Orlando, Fla. (March 17, 2004) -- A federal district court judge here has thrown out a lawsuit against Big Four firm KPMG by a former client who alleged that the accounting firm fraudently convinced him to buy into a tax sheltering strategy it said was "bulletproof."

District Judge Anne Conway ruled that the racketeering claims levied against the firm by plaintiff Joseph Jacoboni were barred under federal law. The decision, issued last week, said Jacoboni could re-file other claims in state court.

A spokesman for KPMG said, "We are gratified by the court's decision granting our application to dismiss the suit and ordering Mr. Jacoboni to pay our costs."

Facing some $28 million in federal income tax capital gains liability in 1997 following the sale of stock, Jacoboni, who was referred to KPMG by his banker, entered into an investment strategy known as "FLIP," that involved his purchase of shares of a Swiss bank for about $1.74 million and a warrant from a Cayman Islands company for $2.45 million, according to court papers. The shares were then sold, purchased and re-sold in order to effect a basis shift that would allow Jacoboni to claim a capital loss on his sale of the Swiss bank stock.

Jacoboni claims he wasn't apprised of the "significant tax risks" associated with the strategy and said the firm told him it was "bulletproof," according to court papers. Jacoboni's 1997 return was later audited by the Internal Revenue Service. He has since settled with the IRS, resulting in the disallowance in large part of the capital loss claimed and a substantial tax liability, the decision noted.

-- Melissa Klein Aguilar

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