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US: 3 Convicted in KPMG Tax Shelter Case


by LYNNLEY BROWNINGThe New York Times
December 17th, 2008

A federal jury on Wednesday found three white-collar defendants guilty in a tax-shelter trial once billed as the largest ever.

The jury, whose decision ends one of the most closely watched tax cases in recent years, convicted Robert Pfaff and John Larson, two former employees at the accounting firm KPMG, and a former top tax lawyer, Raymond J. Ruble, but acquitted a third former KPMG partner, David Greenberg.

The verdicts, on multiple counts of tax evasion, are a victory for the government, which has spent more than three years prosecuting its case against an original group of 19 defendants, 17 of them from KPMG, over the creation and sale of aggressive tax shelters to wealthy Americans from the late 1990s to early 2000 that allowed them to evade hundreds of millions of dollars in taxes. KPMG settled with the government for $456 million in 2005.

“We’re extremely pleased that the jury recognized that Mr. Greenberg is not guilty,” said David B. Pitofsky and Richard M. Strassberg, his lawyers at Goodwin Procter.

The case suffered a string of setbacks. In 2006, Judge Lewis A. Kaplan of Federal District Court in Manhattan threw out charges against 13 defendants, saying that prosecutors had violated their rights by pressing KPMG to stop paying their legal fees.

The dismissal, upheld in August by an appeals court, led to a shift in federal guidelines for prosecuting corporations and executives. After an uproar from independent lawyers and prosecutors about the government’s tactics, the Justice Department in 2006 and again this year formally softened guidelines used in the proceeding, saying it would no longer urge companies to share legal secrets with prosecutors or refuse to pay the legal fees of employees accused of crimes.

The dismissal led the government to quietly remove some of the Manhattan prosecutors on the case, which was overseen from start to finish by a criminal tax prosecutor for the Justice Department, Kevin M. Downing. Prosecutors declined last month to ask the Supreme Court to reconsider the appeals court’s decision.

Mr. Pfaff and Mr. Larson left KPMG to form Presidio Advisory Services, a tax shelter boutique that worked with banks, including Deutsche Bank, and accounting and law firms to make and sell aggressive tax shelters to the wealthy; the firm is now defunct.

The government contends in court filings that Presidio promoted abusive tax shelters. Mr. Ruble wrote legal opinion letters blessing certain questionable shelters as legitimate when he knew they were not.

Mr. Greenberg, a separate figure in the overall case, was involved with selling an aggressive tax shelter called SOS. Deutsche Bank is under criminal investigation for its role in questionable tax shelters. According to a 2003 report by a Senate subcommittee, Deutsche Bank participated in 56 such transactions in 1999 with KPMG and Presidio.



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