In county courthouses across the county, Federal tax liens are pending against thousands and thousands of individuals who, the government says, owe anywhere from $50,000 to millions of dollars in unpaid back taxes that the Internal Revenue Service has failed to collect. This is the story of one such person.
© 1974, The Philadelphia Inquirer
Every year, the Internal Revenue Service writes off as uncollectible hundreds of millions of dollars in delinquent Federal income taxes.
The IRS says it gives up trying to collect the taxes when "the likelihood of collection is so remote that it would be unwise to devote further manpower to them when it can be better used on more productive work.
"Typical of (uncollectible accounts) are no-asset cases, taxpayers who cannot be located, and those where collection would cause undue hardship to the taxpayer or his family."
And that brings us to Leo Ian Bloom, a 54-year-old financial consultant who lives in a spacious home on five acres near Reading, Pa., in the rolling Berks County countryside, complete with swimming pool, tennis courts and circular drive.
It was back in 1969-70 that the IRS gave up trying to collect $229,267.20 in corporate income taxes owed by Reading Financial Corp. one of several closely-held Bloom companies.
Interestingly, the financial consultant was shuttling between New York and the Caribbean at that same time, dealing in stolen securities and earning – by his own account – more than a quarter-million dollars.
Indeed, Bloom apparently has been so prosperous that the IRS continues to file tax liens against him, so that the total outstanding – including the $229,267.20 designated uncollectible – now stands at $729,833.06.
But the IRS is not pressing Bloom for payment of the taxes the agency says he owes, not even the unpaid personal income taxes of $477,949.80 for the years 1963 to 1969.
In fact, Bloom's attorney, Herbert L. Levy of Bethlehem, told The Inquirer, after observing that his client was traveling and unavailable for an interview:
"There was an agreement between the Internal Revenue Service and Mr. Bloom that the Internal Revenue Service would not continue collection until the re-examination is completed."
Indicating that the IRS made a mistake on the amount of taxes his client owes. Levy said the agency is conducting another audit "to determine the correctness" of the amount of tax.
"My opinion is that the amount will probably be reduced," Levy said. "One of the problems that we have is that we are presently involved in this examination, and any publicity at this time may hurt what's going on with our examination. We're relatively close to getting this thing wrapped up."
A Varied Career
Whatever the outcome of the latest IRS audit, the Reading financial consultant has enjoyed a varied business career.
There was the family furniture business which was partially destroyed by fire after it went into bankruptcy. There was the brewery Bloom managed which also went into bankruptcy.
There were all those brewery employes who invested in debentures that he sold before the business went under. And there was the fencing of the stolen securities.
This latter venture was spelled out in detail during two separate trials in the U.S. District Court for the Southern District of New York in 1972.
Bloom was the Justice Department's star witness in the case against Gary Garafola, 45, a former New Jersey boxer, and Leonard Mastrogiacomo, 35, a Long Island trash collector, charged by the government with directing an international stock-theft ring.
They were accused in the theft of more than $1.2 million in securities stolen from 1967 through 1971, largely at Kennedy International Airport in New York.
Called Front Man
Government attorneys referred to Bloom as the "front man" of the operation, who fenced the stolen stock in such exotic places as Aruba and Curacao in the Caribbean.
He was arrested Feb. 1, 1971, in New York, when he tried to use $50,000 in stolen Dallas, Tex., bonds as collateral for a loan he was negotiating at the Israel Discount Bank.
Bloom then agreed to cooperate with Federal authorities in their investigation of the stock thefts.
On Oct. 8, 1971, Garafola and Mastrogiacomo were arrested in New York shortly after they supposedly turned over $600,000 in stolen securities to Bloom at the Biltmore Hotel.
Bloom and Garafola were indicted on charges of interstate and foreign transportation of stolen securities and conspiracy. Mastrogiacomo was indicted for conspiracy.
Bloom agreed to please guilty to one count of conspiracy – seven other counts later were dismissed with the government's concurrence – and to testify against the other defendants in return for a leniency recommendation by the Justice Department.
The first trial ended in July 1972 when the jury could not reach a decision. A second trial was held in December that year. Both trials were spiced with a fascinating group of participants.
There was Garafola, the ex-fighter, who then owned the Rag Doll Club, a New Jersey nightclub. A huge man weighing 240 pounds, he told the court why he went to college: "I didn't study nothing. I went to play football."
There was Mastrogiacomo, the trash collector, who was arrested with a list of stolen securities in his pocket. The prosecution characterized him as "the man behind the scenes" in the stock ring.
There was Mario Lococo, a 4-foot, 6-inch California midget, who drove Mastrogiacomo's Cadillac around New York and testified that Bloom once offered him $10,000 to "take a rap" for him, but the deal fell through and Bloom never explained what the rap was.
There was Claudia Allen, alias Kim Johnson, a Des Moines, Iowa, prostitute, who said she stayed with the defendants at various New York motels and received telephone calls from a man known only as "Mr. B."
Wharton Graduate
Finally, there was Bloom, a self-styled "doctor of sick businesses," a "financial whiz" to friends, a former Berks County tennis champion, a graduate of the University of Pennsylvania's prestigious Wharton School, and member of a long-time Reading business family.
Bloom and Garafola met in 1968 in Philadelphia, when the ex-boxer was looking for a loan to help bankroll his purchase of a gym, and get some prize fighters.
They were introduced, Garafola recalled, by another boxing promoter from Reading who described Bloom as a "genius." Garafola said the Reading boxing promoter told him:
"He (Bloom) is a millionaire and he wants to help you. He could help you very much because you have good fighters and you do what he tells you to do and you will never be in trouble."
"He said this is his partner in promoting fights and he is the promoter, he is the bank man. He is the underneath man. He puts the bread up. And he gives you good pay day."
Made More Trips
Bloom later loaned money to Garafola, and shortly afterward, according to the Federal indictment, Garafola turned over $100,000 in stolen securities to Bloom in New York. Bloom then flew to Aruba in The Netherlands Antilles and cashed them. Bloom said he pocketed $50,000 as a fee for the transaction.
Then, over the next 2-1/2 years, the government charged, more stolen securities were turned over to Bloom, who made more trips to the Caribbean to convert them to cash.
All in all, Bloom sold more than $700,000 in stolen securities that were given to him by Garafola, the government contended.
Under oath, Bloom first testified that he personally earned $100,000 from the sales. He later amended his testimony, saying he earned $270,000.
Defense attorneys asked Bloom if he knew the original $100,000 in stocks he sold in Aruba in 1968 were stolen.
"No, I don't believe I did," he answered. "I had reason to suspect they were stolen."
When a defense attorney pressed him on the point, asking why he would have flown out of the country to cash the securities, keeping half the proceeds for himself, if they were not indeed stolen, Bloom replied:
"It would seem I should have known."
Bloom also told the court that he had been in serious financial difficulty in 1967 and 1968, and that the sale of the securities eased his plight.
"Do you still have any financial difficulties?" he was asked.
'A Perfect Patsy'
"I have no financial pressure," asserted Bloom. His unpaid Federal income taxes then totaled $722,535.10, according to IRS tax liens.
"Bloom found Garafola a perfect patsy," Garafola's attorney told the jury. "He used him. You decide where the truth lies. He (Bloom) made this case to save his own neck and he points his finger to drag in others."
After 11 hours of deliberations on Dec. 12, 1972, the jury acquitted Garafola and Mastrogiacomo of all charges.
Eight days later, Bloom appeared before a Federal judge in New York for sentencing on the conspiracy charge to which he had pleaded guilty six months earlier. The sentencing had awaited his testimony against Garafola and Mastrogiacomo.
Assistant U.S. Attorney Henry F. Putzel 3d, who prosecuted the case, urged the judge to consider Bloom's cooperation with the government in imposing sentence.
"The cooperation was extensive and was given with everything Mr. Bloom could give," said Putzel.
"That was the only thing going for you, Mr. Bloom," said the judge. "I view what you did as a very grave matter."
Bloom's attorney also urged leniency. He said Bloom had recently taken over management of a New York company employing 40 to 50 persons. The company needed his expertise to survive, said the lawyer.
Peace With the U.S.
"In his own way, he has made his peace with Uncle Sam to make up for his transgressions," said his lawyer.
The judge suspended Bloom's sentence and placed him on probation for five years.
The net results, then, of the government's prosecution of an internation stock-they ring were one guilty plea, one suspended sentence and two acquittals.
The New York company that needed Bloom's management skills is something of a mystery. There was no mention of its name in court records. The U.S. attorney's office never disclosed it.
Normally – whether fencing stolen securities or running the family business – Bloom had an interesting way of conducting his financial affairs.
He entered the family furniture business in Reading as a young man and was running the company when it entered bankruptcy proceedings in 1956.
A bookkeeper for the firm, Bloom Furniture Co., Inc., offered some insight into Bloom's business practices when she was questioned during a creditors' meeting by an attorney for the trustee.
Bookkeeper – Mr. Bloom would borrow money from various people whenever there was money needed and it would be recorded as coming from Leo Bloom and when payment was made to the person, it would go out charged against Leo Bloom.
Lawyer – Why was that done?
Bookkeeper – I don't know. You always had to give him the money. He would come in and say, "Here's some money to put into the company."
Lawyer – So that whenever monies were received you just charged it as coming from Leo Bloom?
Bookkeeper – That's correct.
Lawyer – And when a check was drawn to Leo Bloom, you charged it against the account?
Bookkeeper – That's right.
Lawyer – That account was pretty active, wasn't it?
Bookkeeper – Very.
In Debt to Firm
The trustee's attorney then asked the bookkeeper if an audit of the company, which showed that Bloom owed the firm some $40,000 when it went into bankruptcy, was correct.
"I think that's about what the balance was," she replied.
Lawyer – Had you ever called Mr. Bloom's attention to it?
Bookkeeper – Yes, he knew that.
Lawyer – He owed the company that much money?
Bookkeeper – Yes, but he said actually he didn't owe it. It was a clearance account.
Bloom Furniture Co. entered bankruptcy proceedings in December 1956 with assets of $162,764 and debts of $267,767.
The company continued to operate under a reorganization plan calling for payment to unsecured creditors of 50 cents on the dollar in five installments.
The company paid the first three installments, defaulted on the last two and finally went out of business in the spring of 1958.
The bankruptcy trustee filed a lawsuit in Federal court against Bloom in an effort to recover $41,614 "charged on the books against the personal account of Leo Bloom."
$3,500 Settlement
The trustee's lawyer said in court papers that part of the $41,000 went for "household bills, sporting goods, beer distributor bills, travel and entertainment, and kindred matters."
Bloom settled for $3,500.
Later, in the mid-1960s, Bloom served as president of the Sunshine Brewing Co. of Reading until shortly before the brewery entered bankruptcy proceedings.
Sunshine filed for reorganization under the bankruptcy laws on Dec. 19, 1967, listing liabilities of $2.2 million. Among the creditors were employes of the company who had purchased some $100,000 worth of debentures.
During bankruptcy proceedings, an official of the company recalled the sale of the bonds this way:
"The substantial part of those obligations occurred back in June of 1966, whereby Mr. Bloom held meetings with the employes of Sunshine Brewing, stating what he intended to do in the way of increasing the capacity of the brewery plan addition, etc.
"To do this, he needed financial help, so he asked the employes to participate in a so-called financing by purchasing debenture bonds." The bonds, bearing interest at 10 percent, were sold through a payroll deduction plan.
Not Professional
Bloom left Sunshine a little more than a year after he began selling the bonds, and the company went into bankruptcy. About $109,000 worth of the bonds had been sold.
What kind of an expansion program did the employes' payroll deductions finance?
An official of the brewery, who took office after Bloom resigned, offered this explanation for the company's failure:
"My personal opinion is that the layout of the plant, in other words, it wasn't done in a professional-like manner.
"The equipment that came in was second-hand, to begin with. We had considerable difficulty installing this and getting it to operate efficiently, thereby creating additional drains on working capital."
One of Sunshine's debtors, according to court records, was Reading Financial Corp., which owed the brewery $3,383.61.
That, of course, is the same company whose nearly quarter-million dollars in unpaid income taxes have been written off as uncollectible by the IRS.
Reading Financial Corp. was one of at least three companies – the others were Reading Capital Corp. and Viking Investment Co. – that Bloom operated from the Baer Building in downtown Reading.
Credit Stopped
Bloom also maintained a combination apartment and office for Viking Investment Co. at 165 E. 66th St. on New York's East Side. He left that address sometime last year.
The names Reading Financial and Reading Capital and Viking Investment don't appear on the Baer Building office directory, but Bloom still occasionally works out of an office there. He shows up, a custodian says, usually at night.
When an Inquirer reporter recently visited Bloom's home, the Willow Hollow Farm on Prison Road, near the Berks County Prison, a Chrysler registered to the Viking Investment Co. was parked in the circular drive.
But a gasoline credit card issued to Viking by the Chevron Oil Co. no longer is being honored.
The oil company obtained a judgment against Bloom for $1,483.23 for unpaid gasoline bills that persons using the Viking credit card charged from Southampton, N.Y., to Berkeley, Calif.
The judgment is one of some two dozen entered in the Berks County Courthouse against Bloom and his companies – but the largest single creditor remains the IRS.
The IRS first started filing liens against Bloom for unpaid income taxes during the same period the financial consultant was selling stolen securities.
IRS Files Liens
On June 17, 1969, the IRS filed a lien for $17,981 against Bloom and his wife for unpaid income taxes from 1964 through 1967.
On Sept. 10, 1969, the agency filed a lien for $229,267 against Reading Financial Corp. for unpaid corporate income taxes from 1964 to 1966.
On May 17, 1971, the IRS filed another lien, this one listing unpaid income taxes in 1963 amounting to $305,671.95.
There were still other IRS lien notice and assessments which remain unpaid. But according to Bloom's attorney, Herbert Levy:
"They (the IRS) were very accommodating to us. I must say that."
The IRS, then, has not seized any of Bloom's property, his attorney was asked.
"That's correct," said Levy. "So consequently, they (IRS) are cooperating, waiting until the reexamination is completed."