CIA GOT IRS TO DELAY AUDIT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00494R001100700188-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 2
• Document Creation Date: December 22, 2016
• Document Release Date: July 26, 2010
• Sequence Number: 188
• Publication Date: December 27, 1984
• Content Type: OPEN SOURCE

Approved For Release 2010/07/26 :CIA-RDP90-004948001100700188-2
t YJASHINGTON POST
27 December 1984
Intelligence Agency ~czs Probing Its Ties to Investment Firm
B~? Howard Kurtz
K'a~hington Post Staff Writer '
Early last year, Central Intelli-
gence Agency officials asked the
Internal Revenue Service to delay
an audit of a Honolulu investment ;
fum so the CIA could investigate its
ties to the firm.
.After a brief inquiry, the CIA or-
dered two of its agents to withdraw
their ~;~oney from the firm, which '
was providing a cover for some co-
vert agents, but tool: no further
action. Sig: mo:;tla later, the firm
collapsed, costing in~?estors S22
ni'.lron i:l ~~:~at prosecutors say was
a massi~?e f-aud.
in~?es:i~a:ca b}? t:~e Securities
s-d Exchznge Commission, the
Federal Deposit Insurance Corp.
and the IRS also failed to uncover
.-the controversial dealings that led
_ ~ to the firm's banlcr?uptcy in the sum-
mer of 1953 z.^.d its chairman's re-
cent indictment on fraud charges.
CIA general counsel Stanley
Sporkin said he ordered the two
agents to withdraw their money
because it was i.?nproper for them to
invest in a company that dealt at
times azth the "agency. But Sporkin
said that the CIA review was lim-
ited and that the agency did not
learn of the alleged fraudulent ac- .
tivities until after the firm's bank-
ruptcy.
Several other CIA employes in-
' vested in the firm azthout their su-
periors' knowledge and lost money
when it collapsed, according to in-
telligence sources. They said one '
. employe's mother had invested her
life savings. . ~ ,
Ronald R Rewald, :chairman ' of
Bishop, Baldwin, Rewald, Dilling-
ham & Wong, was indicted in Au-
gust on charges of defrauding about
400 investors, including several
retired senior military officers. Re-
wald also was charged with tax eva-
sion and perjury.
Rewald, 41, is contesting the
charges, saying the CIA helped fi-
nance and operate the firm to con-
duct intelligence operations in the
Far East. Afore than a dozen invest-
~Q~ I~~~ ~~ ~~~~5
ors have joined in ~ damage suits
against the CIA, which says that it
had only "a slight involvement" with
Rewald's firm.
Thomas Hayes, court-appointed
bankruptcy trustee for Bishop,
Baldwin, said in a telephone inter-
view that the CIA had. a "deeper
involvement" and a "greater close-
ness" with the firm than the agency
has acknowledged.
Hayes said he based -this conclu-
sion on classified documents in the
case but could not provide specifics
because he had agreed not to dis-
close the contents.
Hayes said he is "suspicious" of
the fact that the two CL4 agents
?7thdrew. their money-$135,000
in one case-three to four months
before Bishop, Baldwin's collapse.
"If [the CIAJ found out Rewald was
a scam and they quietly tried to fold
their tent and walk away ...then
they are guilty of contributory neg-
ligence," he said.
Hayes said the CIA's failure to
uncover Rewald's alleged fraudu-
lent activities "allowed him to con=
time the scam; otherwise, this
thing could have collapsed a year
before it did."
"It took me about an hour to fig-
ure out that .this was a 'Ponzi'
scheme," he said, referring to a firm
with no actual investments. _ "This
-outfit never kept anp books and I
records. Anyone with a modicum of
intelligence-particularly if they're
from the SEC or the IRS-it would
be incredible if they wouldn't find
,out something was .seriously
_wrong."
.. Sporlun, Via, former. chief . of en-
forcement at. the SEC, said lie de-
termined in early 1983 that it was
"a conflict of interest" for the CJ:A ,
agents to have any financial deal-
~ings with Bishop, Baldwin. This fol-
lowed the CIA request that the IRS
5porkin said the CIA's review
also convinced him that 'eve didn't
want to have anything to do with.
someone who was using the agency
as an excuse for not taking care' of
his problems v~ith the IRS. It was
very straightforward. Ithink it was
the right de.cision."
One of the agents, known by the
aitas Richard Cavannaugh, has re-
signed. The other agent, jack ltar-
din, who headed the CIA's public
office in Hawaii, has been trans-
ferred and could not be reached for
comment.
Another intelligence official
called Rewald's claims of extensive
CIA invoh~ement in the firm "sheer
fiction. ?'e never had ary ~hiag to do
?~th the financial operations of the
outfit; this idiot provided a cover for
some of o?,:r guys.
'7f we'd knov:n it ~cas a scam,
~ti?e'd have done a lot of things dif-
ferently," the official said. "The only
charge that could be leveled against
t1?~e CIA is one of stupidity."
The CIA was not alone in failing
to find out what was going on at
Bishop, Baldwin, Rewald, billing- '
ham & ~'Pong. Dozens of sophisti-
cated investors were lured to the
fum by promises that they would
receive at least a 20 percent return
on their money, and initial investors
made money.
VPhat they did not know is that
none of the other Warned partners,'
except president Sunlin Wong, ex-
isted; they were simply the names
of old-line Hawaiian families. Wong
pleaded gu~7ty to fraud charges last ':
June and is serving a two-year pris-
on term. - ~ .
The SEC was the fast federal
agency to examine the company, a .
registered securities bioker: When '?
SEC officials went to Honoluu and
asked to ~ see thc firm's ~ financial
books in 1981, Rewald said most of ;
his records were ~in California, ac-
cording to Hayes:
Rewald also told the SEC that he
was not selling securities to his cli-
ents, but the indictment . later
charged that this was his principal
business. The SEC issued a routine ,
report on the firmm in 1982 and sent
IIYt L~.i.-~tti .
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Re??ald a letter urging him to keep
t:mel}? records cn the premises,
officizls said.
"'T'hose kinds of examinations are
just rot designed to detect a fraud
of that magnitude," one SEC official
said. "You take a quick look at the
boom ..~-rd records to make sure
ever}?t:~ing is in order."
In the fall of 1982, Rewald's law-
ish life st}?le attracted the attention
of the IRS. Agent Joseph Camplone,
who lived in the same Honolulu
neighborhood, noticed that Rewald
vzs sending his children to baseball
practice in limousines, according to
sources familiar with the IRS probe. ;
Rewald also was flaunting his
wealth at his posh Hawaii Polo Club,'
where he entertained foreign dig-
nitaries.
Camplone found that Rewald had
reported no taxable income for
1979 and 1980 and had filed no re- j
turn for 1981. Re~,ald earned i
~1i1,~~0 in 1?79, 5414,160 in
I?~t ~-d ~e?1,112 ir. I981, ac-
co: ~;~~ to the indictment.
Re:~~a;d also told Camplone that
':;is recc:cs v:e:e en the arrest
mac,-~t, t:.~ so~~~ces said. But memos
;written by Rewald show that he
tried to have the CIA stop the IRS
audit en grounds that it would com-
promise covert' operations.
The subject came up in what Re-
wald sz}-s vas a Nov. 29, 1982, con-
versation that he taped with the
CIA's Rzrdin. According to the
transcript:.
Rewald: "Jack, has the agency got
back to you on my tax problem?"
Rardin: "No, not yet, but I .: .
should have some information to-
day, Ithink."
Rewald, later. "I don't want any
problems with the IRS." .
Rardin: "No, I know. Sure don't.- ,
We don't, either."
Rewald says he also complained ?.
to the former head of the CIA's Ho-
nolulu office, Jack Kindschi, then
serving as a consultant to the firm. .
In January 1983, the CIA had 'the ~~
IRS delay the audit for two weeks.
Assessing Rewald's purported ~'
. evidence of extensive involvement
in CIA-backed arms deals and es-
pionage is difficult because he is
under indictment for perjury. At a
minimum, however, the firm pro-
vided covers for agents such as
"Cavannaugh," who was given busi-
ness cards for a Bishop, Baldwin ;
subsidiary czlled ClllI Investments.
In the spring of 1983, after Spor-
kin's order, the two CIA agents
withdrew their money from Bishop,
Baldwin. According to Hayes,
Cavannaugh withdrew his 590,000
investment and $45,000 in earn-
ings, and Rardin withdrew his
$2,800 investment.
In a letter to Rewald, reported b}'
The Honolulu Advertiser, Caran-
naughwrote:
"Thanks for getting ever}?thing
closed out for me. Unfortunately
from my view, but at least it clears
the air with my home office who are
now seemingly satisfied that there
is no `apparent' conflict of interest,
but must be Simon pure."
Cavannaugh added: "I also as-
sume that your `tax problem' with
CIvII has been taken care of."
Days before Bishop, Baldwin col-
lapsed, Rewald sent Kindschi
$175,000 that the former CIA
agent and his mother had invested
in the firm. Kindschi's attorney said
Kindschi did not ask for the mone~?.
I{indschi and Rardin have re-
turned their money and a;reed to
stand in Line with other creditors.
Hayes has sued under banyruptcy
law to recover the 5145,000 from
Cavanr-augh as a premature with-
drawal.
Still another federal agency, the
.FDIC, entered the case in the
spring of 1983. Bishop, Baldwin had
been claiming in promotional bra
chores that investors' deposits "are
insured by the FDIC to a limit per
account of $150,400." Skeptical
investors sent copies to the FDIC,
which insures only hank deposits.-
FDIC attorney Roger Hood said
he wrote the firm in June 1983 and
"told them it's a criminal vio}ation
to falsely represent deposit insur-
ance." While he could have referred
the matter to the Justice Depart-
ment, Hood said, a Bishop, Baldwin
lawyer assured him that the erro-
neous claim had been made by
"overeager sales people" and that
the, practice had been stopped.
"At that point,'we were willing to
see what .happened," Hood said.
"We had no reason: to believe they
-they. were .anything other .than a
reputable firm."
Hood said he "began to be a little
suspicious" when he received fur-
ther complaints that the firm Ras
claiming FDIC insurance. Tbe in-
dictment alleges that Rewald had
authorized such claims.
?'hen Camplone resIImed his tax
audit, sources said, Bishop, Baldwin
turned o~?er some records and
stopped cooperating. =The indict-
ment alleges that Rewald spent
mere than S5 million in company
funds on cars, women, polo ponies
and caner p~rsoaal expenses.
L~ April 1983, Camplone sought a
court sLmmons for the firm's
records, but it was delayed about
four noaL`is. The request was made
to the U.S. attorney's office in Ho-
nolulu, where sources said it was
regarded as routine, and was filed
in court on Ju}y 25, 1983. Rewald
was ordered to produce the records
by mid-August. ?
By that tune, the SEC had re-
ceived new i;nforraatioa and was
again examining Bishop, Baldwin.
Its suspidoas about the company's
cash situation aroused, SEC nffidals
had given Rev,-ald until Aug. IO to
deposit rncney it a Honolulu haul; to
coti?e: all i:.ti?estors' deposits,
State.e~;ciGls also asked to see
Re~ald's records, and a lo~,.z1 tele-
~:sicn station aired a report oa the
f:rn?,'s pro;,lems.
On July 29, 1983, Rewald
checked into the Sheraton ?'aikili
Hotel and slit his wrists. He was
dis~vered by a hotel clerk and lat-
er recovered.
leeks later, as investigators
picked up the pieces, the SEC ob-
tained aninjunction to bar Rewald
from trading securities and made
the order final in an agreement ties
month Trustee Hayes said the SEC
was moving a bit late.
"That was just to cover them-
selves, to improve their statistics,"
he said. "It's ridiculous, We're a
banl~upt corporation."
Special corsesporident Walter
Wright contributed to this report:
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