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Thursday, Jul 7, 2022

Anonymous Assets

Anonymous Assets

In a City of So Much Wealth, Outside of the Handful of People Who Control Large Portions of Public Companies There Are Perhaps Dozens Who Jealously Guard Their Privacy and Worth

By RiSHAWN BIDDLE

Staff Reporter

To understand why so many wealthy Angelenos try to remain under the radar, consider the experience of publishing magnate Robert Petersen.

The mastermind behind Hot Rod magazine and Guns & Ammo whose net worth is estimated at $567 million will be deluged with solicitations as soon as this year’s Business Journal list hits the stands. If it’s comparable to last year, two of his assistants will field at least 10 calls a day from telemarketers and sift through hundreds of business proposals, charitable appeals and letters begging for handouts.

Occasionally one of them enclosed in an envelope marked “confidential” will actually get to Petersen himself, who will then go through the bother of tossing it out.

It’s one reason why many wealthy Angelenos go to great lengths to keep their wealth hidden from business publications that seek to publish it.

Information about Americans’ personal wealth doesn’t start out in the public domain. But often it winds up there, or at least bits and pieces of it, through required disclosures by publicly held companies, in court documents, real estate transfers or simply through investments in high-profile enterprises.

The finances of the L.A. Clippers, for instance, aren’t public. But there is a cottage industry of valuation experts that have a pretty good idea of what Donald Sterling’s team is worth. Add that to real estate transactions that are on file at the L.A. County Assessor’s office and elsewhere, and voila an estimate of his wealth can be calculated.

Sterling owns at least 22 apartment buildings in Beverly Hills, some of them for decades. One researcher estimates that six of his largest properties are worth more than $200 million, excluding debt. The Business Journal’s final tally: $943 million, including a generous allotment for unknown holdings.

Despite all the information that does leak into the public domain, there remain plenty of folks in Los Angeles with enough money to belong on the Business Journal’s annual list of 50 richest Angelenos except there is often no way of verifying who they are and how much they’re worth.

“I know four of five people who can make your list. But they aren’t there and won’t volunteer themselves at all,” said hotel baron Lewis Wolff, whose financial partners include oil heiress Caroline Rose Hunt and Gap Inc.’s founding family. “I can’t imagine why they would tell a newspaper or anyone else when it can be so much trouble.”

L.A. is home to plenty of well-heeled residents who built their wealth in Asia or in the Middle East, for example. The wealth of buyout investors is also difficult to track because those funds aren’t publicly held, and much of the money is tied up in the funds themselves. Entertainers, too, are hard to pin down.

Stealth strategies

Besides, for investors a low profile can be a weapon, helping avoid a bidding war on a property.

“It’s good leverage. If you knew you were selling to (billionaire) John Anderson, you would offer one price. But if you were dealing with some John Brown off the street, you can get a far better deal. They’re trying to keep the price down,” said Lloyd Greif, president of investment banker Greif & Co.

To avoid the spotlight, the hidden rich use a variety of methods. Many won’t engage in public activities like serving on the boards of companies or charities.

What about charitable gifts?

They’ll often negotiate with the institution to make an “anonymous” donation, according to Tim Lappen, a partner at Jeffer Mangels Butler & Marmaro.

Aiding these efforts are privately held investment structures, such as limited liability companies, originally designed to shelter investors from financially damaging events such as lawsuits and bankruptcy.

Because LLCs only have to register with California’s Department of Corporations and file tax forms, privacy-seeking businessmen can use them to hide their real estate holdings, which are technically public.

“You do a title search and there’s the LLC. Then you go through state forms and that usually leads to another LLC. You’re constantly going backwards to find the true owner of a property and that’s the way they like it,” said Caroline Latham, founder of real estate research firm RealFacts.

One of her earliest searches was for a series of apartments that turned out to be owned by actor Arnold Schwarzenegger. “Real estate is like murder,” she said. “It’s hard to find the decision-makers behind the properties.”

Even if ownership can be determined, it won’t always tell the whole story. For example, a real estate investor could retain full equity in a project, but promise most of his profits to a preferred shareholder someone who’s invested in the project seeking a fixed return who would not appear on documents such as a deed of trust.

Identity protection

Notoriety can also compromise security. In January, Connecticut hedge fund manager Edward Lampert was kidnapped and held overnight in a hotel room. His captors released him after he promised to pay them $5 million, according to press reports.

There are other ways for the wealthy to shield their millions, such as handing out a small stake to an employee or a business manager who can then act as an owner in the eyes of the law. That same person can handle other business affairs, including signing tax forms or even paying an electric bill for that person’s home.

Another method involves using an estate planning measure, like a living trust, through which an affluent person can buy a home or make other investments. The attorneys and accountants who structure these arrangements are, with investment advisors, among the few who know the actual owner.

But they go to great lengths to keep things secret.

At the offices of Fiduciary Trust Co. International in downtown Los Angeles, portfolio statements are printed out in locked rooms accessible only to the bankers. Computers are equipped with software that will log out users if there is no activity for more than five minutes. For additional privacy, customers use private elevators and veiled conference rooms.

“We don’t use anybody’s name unless we get permission and that’s what our clients expect,” said Fiduciary Trust Vice Chairman William Barrett Jr. “They prize their privacy and we respect that.”

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