KMPG Tax Shelter Case set to go to Trial

from www.yahoo.com


By Paritosh Bansal Sun Oct 7, 11:24 AM ET
NEW YORK (Reuters) - A tax-shelter case involving former partners at KPMG (KPMG.UL) is set to go to trial after two years of legal wrangling and a high-profile debate about the rights of white-collar criminal defendants.
Jury selection begins on Tuesday in U.S. District Court in Manhattan for four defendants who were charged in 2005 with helping to cheat the government of $2.5 billion by creating questionable tax shelters for wealthy clients.
When originally filed, the case was touted as the largest ever criminal tax prosecution. But it is much smaller now.
In July, U.S. District Judge Lewis Kaplan dismissed charges against 13 former KPMG partners, ruling that the government interfered with their right to counsel.
Still, legal experts are watching the case as its outcome could have an impact on the U.S. government's ongoing investigations into tax shelters.
"In a sense the government is partly on trial," said Carl Tobias, law professor at the University of Richmond. "It will be important for the government to show that it has assembled a strong case in light of what's happened."
The remaining defendants include three former KPMG employees -- David Greenberg, Robert Pfaff and John Larson -- and Raymond Ruble, a former partner at law firm Sidley Austin.
The 2005 indictment alleged that between 1996 and 2005 the defendants put together tax shelters known as FLIP, OPIS, BLIPS and SOS that were designed to generate phony tax losses. It also said the defendants prepared false documents to deceive the government.
KPMG avoided indictment by settling the federal probe in 2005 for $456 million.
However, the 13 defendants who were dismissed from the case are still not completely in the clear. The government has said it was reviewing a possible appeal.
LONG TRIAL SEEN
The trial of the four remaining defendants is expected to last between three and five months. Tax shelter structures are complicated and could be difficult to explain to a jury.
The case involves some 24 million pages of documents, according to court papers.
Some legal experts say the government could face an uphill task in proving its case.
"These are very complex structures that no court has ever found illegitimate," said Michael Levy, a lawyer at McKee Nelson LLP. "The thrust of the prosecution's evidence and the defense's efforts to counter that evidence is going to be what each of these individuals understood about the economic realities of the transactions."
Jonathan Rosen, of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, said "the government's hurdle here is quite high ... They are looking at conduct in 1998 through the prism of 2007."
Last month, one defendant, David Makov, an investment adviser who did not work at KPMG, pleaded guilty to conspiracy and agreed to cooperate with prosecutors.
Makov was the second indicted defendant to plead guilty. An ex-KPMG partner, David Rivkin, entered a guilty plea last year.
"Makov's plea is very likely good news for the government," Rosen said. "(It is) very helpful for the government to have a witness come forward and say, 'This is what we were intending to do at the time."'
Another legal expert, Burton Wiand, of Fowler White Boggs Banker, said the plea could indicate the government has a good case. "It is not unlikely that you might see more pleas before the trial starts," Wiand said.
Ruble's lawyer, Jack Hoffinger, said his client was going ahead with the case. "We are proceeding to trial."
Greenberg's lawyer declined to comment, while lawyers for Larson and Pfaff could not be reached. A spokeswoman for the U.S. attorney's office declined to comment.
A successful case is likely to boost the government's efforts to pursue other tax shelter cases.
Prosecutors have said they plan to file a new indictment in a case that has already led to charges against current and former Ernst & Young (ERNY.UL) partners.
Ernst & Young was not named in that case. In July 2003, the auditing firm agreed to pay $15 million to the IRS to end an investigation of tax shelter marketing.