Five Silicon Valley businessmen are suing Ernst & Young, accusing the firm of roping them into an illegitimate tax shelter around the time of the dot-com implosion.

According to the San Jose Business Journal, the men -- Thomas Fallon, Carl Redfield, Richard Timmins, Robert Puette and Alexandre Balkanski -- filed suit in state court on Jan. 30. The men are among 125 people who bought a tax shelter, known as a contingent deferred swap, from Ernst & Young between 1999 and 2002. The men, three of whom had ties to Cisco Systems Inc., all purchased the tax shelter as a way to reduce exposure to taxes on a collective $51 million.

The Internal Revenue Service disallowed the CDS shelter as a legitimate tax strategy in 2002, eventually auditing the five men and charging them with millions of dollars in back taxes and penalty fees.

Spokesman for Ernst & Young had no comment on the lawsuit. Court documents say that Ernst & Young charged its clients 1.25 percent of the loss written off, bringing in an estimated $27.8 million in CDS product fees during the three years that it was sold.

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

Don't have an account? Register for Free Unlimited Access