Real Estate Whiz Sherman Mazur Pleads Guilty to 7 Counts of Fraud : Crime: He diverted cash to himself from bankrupt partnerships and then failed to report millions in federal income taxes.

Sherman Mazur, a onetime real estate whiz accused of engineering one of the biggest tax fraud cases in recent years, pleaded guilty to seven counts of tax and bankruptcy fraud, the U.S. attorney’s office in Los Angeles said Thursday.

The government’s case centered around allegations that Mazur, 43, supported a lavish lifestyle by diverting cash to himself from some of the 200 real estate partnerships he ran--many of which were in bankruptcy. Prosecutors also alleged that Mazur failed to report $5.6 million in income to the Internal Revenue Service.

In his guilty pleas, Mazur admitted to taking $1 million from the partnerships and to failing to report nearly $3 million of income on his personal tax returns in 1985 and 1986.

Mazur’s plea came the same day that former Lincoln Savings & Loan chief Charles H. Keating Jr. was sentenced to 12 1/2 years in federal prison, and one day after Charles W. Knapp, a former freewheeling S&L; executive who once ran giant American Savings, was convicted on three counts of lying to obtain a $15-million loan.

While the timing was coincidental, the outcomes nonetheless highlight how some of those who abused the banking and real estate industries in the United States during the 1980s are now paying a severe price.

“There was a sense in the ‘80s of license, that wheeling and dealing and stepping across the line was much easier,” said prosecutor John Walsh, who heads the major fraud division in the U.S. attorney’s office here.

Because investigators have bolstered their staffs in recent years, “our ability to address these cases became much more effective,” Walsh said.

Mazur’s guilty pleas were part of a plea bargain reached only five days before his trial was to start. He had faced a total of 74 criminal counts that also included allegations of money laundering.

Mazur now faces a maximum penalty of 31 years in prison and $1.75 million in fines.

Under his plea bargain, Mazur agreed to pay $500,000 in restitution and $250,000 in fines. Sentencing is scheduled for Oct. 18.

His lawyer, Brian O’Neill, said neither he nor Mazur would comment on the case. Mazur has been free on bail.

Touted in the mid-1980s as a rising star in U.S. real estate, Mazur was once lauded for specializing in real estate workouts, in which he gained control of troubled properties with the understanding he would nurse them back to financial health.

At his peak, Mazur operated through the now-defunct American Resource Corp. in Century City, with about $750 million worth of apartments and office buildings he had obtained from financially sick partnerships.

(Anthony Sarno and Joseph V. Nash, two former associates of Knapp, were officers of American Resource in 1986, said Assistant U.S. Atty. Maureen A. Tighe. But Sarno and Nash--who were convicted with Knapp in the loan fraud scheme--were not accused of any wrongdoing in Mazur’s case, she said.)

By 1988, Mazur was also managing about 580 post office, utility and government buildings owned by investors in tax shelter programs promoted by North Hollywood businessman Gerald L. Schulman, who was convicted that same year of felony tax fraud.

A New York native with boyish good looks, Mazur was known to be charming, persuasive and self-assured.

Associates also said he was known to drop names of renowned business people he had met, including former junk bond king Michael Milken.

Mazur was also a leading figure in local social and charitable scenes.

His personal wealth grew along with his business. He had a fleet of nine cars that included two Rolls-Royces and a Ferrari. He built two multimillion-dollar houses in West Los Angeles and south Orange County.

But in court papers, prosecutors alleged that Mazur failed to report millions of dollars of income to the IRS “because he needed the money to pay for his lavish lifestyle and resulting debts.”

Mazur’s Troubled History

* 1986: Businessman Sherman Mazur forms American Resource Corp. in Century City, managing $750 million worth of properties.

* April, 1987: Mazur is sued for $17 million by a Dallas-based investment group, accused of skimming and failure to honor certain loan obligations. Suit is settled for undisclosed amount.

* June 9, 1988: Department of Corporations files papers in Los Angeles Superior Court, accusing Mazur of violating state securities laws and asking the Court to order Mazur to open his books.

* Nov. 23, 1991: American Resource Corp. is liquidated in federal bankruptcy proceedings. Mazur agrees to pay $3.86 million to his defunct company to settle various civil fraud charges.

* Dec. 18, 1991: Mazur is indicted by a Los Angeles federal grand jury on 45 counts of bankruptcy fraud, money laundering, conspiracy and making false statements to federal bankruptcy authorities.

* Sept. 3, 1992: A federal grand jury in Los Angeles adds five counts of tax fraud and 24 counts of bankruptcy fraud to the existing indictment. One indictment count alleges income tax fraud of $5.6 million.

* July 8, 1993: Mazur pleads guilty to tax and bankruptcy fraud.

Source: Times reports; Researched by WILLIAM HOLMES and ADAM S. BAUMAN / Los Angeles Times