Hiltzik: Getty Family Tax Scam Allegations

Despite how fed up we may be with the hijinks of billionaires trying to use their wealth to make their way in business and government, the lifestyles of the rich and famous still have the power to fascinate and shock.

Consider a lawsuit filed last month in federal court in Brooklyn by Marlena Sonn, who describes herself as the investment advisor to two of the three daughters of Gordon P. Getty, the heir to late oil magnate J Paul Getty.

Sonn claims she helped Getty’s offspring reposition their investment portfolios to emphasize “socially responsible” companies, in part to help them make “reparations…for the fact that the origin of their immense wealth was inextricably linked” to climate change and the plunder of the Amazon basin.

As someone who will pay for all those avoided taxes and costly out-of-state meetings, I find this in poor taste.

–Nicolette Getty, opposing the family’s alleged tax evasion in California

Her advice, she says, has produced great financial success for client trusts, increasing the value of a key trust to more than $1 billion from $600 million in the span of a few years.

But it all came crashing down, she says, when she began to question the trusts’ practice of presenting them and their beneficiaries as domiciled in Nevada, even though they spent most of their time in California or New York.

The goal, according to Sonn, was to evade at least $300 million in California taxes from 2013 through 2021, when she worked for two of the three sisters. That’s Sonn’s estimate of the taxes that might be owed by the only Getty trust in which the sisters have an interest, known as the Pleiades Trust. But there are other Getty trusts; if they all follow the practice alleged by Sonn about the Pleiades, the amount involved could be in the billions.

Sonn says her recommendation to swallow their drugs and comply with California law led to her being fired in retaliation and being cheated out of more than $4 million in salary that she had been promised.

Sonn filed his lawsuit on May 11, naming Kendalle and Alexandra Getty, their personal investment funds, and Robert L. Leberman, who administers several of the Getty family trusts and manages Gordon Getty’s assets.

A few words of caution. Most of the defendants have yet to respond to the lawsuit, so we don’t know how they would describe their relationship with Sonn. Lawyers for the defendants declined or did not respond to my requests for comment.

Kendalle Getty, however, sued Sonn in Reno state court about two weeks after Sonn filed her case. In her lawsuit, which has moved to federal court in Nevada, Getty alleges Sonn “coerced” and “pressured” her to secure Sonn a $2.5 million payment when Getty fired her.

Sonn’s trial bears the hallmarks of an act of revenge. Taken at face value, it is said that Sonn learned that the sisters and their other family advisers were pushing the tax law beyond reasonable limits, she advised her clients to stop doing so and that in retaliation , they sent her back and stiffened her.

Yet Sonn’s allegations are now public and effectively serve as a roadmap for California tax investigators, should they choose to go the route. It is therefore necessary to give them ventilation.

Before that, however, let’s remember how the sisters fit into the history of the Getty family.

Their ancestor J. Paul Getty was judged in the 1950s as the richest man in the United States, and possibly the world, thanks to a fortune built from oil wells in Oklahoma and Saudi Arabia.

Getty was also known as a world-class stingy, famous for installing a payphone in his English mansion for guests and for refusing to pay the ransom demanded by the kidnappers of his grandson John Paul Getty III, lending the giving his own son some of the money and charging him interest on the loan.

Manifestations of his fortune and art collection include the Getty Center and the Getty Villa in Los Angeles.

Tax evasion is steeped in family history, beginning with the original Getty Family Trust and continuing to the creation of the Getty Villa in Pacific Palisades, which architectural historian Martin Filler called it “transparent tax evasion,” and the controversies that swirled around the tax exemption granted to the trust for the Getty Center.

Gordon P. Getty, 88, is the fourth son and heir of J. Paul Getty. If he first launched himself in the oil sector, he preferred to pursue a career as a composer of classical music. In 1986, 10 years after his father’s death, Gordon sold Getty Oil to Texaco for $10 billion.

Gordon had four sons, as far as the outside world knows. In 1999, however, news emerged that he also had three daughters by longtime mistress Cynthia Beck – Nicolette, Kendalle and Alexandra. This became public knowledge when the sisters filed a petition, which was granted, to change their names from Beck to Getty.

Gordon Getty has openly acknowledged the paternity: “Nicolette, Kendalle and Alexandra are my children,” he said. “Their mother, Cynthia Beck, and I love them very much.”

Of the three sisters, all in their thirties, Kendalle, an avant-garde multimedia artist, is perhaps the most prominent public figure. Nicolette is not named as a defendant in Sonn’s lawsuit and does not appear to have been a client of Sonn.

The Getty family trust, of which Gordon and his sons are beneficiaries, was restructured by creating a successor, known as the Pleiades Trust, for the benefit of his daughters. Gordon became the primary beneficiary of Pleiades, which the lawsuit says his daughters will inherit after his death. From 2015 to 2020, Sonn claims, Gordon received about $176 million from the trust. The sisters received modest fees from the trust and loans from their father.

Sonn made history in 2013, when, she says, she took over management of Kendalle’s $5 million portfolio from Goldman Sachs.

Kendalle wanted her investments to reflect her “progressive interests, ethics, and values,” Sonn says; Goldman Sachs had invested its money largely in broad market funds. Alexandra became Sonn’s client later that year. Sonn began attending the quarterly meetings the three sisters had with their father regarding the management of the Pleiades.

Sonn says she became more than a financial advisor to Kendalle, who “regularly turned to Ms. Sonn for relationship advice with various family members, housemates and/or romantic partners.”

She says that “whenever Kendalle was in crisis, she would call on Ms. Sonn … to clean up her mess and help her through her personal issues.” Sonn says she was paid a total of around $180,000 by Kendalle and Alexandra, plus bonuses at the sisters’ discretion.

Kendalle, in her own lawsuit, acknowledges that over the years she has come to “unconditionally trust, accept and depend” on Sonn. She alleges that Sonn used this relationship to arrange an “inflated” bounty, which Sonn disputes.

Sonn says she eventually learned that much of the management of the Pleiades Trust was designed to preserve the “fictional” impression that everything about the trust was domiciled in Nevada, including its clients.

This was important, she says, not only because Nevada has no income tax, but because it has become a recognized tax haven thanks to financial secrecy laws that resemble those of the Cayman Islands.

The first glimmer of this strategy, she says, came when a trust official told her that New York State taxes would not be withheld from her paychecks, even though she lived and worked in the state.

The idea was to eliminate any indication that the trust was doing business in New York, a high-tax state. The main purpose was to show that the trust did all of its business in Nevada – especially not in California, even though “everyone knew” that much of the trust’s business “was continually conducted in and/or from Los Angeles or San Francisco”. Sonn said.

Things came to a head in 2018, when the three sisters lived primarily in California and learned of the state’s “feedback” rule, which allows California to tax trust income if it determines that the beneficiaries were residents of the state when they received the money and while it was accumulating in the trust.

The Getty family, Sonn claims, relied on their political clout in California to minimize that possibility, but it was a “calculated risk.” Among their connections is Governor Gavin Newsom, whose father, Bill, was a lifelong friend and chief financial officer of Gordon Getty. Gordon, who is now a business partner of Gavin Newsom, and other family members have contributed hundreds of thousands of dollars to Newsom’s political campaigns over the years.

The burden of hiding their California presence began to weigh on the sisters, according to Sonn. His lawsuit says they wanted to live openly in California and not worry about taxes.

Nicolette reportedly complained to Leberman in an email about the cost of the strategy, which included “quarterly out-of-state meetings for 30+ people at expensive hotels…using private jets, etc…In As someone who will pay for all those avoided taxes and expensive out-of-state meetings, I find that in bad taste.

According to the lawsuit, “Mrs. Sonn repeatedly encouraged Kendalle and her sisters to only pay California taxes. Sonn says the three sisters eventually went along with Leberman’s advice about pursuing what she calls “the dodgy tax avoidance scheme.” … Ms. Sonn’s dissenting opinions on the matter were no longer welcome.

This may have been particularly the case when she told Kendalle in July 2020 that avoiding California taxes that were properly owed would not be a sign of “integrity regarding the spirit of the law” in accordance with a progressive view.

She says Alexandra fired her in January 2021 with a commitment for $2.5 million severance, but then tried to settle for $30,000. Sonn says she is seeking “just and fair compensation” via the lawsuit. She says Kendalle separately agreed to a severance package of $2.5 million, divided into three annual installments of $833,333, but only paid the first.

There are lessons to be learned here, although they are necessarily conditional, given that we only have one side of the story left.

If there’s a corollary to Benjamin Franklin’s observation that death and taxes are the only certainties in the world, it’s that the 1% will defend their tax benefits to the last drop of blood.

Even if Sonn’s lawsuit is an act of revenge, it could still be a public service. If she’s right that Gordon Getty and his daughters ripped off the state of California out of $300 million or more, remember that you, the ordinary taxpayer, got the bill.

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Post expires at 9:50pm on Sunday July 3rd, 2022