Former BDO Seidman Chairman and CEO Denis Field, and a former BDO tax partner, along with five other lawyers and bankers from outside the firm, have been indicted in a tax fraud case involving tax shelters marketed by the firm that allegedly generated over $7 billion in fraudulent tax losses.
The case involves tax shelters designed and marketed by the firms Tax Solutions Group between 1994 and 2004. Three other former BDO officials, including a former vice chairman, have already pleaded guilty to various charges in connection with the tax shelters (see Former BDO Vice Chair Pleads Guilty to Tax Fraud).
Field and former BDO tax partner Robert Greisman now face charges in the case, which was filed in a Manhattan federal court, along with three former attorneys from the law firm Jenkens & Gilchrist, and two former employees of Deutsche Bank.
The indictment charges the seven with 27 separate counts, including conspiracy to defraud the IRS, tax evasion, and impeding and impairing the lawful functioning of the IRS.
Prosecutors claim the seven tried to prevent the IRS from learning that the tax shelters were marketed as cookie-cutter products that would eliminate or reduce large tax liabilities, and that the clients were not seeking profit-making investment opportunities, but were instead seeking huge tax benefits for which they paid fees based on a percentage of the desired tax loss. The clients had to complete a pre-planned series of steps designed to lead to specific tax benefits, according to prosecutors.
In order to encourage clients to participate in the shelters, and to shield them from substantial penalties if the IRS disallowed the claimed tax benefits, the defendants allegedly conspired to provide their clients with opinion letters claiming the tax shelter losses or deductions would more likely than not survive an IRS challenge.
Some of the alleged fraudulent tax shelters designed and marketed by the defendants were referred to as short sales, short options strategies, swaps, and Homer. The short options strategies tax shelter was apparently the most lucrative. Between approximately 1998 and 2000, it was marketed to at least 550 wealthy individuals, and generated an estimated $3.9 billion in fraudulent tax losses for the U.S. Treasury.
The firm said in response to the indictments that the former executives are long gone, as is the tax shelter group.
Mr. Field and Mr. Greisman are former BDO Seidman partners, said a statement forwarded by a spokesman for the firm. They were each members of a group of partners within the firm that marketed tax shelter products. That group was dissolved by BDO several years ago. BDO Seidman has cooperated fully with the governments tax shelter investigation and will continue to do so. The firm does not intend to comment further on this matter.
Allan Koltin, CEO of the Chicago consultancy PDI Global, noted that BDO has done much to right the ship at the firm since the tax fraud was uncovered in 2003. Were talking about people that essentially have been gone from the firm for almost six years, he said.
The indictments are taking place at the same time BDO International faces a separate court trial in Miami, in which the global accounting network is being sued to recover damages for a finding of negligence against its U.S. member firm BDO Seidman for failing to uncover fraud in audits of Banco Espirito Santo.
Plaintiffs suing on behalf of the bank want to hold the international network liable for the $522 million in damages awarded almost two years ago against the U.S. member firm. The case could have important implications for the relationship of multinational accounting firm networks and their member firms in individual countries. The Banco Espirito Santo trial got underway earlier this month and is expected to conclude later this month.
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