Quellos Indictments

[Demosthenes]

June 4, 2009

FORMER INVESTMENT FIRM CEO AND TWO ATTORNEYS INDICTED IN
OFFSHORE TAX FRAUD AND KICKBACK SCHEME
Men Allegedly Used Phony Stock Sales Scheme to Help Investors Avoid Income Taxes on more than $1 Billion

Two individuals, the former Chief Executive Officer of Quellos Group L.L.C. (“Quellos”) and an attorney and principal of the investment firm, are named in an 18 count indictment charging Conspiracy to Defraud the Internal Revenue Service, Tax Evasion, Counseling False Tax Filings, Wire Fraud and Conspiracy to Launder Monetary Instruments. A third attorney who served as a personal advisor to a client of the firm is also charged with Conspiracy to Launder Monetary Instruments. Quellos founder and former CEO JEFFREY I. GREENSTEIN, 47, of Mercer Island, Washington, and attorney CHARLES H. WILK, 51, of Seattle, a tax attorney and principal in the firm, have been summoned for arraignment in U.S. District Court in Seattle on June 18, 2009, at 2:30 pm. The third defendant, Los Angeles attorney MATTHEW G. KRANE, 55, is currently detained at the Federal Detention Center in Los Angeles awaiting trial on passport fraud charges brought by the Central District of California.

“The vast majority of American taxpayers work honestly and diligently to calculate and pay their income taxes. Our tax system, at its core, is an honor system where everyone, including our wealthiest citizens, must pay their fair share,” said U.S. Attorney Jeffrey C. Sullivan. “This case demonstrates our commitment to prosecute those who seek multi-million dollar fees marketing a tax shelter scheme based on lies and deceit.”

“Taxpayers cannot enter into financial arrangements that create false losses in investment programs for the purpose of decreasing their tax liability,” said Eileen Mayer, Chief, IRS Criminal Investigation. “A top priority for the IRS is the investigation and prosecution of income tax evasion by high net worth individuals, both domestic and offshore.”

According to the grand jury indictment returned today, beginning in June 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. POINT 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 the clients’ tax liability.

In return for participating in the shelter, the clients were generally instructed to pay fees to Quellos and others totaling approximately three percent of the total amount of “loss” the client sought, which, even with additional transactional costs, was far below the 20% capital gains tax the clients were facing. What GREENSTEIN and WILK did not tell clients, or the attorneys who evaluated the proposals, was 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. At the direction of GREENSTEIN and WILK, offshore shell entities with no assets or ongoing business were appropriated to engage in sham paper transactions to fabricate the appearance that an offshore entity possessed billions of dollars worth of stock, in order to defraud the clients and ultimately the IRS into believing that these stocks existed. In 2000 and 2001, clients paid some $86 million in fees to Quellos and others, in an attempt to shelter more than $1.4 billion in capital gains, and avoid $400 million in federal taxes.

The indictment alleges that GREENSTEIN and WILK drafted and disseminated fraudulent materials touting the tax shelter strategy. GREENSTEIN and WILK knew that numerous representations in the documents were false, and knew that investors would rely on those documents if the tax shelters were questioned by the IRS. GREENSTEIN and WILK also gave false information to legitimate tax attorneys who provided opinions that the strategy was legal.

Additionally, GREENSTEIN and WILK allegedly provided kickbacks to attorney MATTHEW G. 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 2001, 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. In fact, $36 million of that fee was actually diverted by WILK and GREENSTEIN to an offshore account controlled by KRANE.

The indictment details that five different clients claimed more than $1.3 billion in fraudulent capital losses on their tax returns, allowing them to avoid more than $400 million in taxes. After the IRS started examining these capital losses, GREENSTEIN and WILK continued to provide fraudulent and misleading information to those trying to respond to the IRS audits. GREENSTEIN even testified before the U.S. Senate providing false information about the tax shelter scheme.

As part of the indictment, the government seeks $36 million in forfeiture from KRANE representing the money he laundered through the scheme. The taxpayers who purchased the POINT tax shelter scheme subsequently paid all taxes owed.

The Tax Conspiracy offense and the each of the evasion offenses are punishable by up to 5 years of imprisonment. Each counseling of false return offense is punishable by up to 3 years imprisonment. The wire fraud offenses and the conspiracy to launder monetary instruments offense are each punishable by up to 20 years of imprisonment.

The charges contained in the indictment are only allegations. A person is presumed innocent unless and until he or she is proven guilty beyond a reasonable doubt in a court of law.

The case is being investigated by the Internal Revenue Service Criminal Investigation (IRS-CI).

The case is being prosecuted by First Assistant United States Attorney Mark Bartlett and Assistant United States Attorney Katheryn Kim Frierson.

For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110 or Emily.Langlie@USDOJ.Gov.

[Bill E. Branscum]

I think this case will prove interesting to follow . . . for those of us with an interest in such things. Greenstein and Wilk are one thing, but the prosecution of Krane is quite another.

The as yet untold facts and circumstances surrounding this matter aside, the rising tide of "intangible right to honest services" fraud cases warrants review, and it may be the SCOTUS review of the Conrad Black case will set some perameters.

Sabe Saban?

[Demosthenes]

I've only done a surface reading of the recent happenings in this set of lawsuits, but something stuck out right away.

Krane has been recently hit with tax evasion and conspiracy charges in addition to the older identity theft and passport charges.

Krane then sued Saban in civil court claiming that the $36,000,000 sitting in Austria belongs to him and that he earned it for giving Saban financial advice.

By filing that civil lawsuit, didn't Krane just admit to his felony tax evasion count?

[Bill E. Branscum]

I believe that you will find that Krane isn't charged with substantive tax crimes. Krane is charged with Conspiracy to Launder Monetary Instruments (Count 18) predicated upon a "Deprivation of Intangible Right to Honest Services Fraud" allegation.

Still, when I read the Saban Complaint, like you, I wondered "what were they thinking!"

I predict that this is going to be wildly interesting.

[Bill E. Branscum]

The Billionaire Exemption:
Suit May Blow Lid Off Secrets of Billionaire Saban
July 29, 2009
Boris Ivanov

Behind every great fortune lies a great fraud, or so the proverb goes. A little civil suit in Los Angeles, California may prove this to be true, disclosing for the first time the secrets of one of the world’s richest and most powerful men, Haim Saban. Secrets implicating his long time political patrons, the Clinton family; secrets implicating the shadowy underworld of the music royalty business at BMI; secrets implicating some of Hollywood’s most powerful executives and some of the world’s largest media conglomerates; secrets implicating the netherworld of Israeli political influence on United States foreign policy. Want to know some of the witnesses for this little civil case? Try Bill Clinton, Hillary Clinton, Ariel Sharon, BMI Executive Frances Preston, Rupert Murdoch, just to name a few.

The simple civil suit filed this week in the Superior Court of Los Angeles County, California hinted at these stories to come. According to the complaint, Saban “built his multi-billion dollar fortune through forgery, perjury and fraud” and that Saban “likes to steal even more” than he “hates paying taxes .” The same Saban who demanded, through his Saban Center for the Middle East, that American kids die in foreign wars for Israel, his other citizenship. The suit further alleges Saban has a “lifelong pattern of theft” including “stealing hundreds of millions of dollars from recording artists, illicitly claiming authorship of songs to which he likely can’t even read the music.” Saban, the billionaire “folk singer from Tel Aviv?”

The complaint goes deeper -- it alleges Saban's illicit influence extends to federal prosecutors, who let Saban skate, while locking up (and keeping from the public) his former confidante and secret-bearer, Krane. According to the complaint, Saban's attorneys "bragged about special influence over and collusion with prosecuting attorneys for the Western District of Washington in facilitating the prosecutorial charging, arrest and bail decisions of the federal prosecutors concerning criminal charges brought against Krane."

The plaintiff, Matthew Krane, is a little known Hollywood lawyer, but he was the decade-long confidante and tax lawyer of Haim Saban. Leave it to a tax lawyer – they know where all the bodies are buried. Today, Krane sits quietly in a federal jail cell awaiting trial on various charges, where the warden controls who Krane can and can’t talk to, and so far that has been everyone. The media has been denied access to Krane for more than a year in an apparently successful attempt to keep Krane silent. Until now.

Krane is represented in the civil suit by legendary bulldog Marty Singer and represented in his criminal cases by Bernhoft Law Firm, of Wesley Snipes defense fame. The civil suit appears to be about the $36 million Saban wants to take back from Krane concerning tax and business advice, but the scope of the suit suggests Krane wants his chance to prove just how he earned that fee, including detailing all that business advice. This opens the door to all the secrets Krane kept and knew about.

This case will be set for trial sometime later this year and will prove to be very interesting for one of the world’s wealthiest men. Until then, many people will be asking themselves the question: What does Krane know? We’ll soon find out….

To read filed complaint go to:
http://www.scribd.com/doc/17539765/Kran ... -Complaint

If much of it proves to be true, these allegations are going to be pretty ugly.

[Demosthenes]

Are you working on any of the Quellos / Saban lawsuits, Bill?

[Dr. Caligari]

Krane is represented in the civil suit by legendary bulldog Marty Singer and represented in his criminal cases by Bernhoft Law Firm, of Wesley Snipes defense fame.

It is usually a big mistake for criminal defendants to file civil lawsuits, because they can be forced to give deposition testimony in the civil case, which could come back to bite them (often hard) in the criminal case. There are rare exceptions where this tactic might make sense, but I'm not convinced the Bernhoft folks know what they're getting into here. (Just a gut feeling-- I know nothing about this case beyond what I read in the papers and here on Quatloos.)

[Judge Roy Bean]

Hmmmm ... This will get even more political quickly.

BlackRock recently acquired Quellos.

[jcolvin2]

Hmmmm ... This will get even more political quickly.

BlackRock recently acquired Quellos.

BlackRock only purchased the assets of Quellos, not the corporate entity.

[Bill E. Branscum]

Are you working on any of the Quellos / Saban lawsuits, Bill?

Now why would you ask me that?

[Judge Roy Bean]

Hmmmm ... This will get even more political quickly.

BlackRock recently acquired Quellos.

BlackRock only purchased the assets of Quellos, not the corporate entity.

My bad.

Nonetheless, assets or not, if you draw lines from the powers that be in Washington in just about any direction you're going to connect to BlackRock.

[Demosthenes]

Are you working on any of the Quellos / Saban lawsuits, Bill?

Now why would you ask me that?

You've worked with Bernhoft before.

Are you working on any of these suits?

[Demosthenes]

August 17, 2009, 1:46 PM
A Strange Case Gets a Little Stranger
By MICHAEL CIEPLY

The strange case of Matthew Krane just got stranger.

Mr. Krane is the Hollywood tax lawyer who’s been charged by the federal government with money laundering in connection with what proved to be an illegal tax shelter he helped set up for investor Haim Saban, and, separately, with passport fraud.

Mr. Krane –- in chains, a green jacket and white fatigues — was in federal court in Los Angeles Monday morning for a bail hearing on the passport charge. Judge Dale S. Fischer, best known as the judge in the Anthony Pellicano wire-tapping case, delayed ruling until Mr. Krane’s lawyers could revise some paperwork.

But not before one of those lawyers, Robert Barnes, explained in open court how Mr. Krane got tangled in the false documents charge. Friends, he said, had let Mr. Krane use their identities, “for the purpose of protecting Mr. Krane’s life” because they believed he was in danger from Mr. Saban. They believed, said Mr. Barnes, that Mr. Saban had “a history of getting people whacked.”

A spokeswoman for Mr. Saban said she would not distinguish such absurd comments with a response. The trial in the passport case is scheduled this fall.

[Demosthenes]

Coffee cups down.

To be filed in my "you can't mke this shit up" file.

http://www.cheatingfrenzy.com/krane178.pdf

[Demosthenes]

excerpts

C. The Prosecution “Invents” and Misrepresents Material Facts.
The prosecution lists a litany of lies for which they produce no proof,
whatsoever. Here are the facts. Krane never stole anyone’s identity. Krane never
received any secret kickback. Krane never defrauded anyone. Krane never fled.
The prosecution admits fear of Saban motivated any prior desire for an
alternative passport; but misconstrues that into fear of trial, which has nothing to
do with fear of Saban. Just the opposite – trial protects Krane. In one of its
repeated lies, the prosecution boasts Krane “has” the foreign account they admit is
actually frozen by court order. Those funds are frozen and if Krane fled would go
immediately to the government. That fact is not in dispute.
Furthermore, there are many reasons for an alias completely unrelated to
flight from trial. As the prosecution concedes, their own evidence shows it was
friends of Krane who believed he should have an alternative passport in their
identity in case of a serious threat to his life from Haim Saban. An indictment of
Saban at that time might have posed such a threat. No such threat exists now.
Krane has turned over all the information he has concerning Saban to more
than a dozen lawyers, all with independent documentation of Saban’s prior crimes
and criminal lifestyle. If anything were to happen to Krane, all such information
would be immediately available and publicly disclosed to authorities. As is, it is
evident the government continues to collude with Saban, so there is no threat of a
Saban indictment. That is why the government let Krane out for four months after
they knew everything they know today – they knew Krane was no risk of flight and
knew they were never going to indict Saban.
Finally, if anything were to happen to Krane, Saban would be the first
suspect, now that this information has been publicly broadcasted. Indeed, both the
Los Angeles Business Journal and the New York Times reported the discussed history of Saban’s claims of his ability to get people “whacked.” Reporters from
the New York Times, Los Angeles Times, Seattle Times, well-renowned authors
and investigative journalists from the New Yorker, book authors, journalists across
the country and globe, and leading scholars at high-profile Washington foundations
continue to follow the case in detail. There is no fear of Saban. Not anymore.
Unless this court intends to conclude as a matter of law that Haim Saban
intends to kill Krane, and unless the court intends to advance the novel concept that
the court’s fear of criminals like Saban is reason to put potential victims in prison,
then this cannot serve as any evidentiary basis to imprison Krane pending trial.
The prosecution then employs a host of other lies, half-lies and deceits. The
prosecution knowingly lies about the cash found in Krane’s home. Contrary to the
prosecution’s claim and the court’s prior belief, the government admitted in a
separate filing of a verified civil forfeiture complaint, that Krane started saving the
money many years prior to the October 2007 grand jury notice. As the prosecution
knows, the money at Krane’s home, stored in a VCR as an alternative safe, was
accumulated long before this case ever arose. The prosecution’s own admission in
the verified civil forfeiture claim renders that beyond dispute.
Equally, concerns of drug use are no longer present: first, Krane has been
completely rehabilitated in custody for 13 months; second, Krane agrees to weekly
drug testing as a condition of release; third, drug use cannot be the basis for a
flight ruling.

Unsatisfied with one set of lies, the prosecution begins the art of deceptive
and misleading claims. The prosecution misleadingly stated Krane “reserved” a
plane ticket. They know this is deliberately misleading. Krane never purchased
any ticket. The prosecution knows this. Having an itinerary is commonplace for
those making passport applications. It has nothing to do with a ticket. The
prosecution knows this was not to flee – that is why they released Krane after the
search, never arrested him for more than four months, and Krane never fled.

[Demosthenes]

Calif. lawyer pleads guilty in tax evasion case
A California lawyer has admitted that he didn't pay taxes on a $36 million kickback that prosecutors say he received for helping enroll Hollywood mogul Haim Saban in an illegal tax shelter.

The Associated Press

SEATTLE —
A California lawyer has admitted that he didn't pay taxes on a $36 million kickback that prosecutors say he received for helping enroll Hollywood mogul Haim Saban in an illegal tax shelter.

Matthew G. Krane, 55, of Los Angeles, pleaded guilty in U.S. District Court in Seattle on Thursday to counts of tax evasion and false statements in a passport application. He was indicted last June along with two principals from Seattle-based investment firm Quellos Group LLC.

Quellos allegedly used fictional offshore transactions to erase capital gains their clients might have to pay taxes on. Prosecutors say those clients - including Saban and the philanthropist Robert Wood Johnson IV - were misled about the nature of the tax shelter and have already paid back the $400 million they owed, plus interest.

Krane is expected to serve up to five years in prison under terms of his plea agreement. He is scheduled to be sentenced in March.

[Demosthenes]

Krane's letter to the judge is priceless.

I wonder if Harvard Law will publish it in their alumni magazine.

http://www.cheatingfrenzy.com/krane.pdf

[Judge Roy Bean]

Surely, a movie is in the works.

[Demosthenes]

Surely, a movie is in the works.

They can call it Whiny Middle Class White Boy. He was so abused and neglected he had to go to Harvard Law when he grew up.

I love the part when he talks about his childhood being so miserable that he had to eat cereal for breakfast every morning, and his lunch was a sandwich in a brown bag.

[LaVidaRoja]

Yeah. Like that differs from most of us; how?