Federal prosecutors announced Wednesday the indictment of four former and current partners at Ernst & Young charging them with tax fraud conspiracy and other crimes. The decision not to charge Ernst & Young (E&Y), which has been under criminal investigation since 2004, is significant, the New York Times reports, because it indicates a change in the Justice Department’s strategy as it investigates the banks, accounting firms, law firms and investment boutiques that were involved in selling questionable tax shelters.
U.S. Attorney Michael Garcia said that the indictment targets “tax professionals whose deceit cost this country untold millions in tax revenues.”
The four worked in a group at E&Y called Viper, which was set up to develop ideas for tax shelters that would produce extraordinary results, the Times says. The defendants and coconspirators knew that the Internal Revenue Service would challenge the tax shelters aggressively, if it detected them, according to the indictment, the Associated Press reports.
In a statement Ernst & Young said, “The individuals...were part of a small group in the firm, disbanded years ago, that was responsible for developing the transactions in question. None of the individuals were part of the firm’s management.
“Ernst & Young has cooperated with the government from the beginning of its investigation. We have voluntarily made many changes and enhancements to our tax practice. We have also made other changes to our tax practice pursuant to our 2003 agreement with the IRS.”
In 2003, E&Y agreed to pay the IRS $15 million to settle a civil suit over its tax shelters, but the criminal investigation was launched a year later.
The charges against the four, two former E&Y partners and two partners who are on administrative leave, have been reduced to cover only one tax shelter known as Cobra, the Times reports.
John J. Tigue, attorney for Richard Shapiro, one of those charged, said that his client is disappointed that government has proceeded “with the prosecution of an innocent man.” Tigue said that Shapiro had cooperated with the government. Charles Clayman, a lawyer for Martin Nissenbaum, another of those charged, said that his client had also cooperated, the AP says.
The government’s prosecution of 16 former KPMG LLP partners for fraud relating to tax shelters is tentatively set for trial in September. Former members of KPMG’s management, including the partner-in-charge of tax, are among those indicted. In 2005, KPMG agreed to pay $495 million to the Justice Department as part of a deferred prosecution agreement.