Con Man Claims He Was Cheated While He Was Serving His Time

     LOS ANGELES (CN) - Con man Aaron Tonken, who duped politicians and Hollywood A-listers and ran off with millions in charity money, claims in court that an insurer improperly paid out his policies to creditors while he was in prison.
     Tonken sued United of Omaha Life Insurance Co. in Superior Court, demanding a declaration of his rights to socialite Cynthia Gershman's life insurance policies.
     United of Omaha is the only named defendant. But Tonken claims that Neil Silver, Robert Freedman, John Gebbia and Gebbia Holding Co. "engaged in wrongful acts" in persuading the insurer to deliver the proceeds of Gershman's policies after she died in 2007.
     Tonken, 47, served 4 years in federal prison, from 2004 to 2008, for defrauding dozens of charities of millions of dollars. The Los Angeles Times called him the "King of Cons" in a front-page story on Oct. 22, 2010.
     According to the Times article, Tonken diverted more than $7 million designated for high-profile, celebrity-friendly charities such as Make a Wish and the Starlight Starbright Children's Foundation to shell bank accounts - leaving the needy children with nothing.
     A 2000 fete for then-President Bill Clinton that raised $1 million for Hillary Clinton's Senate campaign, orchestrated by Tonken, caught the attention of state and federal authorities. After months of investigation, prosecutors unsuccessfully prosecuted top Clinton aide David Rosen on charges that he concealed more than $700,000 in costs for the Tonken gala in filings with the Federal Election Commission.
     Tonken found his life in ruins long before that. He filed his first Chapter 7 personal bankruptcy in the mid-1990s, which was dismissed when he missed a meeting with creditors.
     Then he met shopping center magnate Hal Gershman and Gershman's wife, Cynthia.
     According to an August 2003 exposé in Vanity Fair, "The Golden Fleece," the Gershmans regularly hosted parties in their Beverly Hills home for the "old Hollywood" guard, such as Red Buttons, Milton Berle and Henny Youngman, in return for which Tonken asked for donations to charities he wanted to work with.
     When Hal Gershman died in 1997, Cynthia sought Tonken's help to make her a movie star - at 66. Tonken helped Gershman get a Screen Actors Guild card under the name "Cynthia Palmer" and landed her roles in several minor films.
     In return, Gershman loaned Tonken money - more than $2 million - causing alarm in the Gershman family. According to Vanity Fair, Gershman's son split the family foundation in half, and Cynthia used her half to fund charities that Tonken chose.
     In 2001, Tonken launched his final, fateful "charity" gala: A Family Celebration. Tonken told the "Ally McBeal" cast and producer David E. Kelley that 100 percent of the money raised would go to charities of their choosing.
     Tonken also got boy-band Nsync to perform, promising that 50 percent of the proceeds would go to their favorite charities. When an "Ally McBeal" producer discovered that Tonken had promised 150 percent of the gala's proceeds, Tonken promised that Cynthia Gershman would make up the difference.
     In the end, California's then-Attorney General Bill Lockyer found that Tonken diverted most of the event's money to "pay for expenses unrelated to the event," according to Vanity Fair.
     Lockyer got involved after a charity that was supposed to benefit from another Tonken event tried to write checks and discovered that its event account had been cleaned out.
     According to Vanity Fair, much of that charity's money went to Tonken's largest creditors at the time: Robert Freedman and Neil Silver.
     Lockyer began issuing subpoenas in early 2002, around the time that the other players in the story - John Gebbia and Gebbia Holding Co. - cut off their line of credit to Tonken after advancing him $1 million.
     In a 2002 deposition arranged to determine his ability to repay a default judgment in favor of Paula Abdul, who'd sued him for failing to pay her $115,000 to attend a charity function, Tonken told Abdul's lawyers that he was "a star witness" in two federal investigations, involving the Clintons and an IRS probe into his dealings with other celebrities.
     "I'm a star witness against President and Mrs. Clinton. The FBI's doing a number of searches regarding the celebrities and functions and stuff," Tonken told Abdul's attorneys, according to Vanity Fair. "I'm a star witness in New York in the grand jury regarding the Marc Rich pardon and regarding the fund-raising activities that I've done on behalf of the Clintons. ... It's multifaceted. Part of it's a criminal investigation dealing with the former president [Clinton]; part of it is a massive investigation with the IRS with me in conjunction with all the celebrities that I've gifted."
     Tonken eventually pleaded guilty to two counts of fraud and served most of his 5-year sentence in a string of federal prisons in three states. He left prison in December 2008 and - according to the front-age story in the LA Times - found God.
     The Times story credits Tonken for California's recovery of $2.1 million he handed to already wealthy Hollywood celebrities. Deputy Attorney General Sonja Berndt told the Times: "Everybody that was his friend, they had their hand out. ... I don't think the guy had one true friend."
     Except Cynthia Gershman, apparently, who made him beneficiary of her life insurance policies - which he claims he purchased for her from United of Omaha - before she died in 2007.
     In his new complaint, Tonken says he filed for bankruptcy a second time in 2004. His appointed trustee brought a motion to return to Tonken all assets not claimed by his creditors, including the three Gershman life insurance policies. Tonken claims the bankruptcy court granted the motion before Gershman died.
     But Tonken claims that Silver, Freedman, Gebbia and Gebbia Holding Co. swooped in after Gershman died, asserting claims on her life insurance proceeds. He says in his complaint that Silver and Freedman "never sought any form of relief in the Tonken bankruptcy case or any determination that they had any right, title claim or interest in and to any of the insurance policies by virtue of any assignment or transfer from plaintiff Tonken to him, or otherwise."
     Gebbia, however, told the bankruptcy court that the policies "were worth no more than $400,000 and that he had a then potential sale of the life insurance assets for that amount by way of repayment for a loan that he had made to plaintiff Tonken that did not exceed the total amount at the time of $900,000," according to the complaint.
     The complaint continues: "In fact, plaintiff is now informed and believes and therein alleges that John Gebbia and Gebbia Holding Co. concealed from the bankruptcy court the true value of the life insurance policies, and also concealed from the court the fact that they had arranged for some sort of private sale of the interest in the policies described in the motion for relief from stay. Plaintiff is informed and believes and therein alleges that there was some sort of sale by Gebbia and Gebbia Holding Co. of their interests in the life insurance policies and that John Gebbia ended up as the purchaser of the interest in the policies personally from his company Gebbia Holding Co. The sale by Gebbia was never approved or confirmed by the bankruptcy court, and the order granting relief from stay was obtained based on false representations made to the bankruptcy court to the effect that the total amount of the indebtedness due and owing from plaintiff Tonken to Gebbia did not exceed $900,000. Prior to the filing by plaintiff Tonken of his petition for relief under Chapter 7 of the Bankruptcy Code, Tonken had granted a security interest in favor of John Gebbia in and to one of the insurance policies, and upon the death of the insured, Cynthia Gershman, John Gebbia and Gebbia Holding Co. should not have received more than the then unpaid balance of the indebtedness due from plaintiff Tonken to them based upon what representations had been made by them to the bankruptcy court in order to obtain an order granting relief from stay so that they could proceed to enforce whatever lien rights they had in one of the insurance policies."
     Tonken also claims that Silver told United of Omaha that Tonken owed him money, though Silver never had obtained an assignment in Tonken's bankruptcy case. And he claims that Silver assigned his "interest" to Freedman.
     "Plaintiff Tonken never granted or conveyed any assignment of any interest in the insurance policies to Robert Freedman as security or otherwise, and plaintiff is informed and believes and therein alleges that any documentation evidencing an assignment of insurance policy benefits or rights from plaintiff Tonken to or for the benefit of Neil Silver and to or for the benefit of Robert Freedman are void as being without consideration, having been procured by force, threat or undue influence, and not representing the grant of any security interest for purposes of securing any indebtedness due, owing and unpaid from plaintiff Tonken to either Neil Silver or Robert Freedman," Tonken says in his complaint.
     Tonken claims that Gebbia, Silver and Freedman persuaded United of Omaha to pay out Cynthia Gershman's life insurance policies in amounts "far in excess of what might possibly have been an indebtedness due and owing from plaintiff Tonken."
     He claims the insurer paid the money "without verifying the validity of any documents that may have been presented to them by the non-insurance company persons making claims against the policies and without notification to plaintiff Tonken as the original owner of the policies. As such, defendant insurance companies paid out the death benefits under the policies as a volunteer to the wrong parties, and plaintiff seeks such a determination and declaratory judgment in this action."
     Tonken claims that the most Gebbia should received was the $900,000 that Gebbia told the bankruptcy court Tonken owed him.
     "Plaintiff seeks a declaration of rights in the matter involving plaintiff's claims that the defendant insurance companies wrongfully paid out life insurance benefits upon the death of Cynthia Gershman in the wrong amounts to the wrong persons," Tonken says.
     He is represented by Philip Dapeer of Westlake Village.