DOJ Tax Budget Request - The Criminal Parts #9 - Corporate Fraud and other Financial Crimes

More on the DOJ Tax Budget Request

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Corporate Fraud and other Financial Crimes

Through the President’s Financial Fraud Enforcement Task Force, the Tax Division investigates and prosecutes financial crimes such as corporate fraud and mortgage fraud. The Division also participates in the formulation of national policies, programs, strategies and procedures in cooperation with other law enforcement components in a coordinated attack on financial crime. Prosecutions of the promoters of fraudulent tax schemes include cases involving accountants and attorneys at national firms. In May 2009, in United States v. Robert Coplan, et al. (S.D. N.Y.), Robert Coplan, Martin Nissenbaum, Richard Shapiro, and Brian Vaughn, each a current or former partner of the accounting firm Ernst & Young (E&Y), were found guilty following a ten-week jury trial of conspiracy, tax evasion and other charges relating to the design, marketing and implementation of tax shelters sold by E&Y. All four defendants, as members of E&Y’s national individual tax shelter group, led an effort to design and market tax shelter transactions used by wealthy individuals to eliminate, reduce or defer tax liabilities on annual income that generally exceeded $10 or $20 million. Between 1999 and 2002, tax shelter transactions implemented by the defendants and their co-conspirators generated billions of dollars in non-economic or paper tax losses that were used to offset actual income or gain recognized by the firm’s clients. The defendants and their co-conspirators, which included tax, accounting and financial industry professionals, and law firms, worked to design, implement and defend the tax shelter transactions in ways intended to conceal the true facts and circumstances of the transactions from the IRS. In June 2009, in United States v. Charles W. Bee, Jr. (S.D. N.Y.), the former head of International Tax at BDO Seidman and the leader of its Tax Solutions Group, Charles Bee, pleaded guilty to conspiracy to defraud the IRS with respect to BDO's tax shelter promotions, tax evasion with respect to a BDO short options strategy client, and perjury for his false testimony in a 2005 deposition in the Jade Trading case in the Court of Federal Claims. Bee, along with co-conspirators Michael Kerekes and Adrian Dicker who have already pleaded guilty, as well as other members of the Tax Solutions Group, helped to design, sell, and implement the short sale and short options tax shelter strategies with lawyers from Jenkens & Gilchrist and a broker at a bank. Bee earned more that $20 million in profit distributions and bonuses from the tax shelter sales. The tax loss is estimated to be more than $200,000,000.

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In April 2009, two former partners at KPMG and an attorney were sentenced to prison for criminal tax fraud, in United States v. Robert Pfaff, et al. (S.D.N.Y.). Robert Pfaff, a former KPMG tax partner, was sentenced to 97 months in prison; John Larson, a former senior KPMG tax manager was sentenced to 121 months in prison; and Raymond J. Ruble, a former partner at the law firm Brown and Wood, was sentenced to 78 months in prison, for federal charges related to the sale of illegal shelters that helped wealthy clients evade hundreds of millions of dollars in taxes. In March 2009, in United States v. Adrian Dicker (S.D.N.Y.), a former Vice-Chairman of the BDO Seidman accounting firm, pled guilty to conspiracy to defraud the IRS in relation to the promotion of false and fraudulent tax shelter transactions and one count of tax evasion related to the taxes of a client. In January 2009, in United States v. Charles Bolton (S.D.N.Y.), the defendant pled guilty to a one-count information charging him with conspiracy to impede and impair the IRS and to commit offenses against the United States, including making false and fraudulent statements to the IRS and obstructing and impeding the due administration of the internal revenue laws. Bolton, through a group of financial companies he owned and operated, implemented two tax shelter transactions marketed and sold by the accounting firm Ernst & Young. The tax shelters, known as CDS and CDS Add-On, were used by wealthy taxpayers to fraudulently convert ordinary income into capital gains, and to improperly defer the tax liability on the capital gains.