Los Angeles attorney Matthew G. Krane has pleaded guilty to passport fraud and tax evasion after failing to report more than $35 million in income hidden overseas.

Krane had been indicted in June, along with Jeffrey I. Greenstein, the former CEO of the investment company Quellos, and Seattle attorney Charles H. Wilk, for their involvement in a tax avoidance scheme using offshore accounts (see Ex-Quellos CEO Indicted in Tax Shelter Scheme). Under the terms of the plea agreement Thursday, Krane will serve up to five years in prison. Sentencing is scheduled for March 2010.

According to the indictment, Greenstein and Wilk allegedly provided kickbacks to Krane in exchange for his assistance in enrolling a wealthy client in the tax shelter scheme. The client had more than $1 billion in capital gains in 2001, and Greenstein and Wilk promised Krane a cut of the fees. The client was never informed of the kickback arrangement. Between March and October 2001, the men drafted false fee agreements that made it appear that the wealthy client was paying $46 million to Quellos to participate in the tax shelter strategy. Instead, according to prosecutors, nearly $36 million of that fee was actually diverted by Wilk and Greenstein to an offshore account controlled by Krane.

In his plea agreement, Krane admitted that he failed to pay taxes on the income. In addition, he admitted that in February 2008, he applied for a passport using a false name, Social Security Number and California driver’s license number, while knowing he was under investigation in the scheme.

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