BY TED SHERMAN AND ROBERT RUDOLPH | Star-Ledger Staff
Herbert Axelrod, the eccentric philanthropist who bestowed millions of dollars’ worth of rare stringed instruments on the New Jersey Symphony Orchestra, has fled the country and taken refuge at a luxury marina in Cuba to avoid federal prosecution for tax fraud.
A federal judge issued an arrest warrant for Axelrod yesterday afternoon after the pet-care publishing tycoon failed to show up for his arraignment in Trenton. The United States has no extradition treaty with Cuba.
Assistant U.S. Attorney Michael Guadagno informed District Court Judge Garrett E. Brown Jr. that Axelrod was in Zurich, Switzerland, when the indictment was returned and was well aware of the pending criminal charges.
According to Guadagno, Axelrod confided to an associate that he had no intention of returning to the United States and planned to go to Cuba.
“We have confirmed with another individual that he is in Havana,” said Guadagno, who disclosed Axelrod was staying at the Marina Hemingway, a four-star resort known for international marlin-fishing tournaments.
The combined charges against Axelrod carry a maximum punishment of five years in prison and a $250,000 fine.
The twist of events included the discovery by authorities this week that Axelrod had sold his home in Deal earlier in the month, as well as other properties around the country—including several homes in Key West, Fla. Authorities say Axelrod’s 50-foot yacht, the Lady Ev II, was missing from its berth in Florida; they suspected it is docked in Havana.
It was unknown if Axelrod’s wife, Evelyn, was with him.
Axelrod, 76, a multimillionaire who had turned his interest in tropical fish into a worldwide publishing empire, was a major benefactor to the New Jersey Symphony Orchestra. He suddenly became widely known for selling the orchestra a collection of rare Italian stringed instruments from the 17th and 18th centuries last year at a steeply discounted price.
An enthusiastic collector, he initially valued the instruments at $50 million, and offered the collection for half that price despite his claims that he was offered much more by others. When the orchestra failed to raise the money, he structured an $18 million deal that included $4 million in loans he subsequently forgave or assigned to other charities.
Axelrod also donated heavily to music schools and universities. Among his gifts were a matching quartet of inlaid Stradivari, valued at $50 million, now on permanent loan to the Smithsonian Institution.
While the deal with the New Jersey Symphony Orchestra was being struck, though, a criminal investigation against Axelrod was already well under way, and Axelrod was aware of the questions being raised into his finances as a result of a civil suit involving the 1997 sale of his company, TFH Publications.
In the two-count federal indictment returned last week, Axelrod was charged with conspiracy and aiding and abetting the subscribing of a false tax return. He was accused of funneling more than $1 million to a former employee by diverting payments from a European company into a Swiss bank account controlled by the employee. The money was concealed on the books of Axelrod’s company as a marketing expense.
The employee was not named in the indictment, but court papers filed in the Monmouth County civil suit that initiated the federal investigation identified him as Gary Hersch of Colts Neck, who served as his vice president of marketing .
The Star-Ledger learned yesterday that Hersch quietly signed a plea agreement in December 2002, agreeing to enter a guilty plea to a single count of conspiracy and fraud—a charge that has yet to be filed—in exchange for his cooperation.
Hersch did not return several calls to his home for comment.
Attorney Michael Himmel of Woodbridge, who represented Axelrod during the grand jury investigation, said he believed the case against Axelrod is flawed and was very surprised to hear Axelrod had fled to Cuba.
The only indication the attorney had that something was amiss, he said, was his client’s failure to appear at a scheduled meeting Monday regarding the arraignment. Himmel said that afterward he alerted representatives of the U.S. Attorney’s Office that he would not be representing Axelrod at the arraignment.
In fact, no one appeared on Axelrod’s behalf at the federal court proceeding yesterday.
Attorney Alan Lebensfeld of Red Bank, who is representing Axelrod in the civil case, said a flight to Cuba seems out of character for the multimillionaire.
“He has gotten to where he’s gotten by fighting, not running,” Lebensfeld said.
According to Lebensfeld, the criminal case was based almost entirely on information provided to the government by his opponents in the civil litigation and on accounts provided by Hersch, who testified extensively in the civil matter.
“Quite frankly, I don’t believe his story,” the attorney said of Hersch. “The government hasn’t been given the whole story.”
Lebensfeld said there was no evidence that Axelrod diverted any money to Switzerland despite testimony by Hersch that he moved the money at the direction of Axelrod.
The 1998 lawsuit, which is still unresolved, involves Axelrod and the California-based company that bought his publishing business. Axelrod sold TFH Publications—named for its flagship magazine, Tropical Fish Hobbyist—for $70 million in cash and a $10 million loan from Central Garden & Pet Co., with the prospect of additional money contingent on the company’s earnings.
A short time later, however, Axelrod filed suit against Central Garden for damages, accusing it of management failures that jeopardized prospects of achieving those higher earnings. Central Garden countersued, alleging fraud, misrepresentation and breach of fiduciary duty.
In its filings, Central Garden laid out the fraud charges, including the $1 million in payments to Hersch and $250,000 in contributions to the University of Guelph that were characterized in the financial statements of TFH as advertising expenses.
Brandy Bergman, a spokeswoman for Central Garden , said the company went to the U.S. Attorney’s Office after discovering the diversions of money into Swiss accounts.
“After we bought TFH from Herb Axelrod in 1997, we discovered that prior to our purchase, Herb Axelrod had committed tax and other frauds, including the knowing sale of defective products that inflated the apparent value of TFH. We filed civil claims against him seeking damages and notified the U.S. Attorney’s Office about the fraud we discovered,” she said. “This indictment, and the fact that Herb Axelrod is now a fugitive from justice, validates our concerns about Herb Axelrod.”
Central Garden also alleges Axelrod had extensive—and improper—business dealings in Cuba, including a cigar business.
According to documents filed by Central Garden, Axelrod had a European customer pay his Cuban expenses using money owed to TFH Publications. Axelrod allegedly disguised those payments by issuing false credits to the European company.
It is illegal for Americans to transact business in Cuba.
Lebensfeld acknowledged that despite U.S. prohibitions on travel to Cuba for most Americans, Axelrod routinely traveled there.
“He does research there on tropical fish, he has published a book about Cuban cigars,” said the attorney. “He has many friends there.”
Lebensfeld speculated there may be another motive behind Axelrod’s decision to head to Cuba rather than deal with the criminal case.
“He’s 76 years old, he’s done a lot of good for a lot of people, he has paid millions in federal income taxes over the past decade,” Lebensfeld said. “I believe at age 76, he feels that he shouldn’t have to face this at the end of his life.”
Staff writers Christine V. Baird and John P. Martin contributed to this report.