with related entities; Cohen failed to observe corporate
formalities in terms of behavior and documentation; Cohen intermingled the
assets of the corporation and treated them as if they were his personal assets;
There is a significant undercapitalization of the business entities.
There is a lack of a business purpose with respect to these entities.
Cohen personally siphoned corporate funds.
Cohen
clearly views himself as the dominant shareholder of a number of these
corporate entities including, but not limited to, Blue Mist Touring Company,
Inc. and Traditional Holdings, LLC. In fact, he views himself as the only
shareholder although the corporate books, records, agreements, and other
documentation, prove otherwise. These corporate entities were used as a façade
for his personal dealings and the alter ego theory applies. Cohen’s
fiduciary duties fall under three broad categories: the duty of care, the duty
of loyalty, and duties imposed by statute. However, Cohen’s actual loyalties
were subordinated by his personal interests. A fiduciary occupies a
position of trust for another and owes the other a high degree of fidelity and
loyalty. A director owes the corporation the duty to manage the entity's
business with due care. Cohen engaged in self-dealing, acted in bad faith
and negligently, and used these corporate entities to evade taxes. Cohen
also committed fraud, breached many agreements and contracts, and appears to
have engaged in illegal and/or criminal acts. These corporate entities
are shams that have permitted Cohen to engage in fraud and other wrongful acts
solely for his personal benefit. Cohen dominated the corporation’s
finances and business practices so that the corporate entities have no separate
will or existence; the control has resulted in a fraud or wrong, and/or
dishonest or unjust acts; and (3) the control and harm directly caused Kelley
Lynch, and others, egregious injury and unjust loss.
Lynch
had no fiduciary duty to Cohen. She merely owns 15% of Blue Mist Touring
Company, Inc. and the intellectual property. With respect to Traditional
Holdings, LLC, no fiduciary obligation would have arisen until approximately
January 2012. By that time, Cohen’s tax lawyer (for Cohen’s sole benefit)
extinguished the annuity from the federal tax returns and Cohen’s loans and/or
advances totaled millions of dollars. He has steadfastly refused to repay
those loans and/or advances. Furthermore, Cohen hired Neal Greenberg.
Lynch found Greenberg’s investment strategies reprehensible.
Greenberg has now lost all of his clients’ money.
Leonard
Cohen disregarded the separate corporate entity and used these entities as a
tool for personal reasons, merging their separate entities with that of the
corporation and making the corporation merely their alter ego.
Furthermore, Leonard Cohen most definitely engaged in tax fraud.
Tax fraud against the federal government consists of the willful attempt
to evade or defeat the payment of taxes due and owing (I.R.C. §7201).
Lynch believes the evidence and facts prove an overwhelming attempt on
Cohen’s part to evade and defeat taxes due and owing. His sense of greed
and entitlement consumes him regardless of the image he presents to the public.
Leonard
Cohen’s vindictive, fraudulent, and retaliatory activity with respect to Lynch
arises from the fact that she reported his tax fraud to the IRS. On March
6, 2007, Agent Kelly Sopko, U.S. Treasury Department, sent the following email
to Lynch. On April 15, 2005, Lynch reported Cohen’s tax fraud to the IRS.
Agent Sopko and her partner met with Lynch in March 2007 and the
following email advises Lynch to contact Agent Tejeda, Internal Revenue
Service, and provide him with evidence supporting the allegations that Cohen
committed criminal tax fraud.
Good afternoon Ms. Lynch,
Per our meeting last week, I have found
a solid IRS contact that will be better able to assist you. His name is Luis
Tejeda, and he is the head of a fraud group at IRS. I spoke with him today and
advised him that I would be passing on his contact information to you.
Office phone and address redacted.
He emphasized that you will need to put
something in writing - a summary of all important details, with as much
specificity as you have. (For example if you have copies of any paperwork
involved, or social security numbers of people involved …) Once you pass the
information on to him, he will review it and proceed accordingly. As standard
practice, you will not get confirmation that your information was received.
However, you may contact Tejeda to follow-up.
I hope that this information is helpful
to you. If there is anything else I can assist you with, please be sure to let
me know.
Kelly A. Sopko
Special Agent
Treasury IG for Tax Administration
(TIGTA)
Special Inquiries & Intelligence
Division
Lynch
was not served the summons and complaint, or default judgment, in this
matter. She was not served or notified
of the fraudulent restraining order Cohen filed in Los Angeles on May 25, 2011. Lynch is convinced that Cohen, and others,
set out to entrap her using fraudulent restraining orderes. Lack of jurisdiction in its most
fundamental or strict sense means an entire absence of power to hear or
determine the case, an absence of authority over the subject matter or the
parties. When a court lacks jurisdiction in a fundamental sense, an
ensuing judgment is void. The court lacked personal jurisdiction
over
Lynch, Blue Mist Touring Company, Inc., and Traditional Holdings, LLC.
The default judgment itself is evidence of nothing other than theft and self-dealing
on the part of Leonard Cohen.
Lynch
has a legal interest in Traditional Holdings, LLC, Blue Mist Touring Company,
Inc., and other entities. She did not hold her legal shares of these
entities as trustee for Cohen’s equitable title. That assertion is
entirely fraudulent. Lynch has asked the Internal Revenue Service for a
formal opinion with respect to this, and other, matters. That would include,
but is not limited to, the fact that Lynch’s federal tax returns were altered
by default judgment. Finally, Lynch did not make charitable
contributions,
in the form of tax payments, on behalf of Leonard Cohen or any Cohen related
entity.
Executed this 2nd day of August,
2013, at Los Angeles, California. I
declare under penalty of perjury under the laws of the State of California that
the foregoing is true and correct to the best of my knowledge.
____________________________________
Kelley
Lynch