------------------------------------------------------------------- F.A.C.T.Net, Inc. (Fight Against Coercive Tactics Network, Incorporated) a non-profit computer bulletin board and electronic library 601 16th St. #C-217 Golden, Colorado 80401 USA BBS 303 530-1942 FAX 303 530-2950 Office 303 473-0111 This document is part of an electronic lending library and preservational electronic archive. F.A.C.T.Net does not sell documents, it only lends them according to the terms of your library cardholder agreement with F.A.C.T.Net, Inc. ===================================================================== _________________________________________________________________ 1. CURRENT FILE NAME: APP1A.TXT 2. ADMINISTRATIVE CODE:OK 3. SECURITY CODE:GP 4. DISTRIBUTION CODE:PDMCF 5. DESCRIPTIVE NAME FOR BBS: Scientology's Past Financial Fraud and Their Current Alleged One-Half Billion Dollar Fraud in the Wollersheim Case. This appendix was submitted in sum and substance to the California Court of Appeals, the California Supreme Court and the U.S. Supreme Court as an appendix to existing briefs in the Wollersheim case. Their purpose was to inform the court as to the actual history, nature, activities, and goals of Scientology as opposed to what Scientology's propaganda machine would like the court to believe. Must Reading for someone interested in Scientology's financial history. 6. SORT TO: ONE COPY TO IN SCIENTOLOGY LEGAL\WOLLERSHEIM, ONE COPY TO GENERAL 7. CONTRIBUTOR: IMHO-LAWRENCE WOLLERSHEIM 8. LOC. OF ORIG. OR IMAGE FILE: LAWRENCE WOLLERSHEIM & F.A.C.T. 9. NOTES: 10. FINAL PROOFING DONE ON (DATE): 11. FINAL PROOFING DONE BY: 12. FINAL INDEXING DONE ON (DATE): 13. FINAL INDEXING DONE BY: _________________________________________________________________ \App 1 - Financial Fraud\Page.00001 APPENDIX 1 SCIENTOLOGY'S PAST FINANCIAL FRAUD AND THEIR CURRENT ALLEGED ONE HALF BILLION DOLLAR FRAUD IN THE WOLLERSHEIM CASE1 SCIENTOLOGY'S FINANCIAL HISTORY OF FRAUD A short history of Scientology's previous financial misconduct and fraud is particularly relevant to the latter details on Scientology's current 1\2 billion dollar fraud on the court as alleged the Wollersheim case. In 1969, the Court of Claims decided Founding Church of Scientology v. United States, 188 Ct. C1. 490, 412 F. 2d 1197. The case involved the then mother Church of Scientology for 1956 through 1959. Scientology was denied a tax exempt status because payments were disguised and a portion of Scientology's income was secretly going to Scientology's founder, L Ron Hubbard and his family. ~n 1984, the tax court decided another Scientology case, the Church of Scientology of California v. Commissioner. The case concerned the "new" mother church for the years 1970 through 1972.L Again Scientology was denied tax exempt status for covertly funneling money to Hubbard and his family, this time through dummy and sham corporations. This newer asset-skimming during the 70's involved money laundering through Panama and then transferring it to Switzerland and other foreign bank accounts. In this decision, the court states: OTC, ~Operion Transport Corp. Ltd.], was a sham corporation controlled by L Ron Hubbard and petitioner [C.S.C.], p. 399....Its board of directors lacked bona fides, p. 399.....To disguise these payments as debt repayment and to conceal the OTC sham a cover story was developed, p.439. 1. These materials in greatest part were part of the request to the government requesting a new criminal investigation into Scientology. 2.Church of Scientology v. Commissioner of Internal Revenue, 83 T.C. 381 Aff'd, 823 F.2d 9th Cir. (1987) cert. den. 486 U.S. 108 S. Ct. 1752 (198B). Also see Hernandez v. Commissioner of Internal Revenue 104 S.Ct. 2136,2142 n.4 (1989). 3. From Founding Church, (188 Ct. C1. 490, 412 F. 2d. 1 \App 1 - Financial Fraud\Page.00002 In pursuit of the conspi racy, petitioner f iled fal se tax returns, burglarized IRS offices, stole IRS docu- ments, and harassed, delayed, and obstructed IRS agents Petitioner gave false info rmation to, and concealed relevant information from, the IRS about its corporate structure and relationship to OTC .... CHURCH MEMBERS AT THE AT THE HIGHEST LEVELS OF THE HIERARCHY, NOT JUST ORDINARY CHURCH MEMBERS, PART ICl- PATED IN THE CONSPIRACY,(emphasis added.)" p. 505-506. In this decision, the court states that in the spring of 1975 the Guardian's office personnel (an intelligence division of the mother church): "engaged in a project to falsify petitioners' financial records. The project was undertaken in anticipation of an IRS audit p. 436-437....During the years in issue these other percentages, fees, and commissions, so far as the record shows, were apparently received or re- ceivable [from Scientology organi zations] by Hubbard for his personal use. Such an arrangement suggests a franchise network for private profit and, in turn, casts doubt upon the propriety of the payments by plaintiff to Hubbard and the members of his family. The fact that Hubbard was the recipient of income from the plaintiff in the form of royalties and commissions likewise occasions the inference of personal gain...Not only can these payments in the absence of explanation, be properly attributable to the individuals as income, but the logical inference can be drawn that these payments were disguised and unjustified distributions of plaintiff's earnings. On July 8, 1988 the IRS rendered its Final Adverse Ruling to the newest mother church, the Church of Spiritual Technology (COST). This corporate entity was formed in part from stripped Church of Scientology of California's assets (the previous mother church). In this ruling, the IRS denies tax exempt status to the alleged now "reformed" new mother Scientology church. Again, new and intermediary dummy or shell corporations were used to funnel money to L Ron Hubbard for his private benefit. "The same persons who were in charge of Scientology prior to Mr. Hubbard's death hold positions of control or influence in some of these new organizations...Thus as happened in the Church of California case, the income of an allegedly exempt organization, (Church of Spiritual Technol ogy shoul d it obtain recogni t i on of exemption), will be passed through a for profit corpo- ration which is controlled by persons who also hold positions of influence in the Scientology structure...." "Such self dealing does not lose its identity as pri- vate benefit and inurement merely because it is con- 2 \App 1 - Financial Fraud\Page.00003 ducted through intermediary individuals and\or organi- zations." From the IRS's Final Adverse Ruling of July 8, 1988 to Church of Spiritual Technology, (COST), pages 8-10. In the preceding IRS rulings drawn from decades of investigatory ex pe r i ence , Scientology's bold and relentless willingness to lie in financial disclosures is repeatedly documented. Historic founda- tion for doubting Scientolo gy 's future financial credibility is repletely established. But just how far,loud, and long will Scientology deny any wrong- doing even when caught red handed? "The California case also demonstrates inurement.. amid cGntinuous representations denying control by and benefit to Mr. Hubbard, and a tenacious denial of the actual state of the organization's actual affairs in the face of ove rwhe lmi ng ev i dence 1 establishing the true nature of the organization's operations." (p. 4.) IRS'S Final Adverse Ruling for COST of July 8, 1988. DETAILING THE ALLEGED 1\2 BILLION DOLLAR+ FRAUD IN THE WOLLERSHEIM CASE In Wollersheim v. CSC, Scientology's executives, and possibly lawyers, and accountants in numerous ways have conspired and have deliberately presented false evidence and financial st atement s to the courts: 1.) From the time of the Wollersheim filing to the conclu- sion of his trial, they have falsely represented to the trial court that L Ron Hubbard did not continue to exercise absolute control over Scientology's corporations and assets, including CSC, whether reorganized or not, (1979-1986.) 2.) In what demonstrates Scientology's ongoing belief in "whatever you can get away with is fair game," the Church of Scien- tology of California also falsely represented to the court that the new corpo rat i ons created out of the old mother church ' s assets (CSC), had a separate corporate integrity. 3.) Scientology further falsely claimed that the asset and liability transfers out of CSC were at fair market value, 4.) and that the control of the old CSC assets had passed --------------------------------------- 1. Scientology's internal policy dictates that it never acknowl- edges wrongdoing of any kind under any circumstances. Consequent- ly it has had to develop methods to implement this policy. In 'Scientology it is vital to keep in mind deception is studied and drilled like an art form. At the end of this document see the F.B.I. authorized search document taken from Scientology's head- quarters called, "Intelligence Specialist Training Routine - TR L," [Training routine lyingl. This is Scientology's training drill to teach its representatives to lie unflinchingly to anyone or organization in spite of ANY counter or overwhelming evidence. 3 \App 1 - Financial Fraud\Page.00004 out of the control of the same key management principals who had previously controlled CSC, AND 5.) While simultaneously asking the California appellate court in Wollersheim to 1 ower the puni tive damage award of the lower California superior court, Scientology continued to represent to all the higher courts up to and including the U.S. Supreme Court the fr audu lent net worth statement of 16 mi1lion do1lars. This financial representation is missing approximately 1\2 billion + dollars in assets. When all the figures are in, this may be the boldest and biggest fraudulent conveyance and bravado bluff begging to be called by an organization claiming religious status in American judicial history. HOW IT WAS ALLEGEDLY DONE To effect this financial and corporate fraud, Scientology stripped the non-tax deductible Church of Scientology of California of almost all assets and income production divisions. It then, in nonequivalent adjustments, fraudulently conveyed those assets in some cases to other newly created, as of yet unchallenged by the IRS, tax deductible sham corporations. These audacious false claims and the creation of yet another new set of dummy and shell corporations by Scientology did not go unnot i ced . The plaintiff 's at to rney in Wollersheim consistently argued throughout the pleadings at the California Superior, Appeal, and Supreme courts that all the assets of the mother church, CSC, were never out of the actual and absolute control of the very same key principals of the original CSC. The plaintiff's attorney argued particularly that L Ron Hubbard ' s absolute cont rol through David Mi sgavi ge and other key members of the Commodore's Messenger Organization, (CMO), pierced all the newly created corporations. He presented W~TNESSES IN FORMER AUTHORI TY TN SCIENTOLOGY, detai led evidence, and charts. These evidences ~ 3an to show which assets were stripped from CSC, when they were s~ripped, and their approximate value, 300-500 million dollars. At the time of trial, the plaintiff's attorney in Wollersheim was grossly hindered from presenting other key evidences and witness testimony that wou ld conc lusively show Scientology 's fraud upon the court and that would totally refute Scientology's financial credibility. In part, he was stopped from using many of these evidences and witnesses because: 1.) Scientology was appealing much of this evidence under the attorney-client privilege exclusion all the way up to U.S. Supreme Court. 2.) Key witnesses like Laurel Sullivan, Gerry Armstrong, and others were also under restraining orders from discussing or testifying on the financial fraud matters under appeal until they were resolved by the higher courts. 3.) In 1985 at the time of the Wollersheim trial there were also other unconcluded government legal actions and investigations into the actual managing and controlling principals of Scientology, Scientology 's financial practices and credibility, and the asset transfer histories of some of the original CSC assets. Scientology was also using every possible appeal and delaying tactic to thwart 4 \App 1 - Financial Fraud\Page.00005 the use of these new government evidences in any other legal actions of the time. 4.) These hindrances are particularly important when they are added to Scientology's other effective intimidation of nonrestrained critical witnesses from testifying concerning its corporate and financial fraud on the court. (Wollersheim had key witnesses backout after "coincidental" alleged intimidation.) These four combined tactics effectively barred additional critical conclusive evidence of fraud from surfacing and being entered during the original Wollersheim trial. At the current time, the evidences from these other now-concluded government actions, investigations or Scientology appeals have now been ruled admissible or are part of the public record. Some of this new, but no longer barred, unavailable, or inadmissible evidence regarding Hubbard, Miscavige, and Starkey's continuous control, corporate and financial activities, and illegal handling of the assets of the former mother church, (CSC,) will now be presented: (Misgavige and Starkey are the current key leaders of Scientology.) "In the Founding Church of Washington D.C. v. Director, FBI, 802 F.2d 1443, (1985) cert. den., 56 U.S.L.W. 3231 (Oct. 6, 1987) to which the service was a party, the government successfully argued that L. Ron Hubbard should be required to appear and be deposed because he was the MANAGING AGENT, (emphasis added, ) of the church."(p. 2). " Ut i 1 i z i ng test imony of witnesses from the Armst rong case, the government successfully argued that Hubbard was the managing agent of the Church of Scientology as late as 1984."(p. 4).1 "So far as we can discern, the record reveals no evi- dence that Hubbard intended to end his relationship with Scientology, but only that he wanted, in his unfettered discretion, to determine whether and how to continue that relationship. Ultimate control, we have no doubt, he possessed until his death." (p. 33, quot- ing from the FBI evidences in Founding church of Scien- tology of Washington D.C. v. Director, FBI.) 2 1. Also see "Defendant's Proposed Findings of Uncontroverted Fact" filed November 22, 1989 in COST v. U.S., pages 33-38 for more detail on Hubbard's absolute control of all Scientology corporations. 2. THE ABOVE THREE QUOTES ON HUBBARD'S CONTROL INDELIBLY OUTLINE SCIENTOLOGY'S PERJURY AND OBSTRUCTION OF JUSTICE IN THE WOLLERSHEIM COURT. THE PREVIOUS THREE PARAGRAPHS ARE QUOTED DIRECTLY FROM THE IRS'S FINAL ADVERSE RULING OF JULY 8, 1988 TO THE CHURCH OF SPIRITUAL TECHNOLOGY, (COST). (COST IS THE NEW CORPORATE CHURCH ENTITY FORMED OUT OF THE OLD MOTHER CHrjRCH'S ASSETS 5 \App 1 - Financial Fraud\Page.00006 "It was common knowledge among senior executives of CSC that Mr. Hubbard had absolute control of all large corporate bank accounts and that he, alone, had the authority to order the withdrawal of very large amounts from these accounts. He contro1led these accounts through various people, mainly CMO members.l Neither the directors of CSC nor any other CSC executive had such authority or control...." From another Armstromg affidavit of July 26, 1982. THE COMMON PERSONNEL OF SCIENTOLOGY'S UNIFIED CONTROL: The common denominators to absolute control of all of Scientology's assets above, beyond, and piercing the veil of all corporate entities or appearances were and are: L Ron Hubbard through the CMO, specifically the persons of David Miscavige and later David Misgavige and Norman Starkey. This original arrangement existed from before the time Wollersheim filed his suit in late 1979 until after his trial in 1986. It continued at least until the alleged date of L Ron Hubbard's death in early 1986. From early 1986 until the present, this absolute control of all of Scientology's assets above, beyond, and piercing the veil of all corporate entities, or appearances has continued to be in the hands of David Miscavige and Norman Starkey, if and only if Hubbard is truly dead. The preceding personnel were able to, as either alter ego's, or by virtue of their official positions or agency, or by their other --------------------------------------- Continued (CSC), AFTER THE MCCS PROJECT. THE MCCS PROJECT WILL BE DESCRIBED SHORTLY.) SCIENTOLOGY'S WITNESSES TESTIFIED AND SCIENTOLOGY'S ATTORNEYS SUCCESSFULLY ARGUED THAT L RON HUBBARD SHOULD BE DISMISSED FROM ANY LIABILITY IN THE WOLLERSHEIM SUIT BECAUSE HE WAS NOT THE MANAGING AGENT AND HAD NO CONTROL OF SCIENTOLOGY. BECAUSE OF THIS PERJURY, HUBBARD AND NOW THE HUBBARD ESTATE SHOULD NOW BE PROSECUTED AND BE PUT BACK IN THE WOLLERSHEIM CASE OR BE PROSECUTED SEPARATELY. 1. For a more detailed history of the CMO, its power plays and control methods, its role in forming the later new corporate entities, and its role through the persons of David Miscavige and Norman Starkey in controlling all of Scientology's assets, see ''A Piece of Blue Sky," by Jon Atack "The Rise of the Messengers and The Young Rulers," p.255-272, and "The Religious Technology Center and the Finance Police" p. 284-289. Also see "Religion Inc," by Russell Miller, "Gamekeepers and Poachers," p.89-113. Also see "L Ron Hubbard Messiah or Madman," by Bent Corydon and L Ron Hubbard Jr., Hubbard's "Billion Dollar Caper," p.198-202. Also see the "Council for Spiritual Integrity" document, which discusses asset stripping, players, and the law firms involved. This document may be a Church internal document or an outside document with a moderately Scientology protective overview. It does contain interesting additional leads for investigators. 6 \App 1 - Financial Fraud\Page.00007 coercive and illegal corporate activities, exercise absolute control and an undue influence over all Scientology corporate entities, directors, and assets. The preceding parties allegedly used their positions for their personal profit at times effecting this profit through the other post CSC corporations and corporate pockets that they created, controlled, or unduly influenced. "In early 1980 I was also assigned to a mission, the purpose of which was to work out legal strategies, and get them implemented, which would allow Mr. Hubbard to still cont rol all of Scientology via his Commodore's Messenger Organization, [CMO], while being shielded from any lawsuits or legal involvements or responsibil- ities." (Above quote from Armstrong affidavit of July 26, 1982.) "In 1980 and 1981 I was assigned to lead the "Mission Corporate Category Sort Out " project. The purpose of this project was to restructure all Church-related entities in a way that it would make it clear that L Ron Hubbard was not the alter ego of Scientology and in control of all Scientology organizations...Numerous proposals for this restructuring were deve 1 oped and discussed by high officials of the Church. Legal advice was also sought to ascertain whether the restructuring could be accomplished legally. The project dragged on for longer than necessary because of a disagreement I had with David Miscavige. I was unwilling to restruc- ture the church in a fashion whereby L Ron Hubbard could continue to assume control at any moment. I determined that for L Ron Hubbard's own safety he shou ld sever all cont rol s . Miscavige insisted that L Ron Hubbard be able to maintain control. Therefore Mission Corporate Category Sort-Out was disbanded and Mary Sue Hubbard removed, and Terry Gamboa and Norman Starkey hired new lawyers on L Ron Hubbard's instruc- tion and they fashioned the structure in place today.l "Mr. Hubbard died on January 24, 1986. But his death did not alter the history of Scientology's prior opera- tions. Moreover the same individuals who control1ed Scientology operations prior to Hubbard 's death, and who participated in arrangements which resulted in inurement and private benefit continue to control your operations and those of other top 1 eve 1 Scientology organizations after Mr. Hubbard's death." (From IRS's Final Adverse Ruling of July 8, 1988 to Church of --------------------------------------- 1. November 22, 1989 in COST v. U.S. pages 34-35. These COST documents also detail the before mentioned and other common personnel links between the "new" mother church's current management and the old mother church management, the church of Scientology of California, the CSC criminal conspiracy, and other newly created Scientology corporate entities, see pages 42-58.) 7 \App 1 - Financial Fraud\Page.00008 Spiritual Technology, (COST), page 4.~1 Hubbard in the end was true to his absolute and well known internal vow of never appearing personally before any government agency. Just days before he had been ordered to appear in court on the before mentioned Founding Church FBI case, Hubbard al1egedly died in January 1986 His remains were rushed to cremation after a small-town autopsy 2 This was also curiously just days before the jury in Wollersheim reached its final unanimous verdict favorable to Wollersheim after concluding a 6 month trial. MORE FROM THE MCCS TAPE TRANSCRIPTS. From the affidavit of Gerry Armstrong of February 11, 1985: "The whole purpose of the MCCS project was to defraud the federal government, litigants against the church,, (emphasis added,) and the courts into believing Hubbard had no involvement with Scientology." On June 20, 1990, the MCCS tapes were remanded from t~e Supreme Court and the 9th Circuit Appeals court in the Zolan case' stated: "The purpose of the MCCS project was to cover up past criminal wrongdoing. . . . The MCCS project involved the discussion and planning for future frauds against the IRS in violation of 18C USC 371....The figures involved in the MCCS admit on tape they are attempting to con- fuse and defraud the U.S. government." From the "Defendants Proposed Findings of Uncont rove rted Fact " --------------------------------------- 1. Careful review of the IRS'S 11 page Final Adverse Ruling of jcly B, 19B8 also demonstrates Scientology's ongoing lack of corporate integrity and financial credibility. It also shows that these newly created corporations are currently being run by many of the same individuals that were active in key management positions in CSC, or both, or either the MCCS project, or the previously mentioned CSC conspiracy, the same conspiracy which sent many of Scientology's top executives to jail. 2.In light of the amount of money Scientology spends in its covert intelligence operations and ruses to protect Hubbard, it is reasonable to wonder if Hubbard really died on the alleged date and not much earlier, or if he is dead at all. Scientology's false cover story that Hubbard's quick cremation was part of its religious practices only fuels the mystery surrounding his death and transfer of assets to his huge estate. As a tangent at some point, it too begs further investigation. 3.In the Zolan case, Scientology tried to use the attorney client privilege to bar the inclusion of the MCCS tapes as evidence against them. The court ruled that, "The purpose of the crime fraud exception is to exclude such transactions from the protection of the attorney client privilege," (CV ~~-440-HLH). 8 \App 1 - Financial Fraud\Page.00009 of November 22, 1989 in COST v. U.S. in which the IRS for its ruling relied in significant part on the affidavit of Gerald Armstrong who was authorized by the church to possess and transcribe the MCCS tapes. "On or about September 28, 1980, a meeting took place in the Cedars Complex at Los Angeles, California, one of the corporate headquarters of the Church of Scien- tology of California, (CSC). The Meeting was attended By Charles Parcelle, (CP), Deputy Guardian for Legal, (DGL), at WW, who was in charge of all legal activities for Scientology throughout the world and Laurel Sulli- van, (LS), the Personal representative of L Ron Hub- bard, a long term senior executive of Scientology and then ~n Charge, (IC), of a special legal mission, (MCCS), which mission was seeking to conceal Hubbard's control of Scientology and develop strategies to effec- tuate actual control by Mr. Hubbard without incurring legal responsibility."(p. 37). Coincidenta1ly, on the sameday in 1991 that the U.S. Supreme Court remanded the Wollersheim case back to the California Appeals court to review its previous reduction of Wollersheim's puni tive award in light of its just-completed Pacific Mutual v. Haslip ruling that allowed for the due process constitutionality of punitive awards. The U.S. Supreme Court also ruled as in the lower Appe llate court, the MCCS tapes were finally now admissible as evidence.l HOW THE FRAUD WAS ALLEGEDLY EFFECTED THROUGH SCIENTOLOGY'S CORPO- RATE STRUCTURE: In spite of Scientology's greatest effort ever to confuse and to create complex, false, and misleading cover stories and significances to misdirect, overwhelm, and introvert potential government and civil investigators regarding the corporate integrity of its post MCCS corporate structure and its 1\2 billion fraudulent conveyance, the fraud really is quite simple. In late 1979 or early 1980 Wollersneim filed his lawsuit against the Church of Scientology of California, (CSC, the mother church of Scientology at this period) . It contained the following assets, subsidiaries, and income producing divisions solely within its corporate structure: The Advanced Organization of Los Angeles --------------------------------------- l.When one reads Wollersheim's Respondent's Supplemental Brief of November 16, 1990 in U.S. 89-1361 the Church of Scientology v. Wollersheim also before the U.S. Supreme Court at the time of its Zolen ruling, the simultaneous rulings on both issues on the same day hardly seem surprising or unconnected. The Zolen MCCS tape and Scientology's net worth and financial fraud issues were discussed IN DETAIL. 9 \App 1 - Financial Fraud\Page.00010 (AOLA); the American Saint Hill Organization (ASHO); the Flag Ship Organi zation in Clearwater (FSO); the Publications Organization (PUBS U.S. ) ; the Estates o rgan i z at i on ( ESTATES ) ; Fl ag Ope rat i ons Liaison Office West U.S. (FOLO WUS): the Los Angeles Organization (LA ORG); Cadet Organization; the San Francisco Organization (SF ORG); the United States Guardian office (USGO), financed by the U.S. Mission Network through the Guardian's Office Worldwide: The Sea Organi zation Reserves; The Watchdog Commi tt ee (WDC ); the ED International (ED INT); and the Commodore's Messenger Organization (CMO). What was left at the time of Wollersheim's trial in 1985 was a gutted CSC with almost no remaining income production sources, having only the non-income producing USGO that was first stripped of its Mission Network income. All of these stripped assetsl never left the absolute control, use, and benefit of those who had absolute control of the CSC at the time of the Wollersheim filing. The same individuals who ultimately created the new dummy corporate pockets, to whi ch the CSC assets were later t rans fe r red , still control those corporate pocket~. In inflated, non equitable,' and bogus asset and liability adjustments and transfers, CSC gave away 90 to 95% of its assets. It stripped out of CSC its most important income producing and valuable assets during the 5 year waiting period for a court date in the Wollersheim case. The new corporations derived out of CSC assets were formed with the specific purpose to remove the assets from CSC to defraud litigants, the courts, and the state and federal tax divisions. The new corporate "purchasers" of CSC assets had full knowledge of pending tax and civi~ lawsuits in which losing was near certain and soon to be realized.' --------------------------------------- 1. At the Wollersheim trial, both Laurel Sullivan and Homer Schomer produced or verified organizational charts demonstrating this asset stripping. See plaintiff's exhibit #2,#7, and #405 in Wollersheim v. Church of Scientology of California. At the time Laurel Sullivan and Homer Schomer were also limited by injunction regarding not testifying on MCCS tape evidence. 2. For another current example of Scientology's non equitable asset handling, transfer, and asset management between its various corporate pockets see #41 on page 49 of the IRS'S Defendants Findings of Uncontroverted Fact of November 22, 19B9 in Cost v. U.S. 3.Larry Heller one of the chief attorneys for Scientology in Wollersheim v. Church of Scientology acknowledges in Vols. 91-92 of the trial transcript that, at that time, (1984-1985,) Scientology had $2BO-$300 million in pending lawsuits and $400 million in international lawsuits. From a 1991 affidavit by Steve Fishman another former Scientology intelligence operative who at one time worked in their secret coding and international communications section, "Leona Grimm signed off on all of my entries on the INCOMM computer. She had mentioned on two occasions that there was an 10 \App 1 - Financial Fraud\Page.00011 With advanced anticipation of defeat due to internal recognition of their own actual torts and illegal activities in the Wollersheim and other cases, Scientology deliberately used the new dummy corporate structures and their fraudulent conveyances to those st ructures to att empt, among other things, to shield, extinguish, or lower punitive and other liabilities in light of California's "defendant's net worth criteria" for the determination of fair and adequate punitive liability. Artifices were then planned and implemented to escape investigation and to mislead or hinder appropriate org anizations seeking accurate information. "ln January 1980, fearing a raid by 1 aw enforcement agencies, Hubbard's representatives ordered the shred- ding of all documents showing that Hubbard controlled Scientology organizations, finances, pers onnel, or the property at Gilman Hot Springs. In a two week period, approximately one million pages were shredded pursuant to this order." (From the decision of the California appellate court, 2nd. district, 3rd. division, July 29, 1991, B025920 ~ B038975, Super. Ct. No. C 420153.) In these asset transfers, subsequent events help prove Scientology 's prior intent. Indicative of Scientology 's inequitable non market value transfers is an 85 million dollar credit to Hubbard and a debit to Scientology. It was called by Scientology, a backdated inventor's roya Ity for an E Meter Hubbard NEVER INVENTED. This is reminiscent of a similar earlier tactic that was disclosed by the ~RS in the Founding Church litigation. "Probably the most covert form of compensation paid to L Ron Hubbard was tithes (or a percentage of the gross income) which petitioner and other Scientology Organi- zations routed to him in the guise of "Founding Debt Payments." This bold level of fraud can be expected to be repeatedly found in like style in any diligent and complete CSC asset and liability transfer by transfer analysis. The newly created non-taxable and taxable post 1980 Scientology corporations were organized, operated, and controlled in significant part as to be mere instrumentalities or adjuncts of the original now-stripped, taxable or soon to be taxable CSC corporation. They became defacto subsidiaries and new corporate~pockets that took over the assets of the original CSC subsidiaries. WHENEVER SUCH MASSIVE FRAUD AND FRAUDULENT ASSET CONVEYANCE IS DISCOVERED IN NON PROFIT CORPORATIONS, NON-PROFIT CORPORATIONS CAN --------------------------------------- ...Continued... urgency to get the records completed because of mocked up (false) reports required to be sent to the appeals court in the Wollersheim case Our entries on INCOMM were forwarded to Carol Martiano at the office of Special Affairs in Los Angeles, and then she in turn forwarded the completed and authorized documents to Larry Heller, who was the church attorney arguing the case in California on our behalf." 11 \App 1 - Financial Fraud\Page.00012 AND ALSO SHOULD BE PIERCED IN THE PUBLIC INTEREST. FROM THE MCCS TAPE TRANSCRIPT: "There is no need at all for them to be the Board of Directors in order for them to run the Church, but the authority of the Church has to lie s omewhe re , and on some basis. And since the Church has always chosen a corporate entity, eventually the authority is going to have vest with the Board of Directors. The only reason it's worked so long without that occurring is because everyone has effectively been bound by the authority of LRH and have ignored corporate lines...." "[Charles Parcelle] We could say that the RRF, [Religi- ous Research Foundation], and CSC are part of the same church, even though they are corporately different. I mean if anything was a sham corporation, it's RRF. [A11en Wertheimer attorney for L Ron Hubbard answers.] As I understand it RRF receives monies that would otherwise be due to the California Church for services rendered by the California Church to people outside of the country who decide to pay the Church from outside the country. [CP] That's right. [AW] So that's basical- ly right? [CP] That's right. Foreign - non US Scientol- ogists pay RRF they go to Flag [ the flag Ship Org, FSO] and take the services. RRF was originally supposed to hold the money until the service was rendered and then pay it to CSC. But in fact it has not really done that and so CSC has rendered much service to many foreign Scientologists and RRF has got the money.' Fortunately for us RRF wasn't incorporated until 1973 and were litigating 1972. So I haven't really tried to sort this one out but it obviously is the classic case (loud laugh) of inurement, if not fraud. (several lgughs) CLaurel Sullivan~ Well put. (speaker unidenti- fied) It's all privileged. [Dick Sul1ivan] The tape recorder is going here Charles...." "Now when you talk around a table like this and there is no internal revenue agent present , ( wh i spe red : I hope so), bugged or otherwise, one can work out solu- tions. But when you are a few weeks away from a trial and everything you say is going to be rammed down your throat, then you have to start looking at what actually happened. And its very difficult to assign significanc- es to things other than what was actually being done at the time." Applicable at this time is a treasury policy of Scientology written by L. Ron Hubbard quoted by the IRS in the " Def endant s Proposed Findings of Uncontroverted Fact" of November 22, 1989 in --------------------------------------- l.Another excellent example of non equitable adjustment characteristic of Scientology's financial dealings. 12 \App 1 - Financial Fraud\Page.00013 COST v. U.S. " ...The whole thing is to assign a significance to the figures before the government can. The whole thing is a mess only because arithmetic figures are symbols open to any significance. So I normally think of a better significance that the government can. I always put enough errors on a return to satisfy their bloodsucking appetite and still come out zero. The game of account- ing is just a game of assigning significance to fig- ures. The man with the most imagination wins..." From the affidavit of Gerry Armstrong: "It is common knowledge among senior executives of the organization and it is the policy of CSC that members of the Boards of Directors are mere figureheads, with- out authority or cont rol , not for internal corporate reasons, but rather to vest control in Mr. Hubbard. I have personal knowledge that in order to carry out this corporate fraud, organizational executives have engaged in the various unethical practices including backdating phony Board minutes and forging signatures."l On pages 8-10 of the IRS's Final Adverse Ruling of July 8, 1988 to Church of Spiritual Technology, (COST), the IRS tracks out part of the corporate shells, the uni fied management, and the asset transfer game regarding Bridge Publications and the International Sea Organization Reserves Trust. These are two of the biggest assets and income producers formed from the Public~tions Organization, (PUBS US), and the Sea Organization Reserves' THAT WERE CSC SUBSIDIARIES AND WERE STRIPPED OUT EARLIER FROM THE ASSETS OF CHURCH OF SCIENTOLOGY OF CALIFORN~A, CSC, DURING THE WOLLERSHE~M CASE. NEW CORPORATIONS ROLLING IN INCOME AND ASSETS By late 1985 a growing list of defectors from the highest man- --------------------------------------- l.Forging financial records creating "reality" and "histories" is repeated and common in the proven criminal history of Scientology. The FBI in 1977 discovered in its authorized search of church headquarters plans to protect Scientology's tax exempt status by forging financial records to conceal the church's relationship with an earlier dummy corporation being used to funnel money to Hubbard. Also see Armstrong affidavit of May 12, 1983, where David Miscavige's use of forged Hubbard signatures is discussed. 2.The Sea Organization Reserves were estimated at 150 million dollars in the early 1980's by William Franks. William Franks was the President of the Church of Scientology International ancther Corporate entity formed out of CSC assets after the MCCS project. Until his defection from Scientology to try to expose and reform its criminal practices, one of his functions was to oversee and manage these cash reserves. 13 \App 1 - Financial Fraud\Page.00014 agement levels accused Hubbard, (now the Hubbard estate,) of having stolen as much as 200 million dollarsl from the mother church assets. This was just before his alleged death and just as the IRS was seeking an indictment against Hubbard. According to Vicky Aznerand who was involved in the evidence shredding and at the time was one of the 6 most senior executives in Scientology, Scientology worked "day and night" shredding documents the IRS sought. In 1987 Scientology reported to the IRS that its new corporate entity and now-world headquarters organization in Clearwater, (also created in significant part from CSC assets), had $206 million in a reserve pool. In their May 6, 1991 cover story, Time magazine reported that COST, [the new mother church,l reported a $503 million income in 1987 and that high level defectors say Scientology has another $400 million in secret bank accounts. When examined closely, one WILL again find COST using most of the assets of the stripped CSC and now receiving the income from CSC'S previous leading income producers funne led through dummy and shell corporations, once again, ultimately and absolutely controlled by the same individuals who controlled CSC'S assets BEFORE their being stripped out in fraudulent conveyances. Outside the capabilities and resources of Scientology or a major intelligence agency, the allegations made thus farwould be astounding allegations. These actions mentioned were committed with the foreknowledge and or approval at the highest management levels of the Scientology organization. Nothing gets done in Scientolo gy 's robotic organizational structure without detailed orders and programs which per policy must strictly follow either Scientology's secret or public policies. Many of these actions also may have been committed with the knowledge or through negligence in performing proper "due diligence, " by the legal and other " outside" professional agencies employed by Scientology. The same professionals who are extensively aware of Scientology's criminal history. From the preceding facts, the questions of individual embezzlement and breach of fiduciary trust also now must be raised concerning the key Scientology management principals and their legal and accounting representat i ves , pa rt i cul a rl y in the creat i on of the Hubbard estate and the new Scientology corporations. Speaking of Scientology's corporate shell game in the IRS's Final Adverse Ruling of July 8, 1988 to Church of Spiritual Technology, (COST), pages 8-10: "The past history of Scientology's operations suggests that the purpose of these organizations may be to disguise the fact that private interests are the ul- timate beneficiaries of the reorganized operating structure...." --------------------------------------- l.Was Hubhard establishing additional cash reserves before his disappearance? Tracking assets transferred to Hubbard or the Hubbard estate, before Hubbard's alleged date of death may also be necessary. 14 \App 1 - Financial Fraud\Page.00015 It would initially appear that Scientology has temporarily figured out how to keep beating and making fools out of the government, adverse litigants, the courts, and the tax people, and, getting new nonprofit religious exemptions after it has lost its old nonprofit exemptions. They do this by simply changing the old tax exemption lost mother church corporations into new tax exempt as of yet unchallanged mother church corporations and then transferring assets out of the old mother church's to the new mother churches. They do this by acting faster than the justice system can move and complete litigation on its old corporations . Scientology simply stays one step ahead, by staying ONE CORPORATION ahead of its victims and prosecutors. Moving fast in a slow and overloaded justice system has also been used by Scientology to deny the use of key evidences in the trial at hand. By taking numerous separate appeals to the U.S. Supreme Court, the delays effectively bar evidence from being used at the time. If they loose on the issue at a latter date, at a higher court, as it happened with the MCCS evidence in the Wollersheim case the trial is over anyway. (In the Wollersheim case, Scientology has been all the way up the courts 4 or 5 times.) Because of this asset and corporation fast shift gar~ne, government agencies and victims must demand receivership proceedings for Scientology now and demand bonds be put up by them for their endless Appeals. To do otherwise is to court disaster and the possibility of the religious version of the Robert Vesco "flee ~he county with hundreds of millions in cash", story. CONCLUSION In size and international scope, Scientology's white collar fraud parallels and may eventually exceed the financial debacles perpetrated upon the American public in the Michael Miliken and the earlier Robert Vesco affairs, and, in this Wollersheim case the fraud perpetrated on the whole U.S. court system exceeds the recent financial misconduct and breech of fiduciary trust of the Jimmy Baker, PTL conviction. 15 \App 1 - Financial Fraud\Page.00016 SIEZED IN FBI SEARCH OF SCIENTOLOGY HEADQUARTERS INTELLIGENCE SPECIALIST TRAINING ROUTINE - TR L Purpose: To train the student to give a false statement with good TR-1. To train the student to outflow false data effectively. Position: Same as TR-1 Commands: Part 1 "Tell me a lie". Command given by coach. Part 2 interview type 2 WC by coach. Training Stress: In Part 1 coach gives command, student originates a falsehood. Coach flunks for out TR 1 or TR 0. In Part 2 coach asks questions of the student on his background or a subject. Student gives untrue data of a plausible sort that the student backs up with further explanatory data upon the coach's further questions. The coach flunks for out TR 0 and TR 1, and for studnet fumbling on question answers. The student should be coached on a gradient until he/she can lie facily. Short example: Coach: Where do you come from? Student: I come from the Housewives Committee on Drug Abuse. Coach: But you said earlier that you were single. Student: Well, actually I was married but am divorced. I have 2 kids in the suburs where I am a housewife, in fact I'm a member of the P.T.A. Coach: What town is it that you live in? Student: West Brighton Coach: But there is no public school in West Brighton. Student: I know. I send my children to school in Brighton, and that's where I'm a P.T.A. member. 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