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Bringing Down the Owner of EST

Barbara McNair’s Unsung Heroism

by FRED GARDNER

When Barbara McNair died in February, not a single obituary mentioned her role in bringing down the lawyer who effectively owned Erhard Seminar Training (est) and the pitchman himself, Werner Erhard.

The obits duly noted that Ms McNair sang in cabarets and on Broadway and various TV shows (she hosted her own show, briefly) and acted in movies, including "If He Hollers, Let Him Go" (1968) and "They Call Me MISTER Tibbs" (1970). The New York Times described one grim episode in her life: "Ms McNair’s career suffered after she and her husband, Richard Manzie, were charged in 1972 with heroin possession; she was later cleared of the charge… Mr. Manzie was found shot to death in 1976." Not a word about Erhard and est and the man who really controlled the operation, Harry Margolis, against whom Barbara McNair testified -sang, some would say- in federal court.

The political and cultural rollback that characterized the 1970s and continues to this day was facilitated by est, which Erhard launched in 1971. The "training" consisted of a weekend of humiliation (trainees weren’t allowed to go to the bathroom) and culty jargon advising that you could "complete your past" and "find your own space" and "make your life work" not by changing society but by changing your own outlook. Don’t fight the power, serve the powerful, starting with Werner. The "training" cost $200 -a decent week’s wage back then- and of course there were "graduate" trainings for those who aspired to "get it" more profoundly and maybe become trainers themselves.

Werner came from Philadelphia; his original name was Jack Rosenberg. He had been an intermittently successful salesman. He’d made some money selling vacuum cleaners and encyclopedias in the late ’60s but never could hold onto it. His passion was high-stakes poker. As est was getting off the ground, a poker pal named Jack Rafferty, ex-husband of Barbara McNair, told Werner he needed someone to handle his finances and recommended Harry Margolis, the tax specialist who had done so well by Barbara and other celebrity clients, including Nat King Cole and Dalton Trumbo. (The celebs were steered to Harry’s office in Saratoga by his brother Ben, a Los Angeles defense attorney with "Communist" connections who specialized in civil rights, civil liberties, and labor cases. Harry’s clientele also included "half the lefty lawyers, doctors, and dentists in California," according to a colleague. Harry referred to himself as a "Marxist," and his many admirers considered him "brilliant." He got a chapter in Anne Fagan Ginger’s book "The Relevant Lawyers," published in ’72.)

Margolis convinced Werner he had a system -an intricate network of offshore companies that technically owned his clients’s assets and issued payments to them- that conferred the benefit of a non-profit (minimal tax liability) without the disadvantage (maximum government scrutiny). Margolis’s office in Saratoga has been described as "20 girls at 20 desks moving paper around to each other, and every one represents a different company in a different country, and there are so many transactions that the government can’t possibly keep track of them." The "girls" were mainly middle-aged women whom Harry could trust. The three who formally owned erhard seminar training were Gloria Reinhardtson, Esther Helfrick and Harriet Bliss. Est was a subsidiary of the Saratoga Restaurant Equipment Co., which these ladies also owned.

By 1975 est was phenomenally successful but Margolis was facing indictment. Margolis contended, rightly, that he was only doing for middle-class people and political dissidents what lawyers for the Rockefellers, DuPonts and Mellons had been doing for years. His clients were, on the whole, loyal to him. Erhard wasn’t, but he was unable to dissociate himself -it was Harry, not he, who controlled est! The government investigation had been going on for years before a compelling witness agreed to testify.

From the Los Angeles Times, June 7, 1977, under the headline "Singer McNair Testifies on Taxes," dateline Palo Alto:

"Entertainer Barbara McNair was calmly explaining in court last week how indicted tax attorney Harry Margolis moved nearly $1 million of her money in and out of the country to reduce her taxes when the federal prosecutor asked if she ever sought an accounting of her money from Margolis.

"Suddenly her voice rose and she spoke rapidly, with a touch of bitterness, about the day in 1970 when, at the request of her late husband, Rick Manzie, she asked Margolis for an accounting of her net worth, which she herself estimated at $500,000.

"’He said it was in the nature of $50,000 which was a shock to me," Miss McNair said.

"When pressed for an accounting of the nearly $1 million she had sent to a Caribbean firm associated with Margolis over a three-year period, the singer said Margolis ‘became very irate. He said he never gave an accounting to his clients. He said he had never been asked.’

"Miss McNair is a key witness in the government’s case against Margolis, a 56-year old Los Gatos tax lawyer charged in a 24-count indictment with creating $1.4 million in phony income tax deductions for a variety of clients….

"The clearest insight into how Margolis allegedly operated came last week when… Miss McNair explained that on Margolis’ advice she had her contracts from 1968 to 1971 executed in the name of Koningsplein, N.V., a Netherlands Antilles firm also named as an unindicted co-conspirator. She said her earnings went directly to Koningsplein.

"Asked how she obtained spending money, Miss McNair replied, ‘I would inform Mr. Margolis I needed money, he would ask how much and have it deposited’ at Union Bank in Los Angeles.

"Next, Miss McNair said, ‘I would sign a loan note (to one of the Caribbean companies associated with Margolis) for the deposit amount… Mr. Margolis informed me, in order to bring the money back into the country it had to be in the form of a loan."

Margolis and Erhard came to an accommodation and in the spring of ’76, as the government’s case against Harry proceeded towards trial, Werner issued a 12-page document called "A report on the legal and financial structure of est." It described the creation of a new foundation -the non-profit umbrella he should have had from the beginning. Business continued to expand for a while after the restructuring thanks to the Hunger Project, a particularly obscene scam by which est raised countless millions, not a penny of which went for food, in the name of "ending starvation on the planet." But Werner’s luster -his image as a man who had made his life work, a super-salesman who understood and could convey the secrets of success- could never be restored after it was revealed that Harry had run a con on him.

Why, you may be wondering, was it heroic of Barbara McNair to testify against Harry Margolis?

"Rick Manzi had a problem of his own. He thought Harry Margolis, a tax shelter expert, had hustled Barbara McNair for a cool million dollars and he wanted Margolis whacked if they lost their lawsuit against him. But on December 15, 1976, long before the case would go to trial, Manzi was found shot to death in his Las Vegas home The murder remains unsolved."

-from "The Last Mafioso: ‘Jimmy The Weasel’ Fratianno," by Ovid Demaris

Harry Margolis’s tax avoidance scheme was first exposed in open court by an Oakland-based attorney named Fay Stender. The context was a 1975 Alameda County civil case, Scherr v. Scherr, which focused on the ownership of the Berkeley Barb. The legal owner was a corporation called INK. Founder Max Scherr had given the Barb away, ostensibly, in 1973 and arranged for an annuity of $2,000/month for life from a non-profit called the Wright Trust that funded prisoners’ rights projects. Jane Scheer – the Barb’s de facto co-publisher and Max’s wife, as far as most people knew- was seeking half of what the paper was worth. Fay Stender, representing Jane, charged that Max’s donation was "a sham and a fraud," orchestrated by Margolis to put the asset out of Jane’s reach. The Barb was worth between $500,000 and $1 million, an unbiased accountant testified, thanks to the lucrative massage/prostitution ads.

Stender revealed that on Nov. 1, 1973, at a paper-signing ceremony at the Margolis office in Saratoga, the Barb was sold to a Panamanian company, Presentaciones Musicales, S.A. for $250,000. PMSA immediately sold the physical assets of the Barb to Artesia Convalescent Hospital Enterprises (ACHE), which thereafter changed its name to International News Keyus, Inc. (INK, Inc.) The Barb’s intangible assets, such as the name and publishing rights were sold to EST International, a company based in Tortola, the British Virgin Islands. Then EST licensed INK to publish the Barb in exchange for a royalty payment of 20¢ per issue sold.

Fay Stender charged that PMSA and all the other companies involved in the transaction were controlled by Margolis. Concealing assets for tax purposes was his specialty, she said, and he was using his standard mechanism on Max Scherr’s behalf.

In 1979 Fay Stender was shot and paralyzed by a man named Brooks, recently released from prison, who was convinced that Fay had betrayed George Jackson. After living in pain for several years, Fay took her own life. But Fay Stender never did betray George Jackson; in fact, she had been devoted to him. The man who shot her had been misled. By who? A white lawyer is my hypothesis.

In 1976 I was offered a job by Hal Lipset, a San Francisco private investigator. I’d written a free-lance piece about him for a magazine called Crawdaddy and he said he liked the way I did research. I told Hal with sincere regret that some of his clients were not what I would consider righteous and I wouldn’t want to do their bidding. To my surprise he said that if and when I didn’t want to work for a given client, he would assign the case to someone else in the office. The pay was $500/week (I had been the highest-paid reporter at the Bay Guardian, getting $125 a week, before I was laid off in the midst of a Newspaper Guild organizing drive.) The perks, working for Lipset, were phenomenal. Thankful clients were always sending gifts to Hal’s elegant Sacramento St. Victorian -shellfish on ice from Louisiana, sheepskin-lined coats from Canada… It was mainly the rich who hired Lipset Service. Poor folks, for better or worse, had to go to the police.

In due course Hal put me on a case in which, he explained, the client was "a wealthy Nevada businessman whose wife had been won over by Werner Erhard." The client wanted to get the goods on Werner and est. "Whatever a good muckraker could get on them, especially with reference to their finances," was our mandate.

The client, I would learn a few weeks into the case, was Werner Erhard himself. He had given Lipset a $40,000 retainer to find out what aspects of his past and present might require burnishing, or revising, or excising. He may also have been looking for ammunition he could use to extricate himself from Margolis’s control. Millions of dollars were at stake. Est was poised to peddle self-realization to the masses.

FRED GARDNER edits O’Shaughnessy’s, the Journal of Cannabis in Clinical Practice (soon to have a presence on the web). He can be reached at fred@plebesite.com