Prosecutors Identify 30 KPMG 'Subjects of Interest' in Tax Shelter Probe
The Wall Street Journal reported that nearly 30 KPMG current and former staffers have been contacted by prosecutors, in some cases with federal agents hand-delivering letters to KPMG offices.
The Journal reported that by calling those contacted "subjects," prosecutors believe these individuals engaged in suspicious behavior and fall within the scope of the investigation. A subject falls short of being a "target," which is a person or firm prosecutors consider a defendant and likely to be indicted.
Within the purview of the investigation, prosecutors can file charges such as tax evasion, assisting in the preparation of false tax returns, conspiracy, mail fraud and obstructing the IRS, all of which are felonies, the Journal reported.
The unusually large number of subjects could mean "that this is a serious investigation into which they are putting significant manpower," John Coffee, a securities and corporate-litigation specialist at Columbia University's law school in New York, told the Journal. For that reason, he added, "the odds go up that [prosecutors] will indict someone because they don't like to write off that much manpower and come up empty-handed."
KPMG, which has said it is fully cooperating with the government’s investigation, is also being probed by the Internal Revenue Service, the Securities and Exchange Commission and a Senate investigative subcommittee, the Journal reported. It is not clear as to whether the firm itself is considered a subject of the criminal investigation.
The complex strategies in question, known by the acronyms FLIP, OPIS and BLIPS, were often sold to wealthy clients looking—in most cases—to offset large capital gains taxes after selling businesses, sources told the Journal. KPMG has said that it has stopped selling certain tax strategies and is taking a more conservative approach in overseeing and marketing others.
Multiple firms were involved in the sale of the strategies, including banks Deutsche Bank AG and Wachovia Corp. and the law firm now known as Sidley Austin Brown & Wood LLP, the Journal reported last month, adding that none chose to comment as to whether they are targets of the investigation.
Presidio Advisory Services LLC, a San Francisco-based company founded by two former KPMG partners, has been "informally" contacted by federal prosecutors looking into the three KPMG tax shelter strategies, the Journal reported last month.