Three former KPMG LLP executives and a lawyer helped wealthy clients evade hundreds of millions of dollars in taxes through “a magical tax elimination scheme,” a prosecutor told jurors at the start of their trial.
Assistant U.S. Attorney John Hillebrecht told jurors at the opening of the trial of former KPMG executives Robert Pfaff, John Larson and David Greenberg and lawyer Raymond Ruble that they sold four illegal shelters to hundreds of wealthy clients in a massive scheme to cheat the U.S. Treasury.
They made “the tax bills of some of our nation's richest citizens disappear,” Hillebrecht told jurors in Manhattan federal court. “The tax shelters were out-and-out frauds.”
Hillebrecht's opening came in what was once the largest tax fraud prosecution in U.S. history. The case began in 2005 when prosecutors accused 17 ex-KPMG executives and two others of selling illegal tax shelters from 1996 to 2005, costing the U.S. Treasury at least $2 billion. U.S. District Judge Lewis Kaplan later dismissed charges against all but four defendants because prosecutors violated their right to counsel. After a long delay, the remaining four defendants went on trial Wednesday.
Charges against New York-based KPMG, the fourth-largest U.S. accounting firm, were dismissed in January 2007 after it paid a $456 million fine.
Larson and Pfaff left KPMG in 1997 to create Presidio Advisory Services in Denver, which sold cookie-cutter shelters to clients seeking to offset tens of millions of dollars in income, Hillebrecht said. Greenberg was a tax partner at KPMG who sold shelters that generated phony losses, the prosecutor said. Ruble was at the Brown & Wood LLP law firm and wrote letters vouching for the shelters.
In the first defense opening, Larson's lawyer, Thomas Hagemann, told jurors that his client acted in “good faith” at all times amid the confusion and uncertainty of “tax world.” He said that it was appropriate in the mid- and late-1990s to sell “loss generators” that would help wealthy clients lessen their taxes.