US: 3 Convicted in KPMG Tax Shelter Case

Publisher Name: 
The New York Times

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.

AMP Section Name:Financial Services, Insurance and Banking