Michael Jackson was on verge of bankruptcy before death, banker testifies in court

Michael Jackson’s finances were off-the-wall complicated and near collapse before his 2009 death, a banker testified Tuesday in a megabucks tax trial pitting the singer’s estate against the IRS.

“He was on the edge,” banker David Dunn testified in U.S. Tax Court in Los Angeles. “He was desperately trying to figure out what he could do to address his financial crisis.”

Experts said the long-awaited trial could lead to a whopping $1 billion tax bill for the King of Pop’s estate if the judge finds it undervalued assets, as alleged by Uncle Sam.

Dunn testified he was hired in 2007 to help pull Jackson back from the brink of bankruptcy after his 2005 child molestation trial prompted at least one lender, Bank of America, to bolt.

He described efforts to restructure Jackson’s towering debt — and how the "Thriller" singer often undermined him at the last minute by signing unfavorable side deals that lured him in with upfront cash.

Dunn said Jackson remained in a “very precarious situation” in early 2008 with more than $300 million in debt, out-of-control spending habits and his lavish Neverland Ranch near foreclosure.

“We talked about his sadness in knowing he was never going to live in Neverland again,” Dunn said. “It was the culmination of the molestation allegations, the culmination of recognizing the financial situation he was in.”

The banker said he spoke with Jackson at least once a month by phone.

“He talked about his young career and being at his peak. He was struggling with how to make a living and still be with his children, who were of paramount importance,” said Dunn, who works at Shot Tower Capital.

The Baltimore banker recalled Jackson once interrupting “a fairly intense discussion of his personal finances” to retrieve his youngest child, who was feeling sick. He said Jackson plopped the boy on the table and comforted him with a bag of candy corn.

The Rev. Jesse Jackson even sat Jackson down for a “lecture” in Las Vegas at one point, Dunn said.

“He just said, ‘Michael, this is you, you’ve got a bucket, and this tap here is your cash flow. …We’ve got to put a bottom on your bucket, you have to stop spending,’” Dunn recalled.

“(Jackson) borrowed a lot of money, he knew he had financial issues … but the last thing he wanted to do was tour. He was looking for other things to generate income to avoid doing what he wound up agreeing to do,” Dunn said.

Dunn said he resigned in May 2009 because it was hard to tell “which way was up, which way was down," and Jackson hadn't paid him in two years, despite owing him some $300,000.

Jackson had agreed to his “This Is It” comeback tour and was surrounding himself with some new people who made Dunn “uncomfortable.”

This included Arfak Hussain, a British fraudster who “made two bottles of $100,000 perfume and sold them both to Michael," Dunn testified.

Jackson died June 25, 2009, in Los Angeles from an overdose of the surgery-strength anesthetic propofol, which he was using off-label as a sleep aid during preparation for "This Is It.”

After Jackson's death, interest in his music spiked, Dunn said. The new revenue allowed his estate to refinance his complex web of debt and generate new income with the “This Is It” concert movie and a lucrative Cirque du Soleil show in Las Vegas.

Jackson’s longtime attorney John Branca was in court for a second day Tuesday after taking the witness stand Monday.

The tax fight started in 2013 after the IRS claimed the estate undervalued assets including the worth of Jackson’s likeness and image when he died.

If the IRS wins, the estate could be on the hook for unpaid taxes, interest and penalties in the range of $700 million to $1 billion, experts said.

Jackson’s estate maintains the singer was so tarnished by his child molestation trial and media coverage of his eccentric personal life that his image was virtually worthless when he died.

The IRS insists it had a value topping $400 million.

“It is important to keep in mind that the value of Jackson’s right of publicity must be determined as it stood on the date of Jackson’s death and not at a later date,” estate expert Laura Zwicker, a partner at Greenberg Glusker in Los Angeles, told the Daily News on Tuesday.

“The IRS will try to use the earning potential shown following Jackson’s death as evidence of the intrinsic value on Jackson’s date of death and Jackson’s estate will try to argue that all of the earnings were a result of the efforts of Jackson’s representatives following his death and those earnings have no relevance to the value as of his date of death,” Zwicker said.

NEW YORK DAILY NEWS