The former CEO of the Quellos Group investment firm and its tax attorney pleaded guilty to running an offshore tax shelter scam involving more than $9.6 billion in phony stock sales.
Quellos founder and former CEO Jeffrey I. Greenstein, 48, of Mercer Island, Wash., and Quellos former tax attorney, Charles H. Wilk, 51, of Seattle, entered their pleas last Friday to conspiracy to defraud the United States, and aiding and assisting with the filing of a false tax return.
In their plea agreement, Greenstein and Wilk admitted that their scheme helped taxpayers avoid paying approximately $240 million in taxes. They admitted that in 2001, they provided one taxpayer with a false loss figure of $614 million as part of the scheme. All taxes owed have since been paid.
The two men each face up to eight years in prison, but prosecutors plan to ask for no more than six years in prison when the men are sentenced by U.S. District Judge Ricardo S. Martinez on Jan. 28, 2011, in Seattle. Under their plea agreement, they will pay $7 million in penalties to the IRS related to their personal gain realized from the design, promotion and implementation of the fraudulent tax shelter. They will also pay all of the costs of their prosecution, estimated to be approximately $400,000. In addition, the men will be required to speak at their graduate schools about business and legal ethics.
Beginning in 1999 and continuing through August 2006, Greenstein and Wilk designed, implemented and defended before the IRS a fraudulent tax avoidance scheme known as POINT (Portfolio Optimized Investment Transaction). POINT purportedly permitted wealthy taxpayers who anticipated large capital gains to offset those gains by mixing those gains with losses derived from the sale of depreciated stock.
Clients were told that a certain offshore investment fund owned billions of dollars worth of stock in well-known, publicly traded U.S. technology companies that had depreciated in value. The offshore investment fund purportedly formed various offshore and onshore partnership entities and contributed portions of its portfolio of stock into these entities.
Because of certain provisions in the Tax Code, the POINT clients were advised that if they purchased one of these partnerships from the offshore fund, they could inherit the unrealized losses in the stocks and use them to shelter the gains from sales of other assets, and greatly reduce their tax liability.
Greenstein and Wilk did not tell clients, or the attorneys who evaluated the proposals, that the POINT transaction was predicated on a sham. They knew but did not disclose that there was no offshore investment fund, and that no shares of stock were actually purchased and possessed by any offshore investment fund. They knew that the purported offshore investment fund was merely a shell entity with nominee administrators and no assets or employees.
These defendants defrauded the IRS by fashioning a fraudulent tax shelter which they promoted to the wealthiest taxpayers, said Robert Westinghouse, criminal chief of the U.S. Attorneys Office. They lied to the IRS, to the taxpayers and to the taxpayers financial advisors in an attempt to evade taxes on more than $1.3 billion in real capital gains. The IRS saw through this scheme, and collected all the back taxes, totaling more than $240 million. Now these defendants will face extended periods of incarceration, forfeit the profits they made on this scheme, and pay for the prosecution that held them accountable.
Prior to sentencing both men are required to return to their graduate schools and speak to students about business and legal ethics and their criminal conduct. Greenstein will speak at the University of Washington School of Business, and Wilk will speak at NYU Law School. Westinghouse will attend both presentations to ensure that the men candidly discuss their criminal conduct and unethical choices.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access