Leona Helmsley - Tax Evasion Conviction

Tax Evasion Conviction

Despite the Helmsleys' tremendous wealth (net worth over a billion dollars), they were known for disputing payments to contractors and vendors. One of these disputes would prove to be their undoing.

In 1983 the Helmsleys bought Dunnellen Hall, a 21-room mansion in Greenwich, Connecticut, to use as a weekend retreat. The property cost $11 million, but the Helmsleys wanted to make it even more luxurious than it had been before. Jeremiah McCarthy, a Helmsley executive engineer, was initially put in charge of the operation. McCarthy claims that Leona repeatedly demanded that he sign illegal invoices designed to illegally bill personal expenses to the estate. According to Ransdell Peirson's "The Queen of Mean", when McCarthy declined to do so she exploded with tyrannical outbursts claiming, "You're not my fucking partner! You'll sign what I tell you to sign."

The remodeling bill came to $8 million, which the Helmsleys were loath to pay – as well as taxes written off the project. A group of contractors went to court to get most of the money; the Helmsleys eventually paid off most of the debt. In 1985, during these proceedings, the contractors revealed that most of their work was being illegally billed to the Helmsleys' hotels as business expenses. The work included a million-dollar dance floor, a silver clock and a mahogany card table. Enraged, the contractors sent a stack of invoices to the New York Post to prove that the Helmsleys were trying to write their work off in this manner. The resulting Post story led to a federal criminal investigation. In 1988, then United States Attorney Rudy Giuliani indicted the Helmsleys and two of their associates on several tax-related charges, as well as extortion.

The trial was delayed until the summer of 1989 due to numerous motions by the Helmsleys' attorneys—most of them related to Harry's health. He had begun to appear enfeebled shortly after the beginning of his relationship with Leona Helmsley years before, and had recently suffered a stroke on top of a pre-existing heart condition. Ultimately, he was ruled mentally and physically unfit to stand trial, and Leona had to face the charges alone.

At trial, a former Helmsley-Spear executive, Paul Ruffino, said that he refused to sign phony invoices illegally billing the company for work done on the Helmsely's Connecticut mansion. Ruffino, originally engaged to assist Helmsley through the Hospitality Management Services arm, said that Leona fired him on several different occasions for refusing to sign the bills, but Harry would usually tell him to ignore her and to come back to work. Another one of the key witnesses was a former housekeeper at the Helmsley home, Elizabeth Baum, who recounted having the following exchange with Leona Helmsley four to six weeks after being hired in September 1983:

I said: "You must pay a lot of taxes". She said: "We don't pay taxes. Only the little people pay taxes."
–Elizabeth Baum, former housekeeper to Helmsley (October 1983)

Helmsley denied saying this. Helmsley's former employees testified at trial "about how they feared her, with one recalling how she casually fired him while she was being fitted for a dress." Most legal observers felt that Mrs. Helmsley's hostile personality, arrogance, and "naked greed" alienated the jurors.

On August 30, Helmsley was convicted and sentenced of one count of conspiracy to defraud the United States, three counts of tax evasion, three counts of filing false personal tax returns, sixteen counts of assisting in the filing of false corporate and partnership tax returns, and ten counts of mail fraud.

She was, however, acquitted of extortion—a charge that could have sent her to prison for the rest of her life. She was sentenced to 16 years in prison, but eventually had that sentence significantly reduced when all but eight of the charges were dropped. Nonetheless, when it was clear she was going to jail, she collapsed outside the courthouse, later diagnosed with a heart irregularity and hypertension.

Helmsley's new lawyer, retained to appeal the judgment, was Alan Dershowitz. Following the appeal, which resulted in a reduced sentence, she was ordered to report to prison on tax day, April 15, 1992. Her Federal Bureau of Prisons (BOP) Register number was 15113-054, and she was released from BOP custody on January 26, 1994.