Appendix Two: MAGLOCLEN

Part: 
Four
Chapter: 
4
MAGLOCLEN (Middle Atlantic-Great Lakes Organized Crime Law Enforcement Network) is one of six federally funded Regional Information Sharing Systems (RISS program). These systems are administered by the Bureau of Justice Assistance, United States Department of Justice, and received nine point nine million dollars ($9,900,000) from Congress to fund fiscal 1986 operations. These systems cover the nation, providing support services to local, state, provincial and federal agencies investigating major criminal conspiracies. They serve over one hundred fifty thousand sworn employees in about two thousand departments. Through 1984, the projects supported cases which resulted in the seizure or recovery of nearly two billion dollars ($2,000,000,000) worth of narcotics, currency and other property.

MAGLOCLEN and its sister projects provide services to their members including access to a computerized data base on major criminals, training, investigative equipment on loan, funding for undercover operations, publications, referrals and the analysis of criminal information.

It is within the context of the latter service -- the analysis of criminal information -- that I appear before you today. One of my responsibilities at MAGLOCLEN is the work of the Analytical Unit. I developed that unit and have been responsible for its output since June of 1981.

In that capacity, I supervise analytical work, complete selected analytical products each year and provide both basic and advanced analytical training to law enforcement officers throughout our region.

In addition, I am currently co-editing the first textbook on analysis, which will be published during 1986. And, I am a Director of the International Association of Law Enforcement Intelligence Analysts, otherwise known as IALEIA, the professional organization for analysts. That organization recognized MAGLOCLEN's work during 1985 as making the "most significant progress in utilizing intelligence analytical techniques in support of law enforcement objectives."

Law enforcement analysis is the- compilation, summarization and presentation of criminal data in a form which can be understood by non-analysts. The products of such an analysis can include written reports, charts, matrices and listings which accurately convey the data and from which the meaning of the data can be derived.

MAGLOCLEN chose pornography as one of its six criminal targets when it first began, in 1981. From the onset, we were interested in the white collar crime potential which the pornography industry affords to its participants.

There were several reasons we thought white collar crime might be in evidence. Pornography and sexual aids are sold primarily for cash. Goods are sold at an enormous markup over production costs. The market for these products is large, yet relatively covert. Under these circumstances, it appeared to us that there was an atmosphere conducive to profit skimming, monopolization, using paper corporate fronts to hide actual interests, and tax evasion. Subsequent indictments alleged all of these, and more, as being perpetrated in one conspiracy which was headed by Reuben Sturman.

The analytical report titled "Reuben Sturman's Pornography Empire" included four charts, a written summary and a listing of all individuals and entities included in the charts. This work was completed in September of 1985 at the request of the Cleveland Police Department.

The report utilizes information provided by law enforcement agencies in the form of investigative reports, published documents and legal filings. It should be noted that MAGLOCLEN and the other RISS projects do not investigate cases in an operational manner, but gather data from line police agencies to perform information sharing and analytical services.

The efforts of the Internal Revenue Service and many other local and federal agencies must be commended. The paper trails and documents which they had to follow to complete such a case required a tremendous effort.

This analysis updated previous work done by MAGLOCLEN in 1984. The new material combined with previously held data as the indictment of Sturman in the case U. S. VS REUBEN STURMAN, filed June 27, 1985 and investigative data provided by agencies.

In summary, it has been alleged that Sturman has financial control of nearly two hundred businesses in nineteen states, one Canadian province and six foreign countries. That data has been transposed on to three charts which, if I may, I would like to briefly explain.

The first two charts relate to Sturman's associations. with businesses and individuals. The first chart is entitled "STURMAN ASSOCIATES". Associates are defined as either business associates, indicted or non-indicted co-conspirators, or both.

Sixty-five individuals are named in this chart as being associates of Reuben Sturman. Nearly ninety percent of these individuals have been named in a lawsuit with Sturman. Eight were named in suits against Sturman in both 1982 and 198-5. The primary associates appear on the left side of the chart. They include Ronald Braverman, James Olsafsky, Melvin Kaminsky, Marjorie Rollins, Scott A. Dormen, Paula Lawrence, Ralph L. Levine, Edward Seltzer and David Sturman.

The second chart shows "STURMAN BUSINESS ASSOCIATIONS." It breaks down one hundred and ninety six businesses into eight categories and shows their association to Sturman.. Those categories include:

  1. Companies controlled by MAGCORP, Sturman's primary company (nine companies)
  2. Companies Sturman owned through unidentified nominees (four companies)
  3. Companies Sturman owned through BLACK SHIELD, INC. as his nominee (six companies)
  4. Foreign corporations used as fronts for Sturman business activities (seventeen companies)
  5. Companies Sturman owned or controlled through WILSON & CO. as owner or shares nominee (one hundred companies)
  6. Businesses owned by Sturman in which he had or has a financial interest (sixteen companies)
  7. Foreign corporations used as fronts for specific Sturman U.S. companies (ten foreign and ten U.S. companies)
  8. Businesses that were co-defendants in a 1982 lawsuit which claimed they were controlled by him (twenty four companies)

These companies stretch, geographically, from Massachusetts to California, from Michigan to Florida. The states which include the most known Sturman-associated businesses are:

Ohio - 35 businesses
California - 24 businesses
Illinois - 15 businesses
Pennsylvania - 14 businesses
Michigan- 13 businesses
Maryland - 11 businesses
New Jersey - 10 businesses

These seven states account for sixty-two percent, or almost two-thirds, of all known locations of Sturman businesses.

Outside of the United States, Sturman related businesses have been found in the province of Ontario, in Canada (which is also, by the way, part of MAGLOCLEN's network), in Great Britain, Panama, Liberia, the Netherlands, and Lichtenstein. A sixth foreign country, Switzerland, enters the picture through bank accounts established for several Sturman associates and some of these foreign corporations in Swiss banks.

Chart three shows "TRANSFERS AMONG BUSINESSES ASSOCIATED WITH REUBEN STURMAN."

To the left on this chart, financial transactions are depicted involving INTERNATIONAL BANCORPEST, UNITED CALIFORNIA BANK offices in New York and London. On June 22, 1978 GLOBAL FILM DISTRIBUTORS ESTABLISHMENT, a Lichtenstein company, transferred fifty thousand dollars ($50,000) to a BANCORPEST office in New York.

The following day, SICORAN ESTABLISHMENT, another Lichtenstein corporation, transferred fifty nine thousand four hundred dollars ($59,400) to the New York office of BANCORPEST.

Two weeks later, on July 2, a check was written from BANCORPEST to NORTHERN PROPERTIES in the amount of fifty nine thousand three hundred dollars ($59,300). NORTHERN PROPERTIES is a Cleveland, Ohio, company alleged to be owned by WILSON & COMPANY as nominee for Sturman. The president of the company was Charles King and the vice president was Marjorie Rollins, long time personal secretary to Sturman.

On July 28, 1978, NORTHERN PROPERTIES paid sixty-three thousand eight hundred dollars ($83,800) to the Cleveland Federal Savings bank for the purchase of 3021 Attleboro Road, Shaker Heights Ohio, the personal residence of Reuben Sturman. NORTHERN PROPERTIES and Sturman further executed a mortgage for one hundred and thirty thousand dollars ($130,000) for the property also on that date.

Between September 1975 and July of 1978, Sturman associates deposited three hundred and eleven thousand dollars ($31,000) in cash into the INTERNATIONAL BANCORPEST, UNITED CALIFORNIA BANK office in London, England.

Ronald Braverman, using the name of "John Hastings," delivered ninety five thousand dollars ($95,000) in U.S. currency to this bank on September 30, 1975. On May 8, 1978, he used the name "John Hayes" and delivered eighteen thousand dollars ($18,000) in currency to this branch of the bank.

Edward Seltzer, another Sturman associate, was also a courier. Using the name "Morton Weiss," Seltzer delivered one hundred fifteen thousand dollars ($115,000) in currency to the London office of the UNITED CALIFORNIA BANK on April 5, 1978. And, on July 19 of that year, using the name of "Ralph Seltzer," he delivered eighty three thousand dollars ($83,000) in currency to the bank branch. In total, four hundred twenty thousand and four hundred dollars ($420,400) was shown as transferred or deposited into this bank by Sturman associates.

During 1977, NORTHERN PROPERTIES was again used to purchase property for the Sturmans. On April 1, 1977, David Sturman and NORTHERN agreed to buy a single family home at 12908 Westchester Trail, Chesterland, Ohio, for ninety three thousand dollars ($93,000).

On April 27, 1977, NORTHERN, Reuben Sturman and David Sturman executed a mortgage note for the amount of fifty thousand dollars ($50,000), presumably for the house on Westchester Trail. On June 17, 1977, forty three thousand four hundred and fifty dollars ($43,450) was wire transferred from FABRICORA ESTABLISHMENT, alleged to be a Sturman corporate front, to NORTHERN PROPERTIES. FABRICORA is a Panama corporation begun in 1975 by Swiss attorney Jorg Haemmerli.

FABRICORA was also used, it is seen on the chart, to transfer funds into a United Kingdom corporation, STONEREALM, LTD. On August 9, 1979, FABRICORA transferred eighty thousand dollars ($80,000) to STONEREALM.

STONEREALM was incorporated on May 10, 1975. Less than one month later, Ronald Braverman, long time employee and associate of Reubenn Sturman, applied to transfer a total of fifty thousand pounds (L50,000) into STONEREALM.

Forty five thousand (45,000) was to be a loan and five thousand pounds (L5,000) was listed as an investment. STONEREALM's 1977 corporate filing showed Braverman as owning fifty percent of the company's stock.

STONEREALM also received financial support from a third Sturman related source -- the Societe Financiere et Commerciale, S.A., a Liberian corporation. On December 5, 1978, the Societe transferred sixty thousand dollars ($80,000) to Barclay's Bank in London for credit to STONEREALM's account. And later, on April 17, 1980, Reuben Sturman, using the alias of "Robert Stern," issued a check to STONEREALM from the SOCIETE for fifty five thousand dollars ($55,000).

In total, the indictment documented STONEREALM's receipt of one hundred ninety five thousand dollars ($195,000) plus fifty thousand pounds (L50,000) from Sturman related entities.

The SOCIETE FINANCIERE ET COMMERCIALE was incorporated in 1978 by three individuals who then transferred their shares of stock to David A. Sturman, Reuben Sturman's son and business associate. When the corporation's Swiss bank account was opened, David A. Sturman, Ronald Braverman and "Robert Stern" (Reubeg Sturman) were signators.

On August 28, 1979, a five hundred thousand dollar ($500,000) check from the Weissbard & Fields Trust account in Washington, D.C. was deposited into the SOCIETE account.

On September 12, 1979, two cashier's checks written on the Superior Savings Association in Cleveland totalling one hundred and nine thousand dollars ($109,000) were deposited in the Swiss SOCIETE account.

Between November 8, 1980, and January 7, 1981, seven checks totalling thirty five thousand dollars ($35,000) and signed by "Robert Stern" were deposited into the account. Most were written on accounts in two Ohio savings banks.

The total of deposits shown as going to the SOCIETE account were six hundred forty four thousand dollars ($644,000). On the debit side, in addition to its support of Braverman's STONEREALM, SOCIETE funneled dollars to several businesses including MARCHE MANUFACTURING in North Hollywood, California. MARCHE, also known as DOC JOHNSON'S or LOVELAY Co., specializes in sexual paraphernalia. It was named as a co-defendant in the 1982 lawsuit against Sturman and his companies. A check for fifty thousand dollars ($50,000) was written on the SOCIETE account for MARCHE on September 7, 1978.

The SOCIETE's Swiss account also showed six transfers of funds to "JOE P. ENTERPRISES" totalling four hundred thousand dollars ($400,000). These transfers occurred between June 15, 1981 and March 12, 1982. The location and identity of JOE P. ENTERPRISES was not revealed in the indictment. This company, however, also received a check for fifty thousand dollars ($50,000) from MASGRO FILM INTERNATIONAL on October 7, 1981. MASGRO is a Panamanian company incorporated during 1975.

Additionally, on September 8, 1981, "Robert Stern" signed two checks totalling nineteen thousand nine hundred and ninety seven dollars ($19,997) which were deposited in the MASGRO Swiss bank account.

The inference which can be drawn from these transfers is that there was an intent to cover audit trails, launder funds and hide participation by Sturman and his cohorts in various transactions and companies.

Yet these examples form only a portion of the questionable activities uncovered to date by local, state and federal investigators in relation to Sturman corporations. The IRS alleges that for the five years between 1978 and 1982, Sturman had a personal income of three million three hundred ninety nine thousand seven hundred and thirty four dollars ($3,399,734), or an average income of six hundred seventy nine thousand, nine• hundred and forty six dollars and eighty cents ($879,948.80) per year.

Over that same period, he claimed an income of only three hundred sixty three thousand six hundred and nine dollars ($383,809), which represents about ten point five percent (10.5%) of his total income as uncovered by IRS. During those years, he paid one hundred thirty seven thousand seven hundred and forty five dollars ($137,745) in income taxes. The IRS contends that he evaded over ono point six million dollars ($1,600,000) in taxes.

And, this figure could well be just the tip of the iceberg. If his personal taxes were underreported, what of his corporate tax liabilities for dozens of businesses? Indeed, it may take a platoon of investigators, analysts and accountants to find the ?bottom line' in Sturman's business dealings.

But the Sturman case has import beyond his personal empire or his tax bill. Through his manipulations, we can see how white collar crime can work in the pornography industry and in other settings. The analytical product "REUBEN STURMAN'S PORNOGRAPHY EMPIRE" was not completed to merely summarize a complicated case. It was done to show law enforcement investigators what types of white collar criminal activity has occurred and may recur.

Further, it was done to disseminate to law enforcement agencies the identification data of individuals and entities included in the analysis. By having this data, law enforcement agencies may be able to ascertain the connections between their local pornography industry and this massive conspiracy.

Analysis and information sharing are the bases of the RISS projects. We believe that collecting, compiling, analyzing and sharing this type of information will make law enforcement, nationwide, more effective in their anti-crime efforts. Our projects were designed and funded to do this work and, with the support of the Congress, we will continue to do so.

Again, we thank you for the opportunity to testify at these hearings.