The legal team for a Houston-based attorney accused of helping private-equity billionaire Robert Smith evade taxes for a decade indicated it will challenge Smith's credibility if he testifies as a prosecution witness at the lawyer's trial.
On Friday, attorneys for Carlos Kepke filed a motion saying prosecutors haven't turned over all documents in their possession relating to Smith's claims of innocence during a multiyear investigation before he did an about-face in 2020. Smith, founder of Vista Equity Partners, agreed in a non-prosecution agreement, or NPA, that he committed tax crimes and agreed to pay $139 million in taxes and penalties and cooperate with prosecutors.
Kepke, who is in his early 80s, has pleaded not guilty and faces a November trial. The filing suggests that Kepke's lawyers will argue that if Smith didn't believe he committed any crimes before his NPA, then Kepke can't be guilty.
"The statements of Mr. Smith, the government's key witness, show that he himself believed he had not committed any fraud," according to Kepke's filing Friday in federal court in San Francisco.
Defense lawyers try to raise doubts about cooperating witnesses during cross-examination by showing jurors inconsistencies, or outright lies, in their accounts as they sought leniency from prosecutors. Documentation of Smith's prior claims of innocence "goes to the core" of his credibility, Kepke's lawyers wrote.
"It will show how Mr. Smith's statements changed during the three years of proffers and negotiations that lead to his NPA" and his motives in agreeing to the NPA, according to the motion. Without it, "Kepke will be denied his right to fully and effectively cross-examine the government's most significant witness."
Kepke's lawyers said prosecutors provided them with a 29-page document on Aug. 12 summarizing the various positions taken by Smith and his lawyers over time. Kepke's team filed that summary under seal, but provided some highlights in their motion. Smith's
"Mr. Smith said he believed the use of offshore entities is well accepted in the private equity industry, that he believed his reporting position to the IRS was consistent with the law, and that he had a good faith belief that the trust structure was proper," according to the filing. Such statements are "directly exculpatory of Mr. Kepke, and the government must turn over the original sources of Mr. Smith's statements, and not just some summary written by the prosecution."
As part of the NPA, Smith made detailed admissions about a 15-year scheme to conceal income and evade taxes by using an offshore trust structure with related foreign corporations. Smith admitted, for instance, he knew in 2000 when he created two foreign entities, "they were intended, and would be used, to avoid the payment" of U.S. tax on income earned through investments.
A spokesman for Smith and Vista declined to comment.
