A $6 million fine levied against former KPMG LLP senior manager John Larson for selling illegal tax shelters was reduced by half last week by a U.S. appeals court.
The appeals court said Judge Lewis Kaplan’s calculation of the harm caused by Larson’s crimes had been made without a jury finding. Therefore, he was limited under higher court precedent to a maximum of $250,000 per count, or $3 million, according to a Bloomberg report.
The federal appeals court, however, upheld the convictions of Larson, ex-KPMG tax partner Robert Pfaff, and attorney Raymond Ruble. Larson and Pfaff had been convicted of 12 counts of federal tax evasion. Larson was sentenced last year to 10 years in prison and Pfaff was sentenced to eight years. Ruble was sentenced to six and a half years.
The illegal tax shelters allowed clients to falsely claim to have taken large loans to buy stock, thus avoid having to pay millions of dollars in taxes. Pfaff and Larson left KPMG in 1997 to form an investment advisory firm known as Presidio Advisory Services. Their convictions were related to activities undertaken after they left KPMG.
"We're deeply disappointed with the court's decision affirming the conviction and are considering our options for further review", J. Scott Ballenger, a lawyer representing Larson, told Reuters. "Of course, we're gratified by the court's recognition that the fine imposed was unconstitutional."
Hailed as the largest criminal tax prosecution in 2005 when charges were filed, it became much smaller after Judge Kaplan dismissed charges against 13 former KPMG executives. Reuters reported that Kaplan had ruled the government had interfered with their right to counsel.