Wednesday, June 13, 2012

BDO USA Enters Deferred Prosecution Agreement; to Pay $50MM (6/13/12)

The web news reports that BDO USA, formerly BDO Seidman LLP, has agreed to a deferred prosecution agreement and will pay $50,000,000 for its conduct with respect to tax shelters, including the ones hawked by Paul Daugerdas and enabled by BDO USA.  Michael Cohn, BDO to Pay $50M for Tax Shelter Violations (Accounting Today 6/13/12), here; Dena Aubin, BDO to pay $50 million in tax shelter case (Reuters 6/13/12), here.  A cut and paste from the Accounting today article is:
The firm, formerly known as BDO Seidman LLP, did not register various tax shelters as required by law. The IRS said some of the tax shelters were abusive and fraudulent, and the firm did not register them in an effort to conceal the tax shelters from the IRS and help high-income taxpayers evade federal income taxes.
The $34.4 million penalty is part of a $50 million payment that BDO has agreed to pay the United States in connection with the filing of an Information charging the firm with one count of engaging in a tax fraud conspiracy from approximately 1997 to 2003, and a deferred prosecution agreement with the United States for the criminal charge if specific conditions are met. The $15.6 million portion will be paid to the Justice Department.
In addition to the civil penalty payment, BDO has agreed to cooperate with the IRS in civil matters, including IRS audits and litigations relating to its tax shelter products, and to work with the IRS to ensure that it is in compliance with federal tax laws involving tax shelters.
* * * *
According to the IRS, between 1997 and 2003, BDO violated federal tax laws concerning the registration, maintenance and turning over to the IRS of tax shelter investor lists, involving abusive and fraudulent tax shelters. Through a group within the firm known as The Tax Solutions Group, BDO developed, marketed, sold and implemented fraudulent tax shelter products to high net worth individuals, who had, or expected to have, reportable income or gains in excess of $5 million.
BDO’s tax shelters, while designed to appear to the IRS to be investments, were, in fact, a series of pre-planned steps that helped BDO’s high net worth clients to evade individual income taxes of approximately $1.3 billion, according to the IRS. The fraudulent tax shelters were sometimes known under the names SOS, Short Sale, BEST, BEDS, Spread Options, Currency Option Investment Strategy or “COINS,” Digital Options, G-1 Global Fund, FC Derivatives, Distressed Asset Debt, POPS, OPIS, Roth IRA, and OID Bond. The case dates back to 2002.
More details as I learn them.

For a handy list of deferred prosecution agreements ("DPAs") and nonprosecution agreements {"NPAs"), see UVA Law School Professors Brandon Garrett and John Ashley web site Federal Organizational Prosecution Agreements (viewed 6/13/12), here.  They haven't posted the new BDO Agreement, but do have a Pretrial Diversion Agreement from 2002, here.


  1. The Pretrial Diversion Agreement is for an unrelated matter. 

  2. Is there public access to the names of the individuals who participated in BDO's tax fraud?

  3. Any number of BDO personnel may have played some role in the fraud. Some of those would have been willing and active participants but many would not.

    In a case like that, DOJ Tax tends to pick the worst for indictment. Persons not indicted run the gamut from wholly innocent to perhaps not so innocent, but DOJ Tax does not indict the latter for a host of reasons. So it targets the worst offenders -- being those in a chain to the top who were most responsible for causing the fraud to occur.

    Sometimes, as in KPMG, DOJ Tax will target some of the lesser responsible people whose culpability is dubious and, indeed, nonexistent. (I did represent one person in that category in the KPMG criminal prosecutions.)

    With respect to BDO, DOJ Tax has indicted some of the BDO participants. Here is a good fairly recent article naming names: Ameet Sachdev, Tax shelters put BDO Seidman in middle of firestorm with federal prosecutors (Chicago Tribune 6/4/11), here:

    Jack Townsend


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