Most Shocking Case

The case was once called "one of the most shocking in Treasury history" by ex-Secretary Henry Morgenthau Jr. As the evidence of tax evasion piled up in Manhattan federal court against Henry Lustig, owner of Manhattan's glittering, high-priced Longchamps Restaurants, Inc., it was indeed shocking. Restaurateur Lustig, who came up from peddling vegetables on Manhattan's lower East Side, had missed few tax-dodging tricks.

With the help of a nephew and employe, E. Allen Lustig, and his chief bookkeeper Joseph Sobel, Longchamps' had kept two sets of books, one for Henry, one for Uncle Sam. Profits on which taxes were paid were determined by avarice, not earnings. Fictitious expenses were put down; the bulk of the tips to hat-check girls ($5,000 a month) was pocketed by Lustig and not reported. Lustig's house hold expenses (and race horses) were charged up to corporation expenses; $18,142 went to a decorator, $913 for Mrs. Lustig's modes, $2,300 for her molars.

Nephew Lustig topped even this. He claimed a tax deduction for his dependent mother-in-law for four years after her death. Lustig admitted all this.His only defense : he had voluntarily told the Treasury of the evasions, had been promised immunity if he paid up. The deal had been made, said he, with Internal Revenue Collector William J. Pedrick on March 26, 1945. Retorted Pedrick: there had been no deal. At the time set by Lustig, Pedrick had been attending an Alfred E. Smith memorial dinner--and eight prominent Manhattanites so testified.

Last week, a jury took only two hours and 36 minutes to find Lustig and his aides guilty of defrauding the U.S. of $2,872,766.62 in taxes. Maximum sentence on the 23 counts: 112 years in prison, fines of $230,000 apiece.

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