Matthew Krane, a tax attorney involved in the Quellos matter, has been sentenced. (I have previously blogged about Krane here and Quellos here.) Specifically, I discussed the bizarre facts of the Krane prosecution here. Krane has been sentenced to 36 months and must (i) return $17.9 million in fees to a wealthy former client and (ii) pay $23.1 million in back taxes. The relatively light sentence was "reward" for Krane's cooperation.
Hat tip to Tax Prof Blog
See also Kelly Phillips Erb, Show Biz Lawyer Finally Sentenced in Massive Fraud Case, TaxGirl Forbes Blog (6/11/11)
Showing posts with label Quellos. Show all posts
Showing posts with label Quellos. Show all posts
Tuesday, June 14, 2011
Saturday, January 29, 2011
Quellos Principals Sentenced
Yesterday, the United States Attorney's Office for WD WA announced here the sentencing off Jeffrey Greenstein, for CEO of Quellos Group, LLC, and Charles Wilk, head of Quellos' private client group (he was also a tax attorney). They each received 50 months in prison. (I have previously blogged on Quellos here).
Greenstein and Wilk were convicted of crimes involving transactions that never occurred and structures that were never implemented. From the press release:
Greenstein and Wilk were convicted of crimes involving transactions that never occurred and structures that were never implemented. From the press release:
Greenstein and Wilk did not tell clients, or the attorneys who evaluated the proposals, that the POINT transaction was predicated on a sham. They knew but did not disclose that there was no offshore investment fund, and that no shares of stock were actually purchased and possessed by any offshore investment fund. They knew that the purported offshore investment fund was merely a shell entity with nominee administrators and no assets or employees.
Sunday, October 31, 2010
Ninth Circuit Applies Perlman Rule for Collateral Appeal of Order Rejecting Attorney-Client Privilege for Former Attorneys of NonIndicted Party (10/31/10)
In United States v. Krane, 625 F.3d 568 (9th Cir. 2010), here, the Ninth Circuit upheld the continuing viability of the Perlman rule permitting collateral appeals of rejection of the attorney-client privilege in certain circumstances. Krane arose from a tax shelter prosecution of individuals who conducted their tax shelter activity through Quellos Group LLC. We have previously blogged about this indictment here and here, but suffice it to say now that they were the genre of shelters that led to other prominent prosecutions (e.g., KPMG related individuals and the Daugerdas related individuals). In Krane, the district court allowed the Government to issue a pretrial subpoena for the records of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden"), a prominent national law firm that had previously represented Quellos, which was not indicted. Quellos advised Skadden that it was asserting the attorney-client privilege. Skadden asserted the privilege. The Government moved to compel. Quellos intervened to sustain the privilege. The trial court rejected the assertion of privilege and ordered Skadden to comply. Quellos appealed the order and the district court stayed compliance with the subpoena pending appeal. The defendants pled guilty. The Government insisted that it needed compliance with the subpoena in order to prepare for sentencing and issued an identical trial subpoena for the sentencing hearing. "Thereafter, Quellos filed a "Notice of Further Proceedings and Suggestion of Mootness" before this court [the Ninth Circuit], which the government opposed." In a footnote, the court noted: "Despite having served the second subpoena on Skadden, the government has yet to file a motion with the district court seeking issuance of a pre-sentencing subpoena duces tecum."
The appeal presented two issues. The first was whether the compulsory order to Skadden Arps was appealable. The second was, if appealable, the pleas of the defendants mooted the need for the subpoenas. The answers to both questions was yes, so the appeal was dismissed, vacated and remanded with instructions.
The appeal presented two issues. The first was whether the compulsory order to Skadden Arps was appealable. The second was, if appealable, the pleas of the defendants mooted the need for the subpoenas. The answers to both questions was yes, so the appeal was dismissed, vacated and remanded with instructions.
Saturday, December 12, 2009
Bizarre Plea in Quellos - Plea Not Surprising but Facts Are Bizarre
Matthew Krane, a tax attorney, who took a large, very large kickback on a large, very large client investment in an allegedly abusive / criminal Quellos tax shelter has pled guilty. The announcement from USAO EDWA is here and a Law.com article with more of the background than in the USAO announcement is here. I do not have a copy of the plea agreement so some information provided in this blog is incomplete and may be updated when and if I get the plea agreement.
I previously blogged the larger indictment of Krane and two others involved with Quellos here.
The gravamen of the claim against Krane, a tax attorney is that he received a kickback, perhaps shared with the two other defendants, of some 35 million + on the sale of the shelter designed to shield over $1 billion in gain realized by one of his clients. Quellos and its principals designed the shelter. Krane did not advise his client of the kickback.
The guts of this news is as follows:
1. As to Krane, the plea is to "Tax Evasion and False Statement in a Passport Application." The announcement says: "KRANE will serve up to five years in prison for his two convictions." (As an aside, it is unclear why Krane will serve only up to 5 years; given the amounts the tax evasion plea generates a Guideline sentence of; I have not seen the calculation that would make the Passport conviction moot in terms of sentencing.)
2. As to the remaining defendants (Wilk and Greenstein), Krane will assist the Government in making its case. May not be a pretty picture for them. The trial is tentatively scheduled for September 2010.
I previously blogged the larger indictment of Krane and two others involved with Quellos here.
The gravamen of the claim against Krane, a tax attorney is that he received a kickback, perhaps shared with the two other defendants, of some 35 million + on the sale of the shelter designed to shield over $1 billion in gain realized by one of his clients. Quellos and its principals designed the shelter. Krane did not advise his client of the kickback.
The guts of this news is as follows:
1. As to Krane, the plea is to "Tax Evasion and False Statement in a Passport Application." The announcement says: "KRANE will serve up to five years in prison for his two convictions." (As an aside, it is unclear why Krane will serve only up to 5 years; given the amounts the tax evasion plea generates a Guideline sentence of; I have not seen the calculation that would make the Passport conviction moot in terms of sentencing.)
2. As to the remaining defendants (Wilk and Greenstein), Krane will assist the Government in making its case. May not be a pretty picture for them. The trial is tentatively scheduled for September 2010.
Monday, June 8, 2009
More on the Quellos Individuals Indictment - It is About the Lie (6/8/09)
I have now had the opportunity to review the Quellos indictment in more detail. It is all about the lie that, if the allegations are proved, a jury will understand. A jury almost certainly would not understand -- or need to understand -- the complex tax rules which might have applied if the key factual underpinning were true. The jury will understand the lie. And, the gravamen of the instructions to the jury will be that, if the jury finds that prosecutors prove the lie they allege, the defendants should be found guilty.
Let's look at the counts and the lie. At the risk of oversimplication, I simplify and thus omit much of the detail.
Let's look at the counts and the lie. At the risk of oversimplication, I simplify and thus omit much of the detail.
Saturday, June 6, 2009
New Tax Shelter Enabler Indictments - More About the Lie (6/8/09)
On June 4, 2009, the Federal District Court in Seattle unsealed a previously sealed indictment of certain Quellos-related individuals. A Wall Street Law Blog article is here, and the indictment is here. Quellos was a bona fide investment company that got in the tax shelter business. The indictment contains the same pattern as the KPMG related indictment -- (1) conspiracy as the ubiquitous Count One and 8 Counts of Tax Evasion. But the indictment and goes beyond that pattern to add 3 counts of wire fraud and one count of money laundering conspiracy. Wire fraud and money laundering conspiracy often accompany traditional tax crimes (including the general defraud conspiracy), but are not often charged together in the same indictment. See Tax Division Directive No. 128. And, such piling on of charges addresses a concern that Congress recently stated in FERA (see the prior discussion here)).
I focus in this blog not on the charging decisions (how many crimes can a creative prosecutor imagine and charge), but rather upon the basic pattern of conduct that is reported to be behind the indictment. I have previously discussed here the common feature -- the lie -- of tax shelter crimes. See prior blogs here and here. If tax shelter crimes are really about the lie, who is the target of the lie? It is not a lie unless it is told to someone who might rely upon the lie. Let's take the quintessential lie that the Government claims in tax shelters -- that the taxpayer has a business or profit motive independent of the tax benefits. The lie is intended for IRS consumption to distract the IRS from the truth -- no profit motive and no right to the tax benefits claimed. In all events, it is imagined, the lie might avoid penalty relief if all else fails. The lie is also intended for persons in the tax shelter chain who might not know the truth otherwise and relies upon the lie as truth as a condition to their participation in the chain.
The WSJ Law Blog today asks the question of whether attorneys for the taxpayers entering Quellos shelters were also the intended targets of such lies in order to give them the comfort they needed to, in turn, give the taxpayers whatever comfort they needed. In other words, in the simple example posited above, the lie about the intended business or profit motive might be required for the taxpayers' lawyers to bless the deal. That is the focus of the WSJ Law Blog discussion.
But in the simple example I posit, what lie is being told? It is true that in these deals, the promoters require the taxpayer to make the independent business or profit motive representation. But who is making the representation? It is the taxpayer. The taxpayer has the relationship with his own counsel -- i.e., the taxpayer's lawyer is not in bed with the tax shelter promoters but truly an independent lawyer representing only one person, the taxpayer. The taxpayer's lawyer is supposed to understand the overall structure including any of its components relevant to the taxpayer's representation as to independent business or profit motive. If the taxpayer believes the representation and his lawyer believes that, properly counseled by that lawyer, the taxpayer believes the representation, there should be no criminal conduct on behalf of either the taxpayer or the lawyer. Of course, even if the taxpayer's lawyer believes that the taxpayer believes the representation and nevertheless, based on the lawyer'sw independent review of the structure, believes that the taxpayer is misguided as to the belief, the lawyer's job is to counsel the client that the facts do not support the belief, however sincerely held, and the taxpayer should reconsider. But, if the taxpayer persists in his belief after proper counseling, however misguided that belief may be, it is not the taxpayer's lawyer's job to call his client a lier. It is, after all, a subjective belief, and there is no litmus test of a subjective belief. (Of course, the lawyer will surely advise the taxpayer that the risk is that, if the belief is not credible, the lawyer and the taxpayer take the risk that no one -- specifically the IRS, a prosecutor or a juror -- will believe that the taxpayer really believed he had an independent business or profit motive or that the lawyer really believed that the taxpayer had that belief, and the Government may convict the taxpayer and the lawyer for hiding behind the known lie to particpate.)
I focus in this blog not on the charging decisions (how many crimes can a creative prosecutor imagine and charge), but rather upon the basic pattern of conduct that is reported to be behind the indictment. I have previously discussed here the common feature -- the lie -- of tax shelter crimes. See prior blogs here and here. If tax shelter crimes are really about the lie, who is the target of the lie? It is not a lie unless it is told to someone who might rely upon the lie. Let's take the quintessential lie that the Government claims in tax shelters -- that the taxpayer has a business or profit motive independent of the tax benefits. The lie is intended for IRS consumption to distract the IRS from the truth -- no profit motive and no right to the tax benefits claimed. In all events, it is imagined, the lie might avoid penalty relief if all else fails. The lie is also intended for persons in the tax shelter chain who might not know the truth otherwise and relies upon the lie as truth as a condition to their participation in the chain.
The WSJ Law Blog today asks the question of whether attorneys for the taxpayers entering Quellos shelters were also the intended targets of such lies in order to give them the comfort they needed to, in turn, give the taxpayers whatever comfort they needed. In other words, in the simple example posited above, the lie about the intended business or profit motive might be required for the taxpayers' lawyers to bless the deal. That is the focus of the WSJ Law Blog discussion.
But in the simple example I posit, what lie is being told? It is true that in these deals, the promoters require the taxpayer to make the independent business or profit motive representation. But who is making the representation? It is the taxpayer. The taxpayer has the relationship with his own counsel -- i.e., the taxpayer's lawyer is not in bed with the tax shelter promoters but truly an independent lawyer representing only one person, the taxpayer. The taxpayer's lawyer is supposed to understand the overall structure including any of its components relevant to the taxpayer's representation as to independent business or profit motive. If the taxpayer believes the representation and his lawyer believes that, properly counseled by that lawyer, the taxpayer believes the representation, there should be no criminal conduct on behalf of either the taxpayer or the lawyer. Of course, even if the taxpayer's lawyer believes that the taxpayer believes the representation and nevertheless, based on the lawyer'sw independent review of the structure, believes that the taxpayer is misguided as to the belief, the lawyer's job is to counsel the client that the facts do not support the belief, however sincerely held, and the taxpayer should reconsider. But, if the taxpayer persists in his belief after proper counseling, however misguided that belief may be, it is not the taxpayer's lawyer's job to call his client a lier. It is, after all, a subjective belief, and there is no litmus test of a subjective belief. (Of course, the lawyer will surely advise the taxpayer that the risk is that, if the belief is not credible, the lawyer and the taxpayer take the risk that no one -- specifically the IRS, a prosecutor or a juror -- will believe that the taxpayer really believed he had an independent business or profit motive or that the lawyer really believed that the taxpayer had that belief, and the Government may convict the taxpayer and the lawyer for hiding behind the known lie to particpate.)
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