The former head of BDO Seidman LLP and six others face conspiracy and tax evasion charges relating to an alleged tax-shelter fraud that created $7 billion in fake losses for wealthy clients.

Prosecutors contend the defendants were involved in a scheme to defraud the IRS from 1994 to 2004 through the "design, marketing and implementation of fraudulent tax shelters." The conspiracy and tax evasion counts carry maximum prison terms of five years, Bloomberg reported.

The 27-count indictment charges Denis Field, the former CEO and chairman of BDO; tax lawyer Paul M. Daugerdas, the former head of Jenkens & Gilchrist's Chicago office; former Jenkens & Gilchrist lawyers Erwin Mayer and Donna Guerin; Robert Greisman, a former tax partner in BDO Seidman's Chicago office; and Raymond Craig Brubaker and David Parse, former investment representatives at a foreign bank that wasn't named in the indictment. The Wall Street Journal, however, reported that a person familiar with the matter says it is Deutsche Bank AG.

Federal authorities on Tuesday obtained the indictment, which contains 22 counts against Field, who "always believed that the transactions at issue in the indictment were legitimate tax planning," his lawyer, Caroline Rule, told the Journal.

BDO Seidman, in a statement, said, Field and Greisman "were each members of a group of partners within the firm that marketed tax shelter products," The New York Times reported. “That group was dissolved by BDO several years ago. BDO Seidman has cooperated fully with the government's tax shelter investigation and will continue to do so. The firm does not intend to comment further on this matter."

The indictment says BDO made $4 million from its tax shelter work, and Jenkens & Gilchrist made $230 million, with Daugerdas himself making more than $95 million from 1998 through 2002. Jenkens & Gilchrist went out of business in 2007. The law firm agreed to pay $76 million to the IRS and admitted wrongdoing.

"Paul Daugerdas firmly believes that the tax advice provided to his clients was well within the scope of then-existing federal tax law," Margarite Wypychowski, a spokeswoman, said in a statement.

The federal government has been cracking down on tax shelters in which promoters earned hundreds of millions of dollars in fees while costing the government billions of dollars in unpaid federal taxes. Tuesday's indictment is the strongest action taken since mid-2005, when KPMG reached a $456 million agreement with prosecutors, agreed to cooperate, and admitting wrongdoing in its work on the questionable arrangements.