KPMG Defendants sentenced

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http://www.nytimes.com/2009/04/02/busin ... f=business

2 Ex-KPMG Managers Sentenced Over Tax Shelters
By REUTERS
Published: April 1, 2009

Two former managers at KPMG were sentenced on Wednesday after being convicted by a federal jury last December on several counts of tax evasion using illegal tax shelters.

John Larson, a former senior tax manager, was sentenced to more than 10 years and ordered to pay a fine of $6 million by Judge Lewis A. Kaplan in United States District Court in Manhattan.

Robert Pfaff, a former tax partner at KPMG, was sentenced to more than eight years and fined $3 million.

A third person convicted in the case, Raymond J. Ruble, a former partner at the law firm Sidley Austin, was sentenced to six years and six months.

Upon handing down the sentence, Judge Kaplan called the men’s behavior “extremely offensive” and said their fraudulent tax shelter scheme, which focused on clients who earned more than $20 million a year, was “a brazen act.”

“These defendants knew they were on the wrong side of the line,” he said, adding later they had cooked up “this mass-produced scheme to cheat the government out of taxes for the purposes of enriching themselves.” The losses through the scheme were estimated at more than $100 million.

Mr. Larson, 57, and Mr. Pfaff, 58, were immediately remanded into custody but might later be granted bail pending an appeal of their convictions. Mr. Ruble was granted bail pending his appeal.

After a two-month trial, Mr. Larson and Mr. Pfaff were convicted on 12 counts of tax evasion and Mr. Ruble on 10 counts of tax evasion. The jury acquitted David Greenberg, a former KPMG tax partner.

The case was called the largest criminal tax prosecution when the charges were filed in 2005, but it became much smaller after Judge Kaplan dismissed charges against 13 former KPMG executives, ruling that the government had interfered with their right to counsel.

Mr. Larson’s lawyer, Steven Bauer, said his client had been singled out by overzealous prosecutors looking for a scapegoat. “He was not trying to pull the wool over anyone’s eyes,” he said.

None of the men admitted responsibility.

At the trial, the government argued that from 1996 to 2005 the defendants put together tax shelters known as FLIP, OPIS, BLIPS and SOS that were intended to generate phony tax losses. But defense lawyers argued that their clients acted with good faith in their dealings.

KPMG was not a defendant. It agreed in 2005 to pay $456 million to settle a federal investigation.