Jail for accountants in tax shelter case

A former senior manager and a former partner of KPMG who left the Big Four firm more than a decade ago to form their own business were sentenced and fined millions of dollars earlier this month after being convicted in December of selling illegal tax shelters that helped their clients avoid paying millions.

In Manhattan Federal Court, former senior manager John Larson was sentenced to a decade in prison and fined $6 million. Former KPMG tax partner Robert Pfaff was sentenced to eight years and ordered to pay $3 million.

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.

A third man convicted in the case, lawyer Raymond Ruble, formerly a partner with Sidley Austin, was given a 6 and one-half year sentence. All three defendants have said they will appeal and none admitted responsibility.

U.S. District Judge Lewis A. Kaplan said the fraudulent tax shelter the men had created resulted in losses of more than $100 million and was "a brazen act."

"These defendants knew they were on the wrong side of the line," Kaplan was quoted as saying in The New York Times.

Larson and Pfaff were taken into custody immediately, Bloomberg.com reported. Ruble was granted bail pending his appeal.

Larson and Pfaff were convicted on 12 counts of tax evasion after the trial, which lasted two months, and Ruble on 10 counts of tax evasion. Former KPMG tax partner David Greenberg was acquitted.

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.

KPMG, which is not a party to the trial, agreed in 2005 as part of a deferred prosecution agreement. The charges brought against KPMG related to the actions of former partners and employees were dismissed by the government in January 2007.

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