WASHINGTON -- A federal grand jury is investigating whether the Synanon Church has evolved into a lucrative business that defrauds customers and backers into believing they are aiding drug addicts and alcoholics, sources say.
Synanon's general counsel, Philip Bourdette, acknowledged last week the secret federal investigation has been under way in Sacramento, Calif. since May but asserted there is 'no merit' to the inquiry.
He said the California-based organization, which has about 550 members, still devotes much of its energy to pursuing the mission for which it was founded 26 years ago: to assist drug addicts, alcoholics and others with 'character disorders.'
'The Justice Department is apparently looking into whether or not those things actually occur -- whether we take care of people in trouble,' Bourdette said in an interview from Synanon headquarters in Badger, Calif.
'One reason all this is happening is all the ... media hype about Synanon. You get one of these media campaigns going on, and then every government agency across the country feels they have to do something.'
The Justice Department criminal inquiry into the service organization was spawned from a lawsuit in which Synanon challenged the Internal Revenue Service's revocation of its tax-exempt status for 1977 and 1978, sources said.
Sources familiar with the inquiry said the grand jury now is investigating whether Synanon's fundraising apparatus has defrauded financial backers into believing their money would go toward rehabilitation when it actually was used for other purposes.
While Bourdette acknowledged the grand jury investigation he said he was not certain precisely what the panel was examining.
Bourdette said the IRS, which won its case against Synanon, recently began auditing Synanon's financial records for the years 1979-83.
In court papers filed in the tax case, the government argued Synanon was no longer tax exempt because millions of dollars of the organization's assets had been diverted to its leaders and because it had 'adopted and implemented a corporate policy of violence and terror.'
Synanon became engulfed in controversy in 1978 when Paul Morantz, a Los Angeles lawyer who had won private lawsuits against the organization, reached into his mailbox and was bitten by a rattlesnake. Morantz was hospitalized, but survived.
Three Synanon members, including founder Charles Dederich, were convicted in 1980 of conspiracy to commit murder in connection with the incident. Dederich was placed on five years probation, while Joseph Musico and Lance Kenton each spent a year in jail.
In the tax case, the IRS asserted that Synanon's direction had changed from its initial focus of helping drug addicts through a sensitivity 'game' in which peers confront them about their disorders.
The IRS introduced as evidence transcripts of seized tape recordings of Synanon 'think table' talks, including one in which Dederich purportedly remarked in 1977, 'Synanon is a fraud as a rehabilitation organization and ... it is only in business for profit.'
The IRS emphasized Synanon's transfer of funds into foreign bank accounts, its income from 'lifestylers' -- non-addicted residents who pay for their room and board, and the operations of its Advertising Gifts and Specialties Program that sells products nationwide.
Government lawyers said Synanon salesmen have 'hustled businesses for proceeds to cure addicts and save lives' when much of the money actually went to Synanon's founder, its directors and the 'lifestylers.'
In ruling against Synanon last February, U.S. District Court Judge Charles Richey of the District of Columbia said the evidence showed more than $7 million in corporate money was 'distributed to Synanon officials' from 1976 to 1978, including more than $2 million to Dederich and his family.
'Top Synanon officials received non-cash benefits as well, including a residence known as 'Home Place' in Badger; access to a fleet of recreational vehicles, including boats, planes and motorcycles; brokerage services; and a two-month trip to Europe,' Richey wrote.
Synanon officials have denied church assets go toward private interests.
Bourdette, who along with 11 other present and former church members faces unrelated criminal charges alleging obstruction of justice, said Synanon has assisted more than 18,000 people since it was founded in 1958. He said 'most drug rehabilitation centers in the country are staffed by former Synanon residents.'
Sale of Synanon products -- such as a telephone shaped like a Heinz ketchup bottle -- have been 'one of our best techniques in the reeducation of character disorder people, particularly drug addicts and alcoholics,' he said.
Bourdette said the products are sold at fair market prices and customers are advised 'it's not a charitable contribution.'
He said prosecutors from the Justice Department's criminal division, overseeing the grand jury in Sacramento recently asked the church to produce 10 persons who had come to the organization for treatment of drug addiction or chemical dependency.
Ten such persons were presented to the grand jury, he said.
'We've produced several thousand documents,' Bourdette said. 'There is no merit to anything that's being done. I think it's a tremendous waste of taxpayers' money.'
Bourdette termed as 'harassment' a June 21, eight-count indictment handed up by a Los Angeles County grand jury that charges him and 11 other present and former members with covering up evidence in the 1980 prosecution of the rattlesnake case.
The indictment alleges most of the defendants misled the grand jury about the importance or disappearance of evidence including transcripts, tapes and computer printout records. Dederich's daughter, Jady, the chairman of Synanon's board, was accused of lying in denying her father had violated probation by appearing on the Synanon radio network.
