The Justice Department has issued an expanded indictment in the continuing probe of KPMG. This indictment amends the first indictment issued in August by adding 43 counts of tax evasion and two counts of obstruction of the Internal Revenue Service (IRS). Each of the 19 defendants has not been charged with the same offenses according to the indictment. Also those who purchased the tax shelters are not named in the indictment according to the New York Times.
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The New York Times reports that the new indictment charges 17 former KPMG executives, an investment advisor, and an outside attorney with conspiring to defraud the IRS “by devising, marketing, and implementing fraudulent tax shelters, by preparing and causing to be prepared, and filing and causing to be filed with the I.R.S. false and fraudulent U.S. individual tax returns containing the fraudulent tax shelter losses, and by fraudulently concealing from the I.R.S. those shelters.”
Reuters reported that “All of the nine individuals who received indictments today separated from the firm at an earlier time. Therefore, since the indictments do not involve the firm, it would be inappropriate for KPMG to comment further,” as part of a statement prepared by KPMG.
Arraignment of the additional ten defendants named in the new indictment has been set for next Monday. With the exception of one faced with an arrest warrant, the other nine defendants are expected to surrender voluntarily. BusinessWeek reports that those named in the August indictment are already free on bonds ranging from $300,000 to $3.5 million.
The tax shelters devised, marketed, and sold by KPMG were known as Blips, Flip, Opis, and SOS although the August indictment only included the Blips, Flip, and Opis shelters according to the indictment. Together, these shelters generated $11 billion in false losses for “high net worth” clients to evade paying about $2.5 billion in taxes according to the indictment.
The indictment states that KPMG’s marketing targeted those making more than $10 million in 1997 and in 1998 to 2000, those who made more than $20 million. KPMG generated about $128 million in fees in selling these shelters according to BusinessWeek.
KPMG was being investigated for failure to register tax shelters and other related points between 2002 and 2003. During that time, certain individuals concealed the firm’s role and involvement in certain shelters, not responding to IRS summonses to produce evidential documents, and making false and elusive statements concerning the firm’s nature, scope, and involvement with certain tax shelters according to a statement from the Justice Department. Certain defendants are alleged to have given false and elusive testimony before a Senate Subcommittee.
“The Department of Justice is committed to enforcing the tax laws to make certain all individuals comply with their tax obligations. To this end, the Department will vigorously prosecute any individual who makes false representations to the Internal Revenue Service. The prosecution of this case sends a strong message that tax professionals must be honest in their dealing with the IRS,” acting Deputy Attorney General Robert McCallum said in a prepared statement.
KPMG avoided indictment in August by acknowledging their misconduct, accepting operational oversight by the government, and paying a $456 million fine. In August, the Big Four accounting firm and law firm Sidley Austin Brown & Wood agreed to pay $195 million to investors to settle their class action lawsuit also.
E. Lawrence Barcella Jr., the attorney representing Larry DeLap, said in the New York Times, “From what I can see, the Justice Department appears to be doing exactly what they’re charging the defendants with doing, and that is taking a misguided, overly aggressive, unprecedented view of a complicated legal area.” Barcella continued saying that the tax shelters have not been determined to be illegal by any court. DeLap is a former KPMG partner in charge of KPMG’s professional tax practice.
Michael Horowitz, the attorney representing Gregg Ritchie, the former head of the group that allegedly devised, marketed, and executed the tax shelters for KPMG clients, speaking in the New York Times said, “The government is seriously overreaching in this case and Mr. Ritchie looks forward to being vindicated at trail.”