Free Motion to Stay - District Court of Federal Claims - federal

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 1 of 35

communications in question were not privileged. For example, the defendant DAVID

GREENBERG, with the knowledge and approval of the defendant RICHAR
ROSENTHAL, attempted to conceal his activities in this manner by putprtg to have

KPMG clients engage a law firm (the "Orage County Law Firm") to provide legal
advice, which law firm would then purport to engage KPMG to work under the direction

of the Orage County Law Firm. Under United States v. Kovel, communications by nonlawyer professionals such as accountats are protected under the atto&iey-client privilege

when the accountant is in fact working under the direction of an attorney. Numerous

Kovel arngements purportdly established by GREENBERG and the Orge County
Law Firm were sham arangements because the clients did not directly engage the law

firm, in many instances never even spoke to anyone at the Orange County Law Fir, and
GREENBERG's work was done outside of

the purported lawyer-client privilege. The

purpose of this frudulent conduct was to enable the client, with the assistace of

GREENBERG and the Orange County Law Firm, to conceal the fraudulent tax shelter
from the IRS by attempting to cloak all of the work for the shelter in the attorney-client

privilege. The defendants GREENBERG and ROSENTHAL set up such a phony Kovel
relationship with the Orange County Law Finn in an attempt to hide ROSENTHAL's
frudulent tax shelter transaction from the IRS.

Obstrction of IRS and Senate Investigations

59. In or about October 2001 the IRS initiated an examiation ofKPMG

36

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 2 of 35

for its failure to register the trsactions with the IRS. As par of this examnation, in

early 2002 the IR issued 25 summonses to KPMG callng for information relating to
numerous tax shelters with which KPMG may have been involved. In ~c!dition, the IRS
sumonses required KPMG to designate a knowledgeable person to testify under oath at

the IRS. KPMG designated the defendat JEFFREY EISCHEID, who at the time was the

Parer-in-Charge ofKPMG's Personal Financial Planing group, to testify.
EISCHEID's testimony was false, misleading, and evasive. Among ßther thngs,

EISCHEID falsely denied that KPMG's fees were based on anttcipated tax benefits and

misrepresented KPMG's role in devising, marketing, and implementing tax shelter.
Indeed, after one day of

testimony, another KPMG parter who attnded the testimony

reprted in an email to the defendant RICHA ROSENTHAL that KPMG's Office of
Generl Counsel and outside counsel "deterined that the best strategy was 'the less said
the bettr, '" and tht EISCHEID "felt that he had no choice but to be 'forgetfuL.' And so
the record wil reflect repeated 'I don't knows', 'I don't recalls,' and 'I was out of

the

loops' - the rope-a-dope/Enron defense."

60. IRS sumonses called for production of documents relating to SOS

ta shelter, among other things. The defendants RICHAR SMITH and STEVEN
GREMMINGER were among the KPMG peronnel directing KPMG's response to the
IRS sumonses and SMITH and GREMMINGER were aware ofKPMG's involvement
in marketig and implementing SOS trsactions. Neverteless, none of

the SOS tax

37

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 3 of 35

shelters marketed or implemented by KPMG, or in which KPMG peronnel paricipated,
were disclosed to the IRS and on a number of occasions, SMITH, GREMMINGER and
others caused KPMG falsely to claim to the IRS that the production of d.o~uments and

information relating to the summonses was substantially complete.
61. In addition, when the IRS in May 2003 specifically inquired about

KPMG's failure to produce SOS information, the defendants JEFFY EISCHEID and
STEVEN GREMMIGER intentionally caused KPMG's representatves to falsely
respond that KPMG was not involved in SOS, but may have prepared a couple of ta

return containing SOS losses.
62. In Januar 2003, a Subcommittee ofthe United States Senate issued

a subpoena to KPMG calling for documents and information relating to its tax shelter
activities, including a specific request for documents relating to tax shelters used by

KPMG parters to evade their own taes. The subpoena specifically named the
defendant DAVID GREENBERG as well as certain KPMG parers who, in fact, had

used SOS transactions to evade their own taxes, including the defendant RICHAR
ROSENTHÃL. The defendants RICHARD SMITH and STEVEN GREMMINGER
were among the KPMG personnel supervsing and directing KPMG's response to the

Senate investigation. In addition, SMITH and GREMMINGER were aware of
ROSENTHAL's and other KPMG parers' use of

GREENBERG shelters to offset those

parers' own income or gain, and were aware of related documents responsive to the

38

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 4 of 35

Senate subpoena. However, the defendants SMITH and GREMMINGER and their coconspirators caused KPMG's representatives falsely to respond to the subpoena as

follows: "to the best of its knowledge and belief, after reasonable inqui~ to date, the
firm has not yet identified any documents that are responsive to this request."
63. In or about November 2003, the defendants RICHARD SMITH,

JEFFREY EISCHEID, PHILIP WIESNER, JOHN LARSON, LARY DELAP, and

MA WATSON, certin co-conspirators, and others testified befJre the Senate
Subcommttee investigating tax shelter activities ofKPMG and others. The defendants
EISCHEID, WIESNER, and DELAP testified together in panel format. During this
testimony, among other things, EISCHEID falsely denied that KPMG's fee was a
perentage of the ta loss to be generated by the shelters. In addition, when asked by a

Senator

whether FLIP, OPIS and BLIPS were "designed and marketed primarly as ta

reduction strtegies," EISCHEID falsely stated "Senator, I would not agree with that
characterzation." In addition, among other false and misleading testimony presented at

the hearing, SMITH gave evasive testimony regarding KPMG's involvement in

designing, marketing, and implementing tax shelters. LARSON also provided false and
misleading testimony by, among other things, falsely denying that BLIPS was designed
so that investors would exit on day 60 of the trsaction regardless of

the purported 7-

year strcture of the purported loan, and falsely denying that FLIP was designed

primarly for tax deductions.

39

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 5 of 35

RITCHIE's Obstrction ofIRS Audit of

the Beverly Hils Businessman

64. In 1999, the Beverly Hils Businessman parcipated in a BLIPS

transaction that generated $300 millon of

phony ta losses, a porton of

which was

attched to various publicly-traded stocks. The Beverly Hils Businessman sold these

stocks to trgger the losses. The Beverly Hils Businessman trggerd and claimed a $225
milion BLIPS-related loss on 1999 tax returns, and claimed the remaining BLIPS loss
on 2000 tax retus. In or about early 2002, the IRS's Los Angeles 8ffce commenced a

civil audit of the Beverly Hils Businessman and certain entities controlled by him with
respect to the 1999 tax year.

65. During the course of, and in connection with, the IRS audit,

defendat GREGG RITCHIE, who represented the Beverly Hils Businessman and the
entities in connection with the audit, made a number of false and misleading statements

to the IRS Revenue Agent conducting the audit in order to avoid disclosing to the IRS

that the $225 millon loss claimed by the Beverly Hils Businessman and related entities
for 1999 was attbutable to a BLIPS tax shelter transaction sold to the Beverly Hils

Businessmarìby KPMG. Those false and misleading statements included that the alleged

$225 millon "loss" incurred by the Beverly Hils Businessman and ultimately claimed on
tax returns was attbutable to regular business activities of

the Beverly Hils

Businessman's companies. In addition to making false and misleading statements,
RITCHIE (a) provided the IRS Revenue Agent with a false and misleading document

40

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 6 of 35

that

purported to represent the organizational strcture of the Beverly Hils

Busine.ssman's companies but which, in trth and fact, omitted a description of or
reference to the entities through which the Beverly Hils Businessman parcipated in

BLIPS and created the phony $225 milion loss for the 1999 tax year, and (b) failed to
provide the IRS Agent with the BLIPS power point, notwithstanding the fact that
RITCHIE had been provided the power point by KPMG and used it to provide the
Beverly Hils Businessman with an undertanding of

BLIPS. ~

66. After realizing during the audit that the IRS Agent conductig the

audit had not uncovered the tre nature of the $225 milion loss, GREGG RITCHIE
sought to expand the audit to cover the year 2000, and sought to have the IRS enter into a

settlement, or "closing", agreement, which agreement would finally determne the

Beverly Hils Businessman's tax liabilties for the 1999 and 2000 tax years. In order to
create a false sense of urgency with respect to the execution of

that agrement, GREGG

RITCHIE falsely represented to the IRS that the closing agreement had to be finalized by

April 15, 2002 because the Beverly Hils Businessman had to comply with cerin IRS
return fiing -deadlines.

67. On or about April

23, 2002, GREGG RITCHIE realized that the

closing agreement relating to the IRS's audit of the Beverly Hils Businessman would not
be completed prior to the expiration of

the April 23, 2002 deadline set by the IRS for
Tax Shelter Analysis in Washington, D.C.

taxpayers to disclose to the IRS's Offce of

41

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 7 of 35

their partcipation in tax shelters likes BLIPS, which disclosures would allow ta shelter
partcipants to avoid certin civil (but riot crminal) penalties. In order to comply with the

disclosure filing deadline without alertng the Los Angeles IRS Revenue Agent about the
filing, GREGG RITCHIE prepared and caused to be sent to the Office of

Tax Shelter

Analysis, in Washington, D.C., a disclosure form with respect to the Beverly Hils
Businessman's 1999 BLIPS trsaction. In that disclosure, RITCHIE falsely

represented

that he had provided a copy of the disclosure form to the Los Angeiå IRS Revenue
Agent who was conducting the audit of the Beverly Hils Businessman. In trth and fact,

as RITCffE well knew, he never provided the disclosure form to the Los Angeles IRS

Revenue Agent the Los Angeles IRS Revenue Agent did not lear of the disclosure filing
until after the execution of

the closing agreement in or about May 2002.

Evasion of

Defendants' Taxes
68. As noted above, the Larsonlfaff entities collected at least $140

millon in fees relatig to FLIP, OPIS, and BLIPS. Between July and September 1999,
the defendants JOHN LARSON and ROBERT PFAFF engaged in a BLIPS transaction
through Ban E and claimed on tax returns approximately $24 millon in purported

losses as a result. LARSON and PFAFF used these fraudulent losses to evade their own

taxes and taxes relating to an entity they owned and controlled ("Larsonlfaff entity 1").
The defendants LARSON, PFAFF, and DAVID AMIR MAKOV engaged in a set of

two

BLIPS trsactions from March through May 2000 through Ban C that purported to

42

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 8 of 35

generate a total of$75 millon of

losses. LARSON, PFAFF, and MAKOV generated

these losses using a varety of entities and trsts controlled by them, aÌd used them to
evade individual income taes and taxes relating to entities they owned and controlled

("Larson/faff entity 2" and "Laron/faff entity 3"). The defendants LARSON,
PFAFF, and MAKOV exited the BLIPS trsactions approximately 67 days after
commencing the transaction; they did not remain in for later stages or seven year, and
did not exit the trsaction based on the performance of

the nominal~nvestment

component of

BLIPS.
69. In 1999, the defendant GREGG RITCHIE engaged in a BLIPS

trsaction that purported to generate ta losses of approximately $10 milion. RITCHIE

exited BLIPS at the earliest opportnity and before year-end 1999. RITCHIE's BLIPS

transaction was conducted concurrt with the $300 milion BLIPS transaction
conducted by the Beverly Hils Businessman. The Beverly Hils Businessman also exited

BLIPS at the earliest opportnity. However, the Beverly Hils Businessman trggered
approximately $225 millon in tax losses in 1999, attaching a substantial porton of the

remaining lõsses to stocks and trggerng them in 2000. Both RITCHIE and the Beverly
Hils Businessman attached a porton of the phony BLIPS losses to a number of publicly
traded stocks that had already suffered large losses during the year, in order to mislead

the IRS into believing that the losses resulted from those stocks' poor performance,

rather than from the frudulent tax shelter. RITCHIE prepared and caused to be

43

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 9 of 35

prepared tax return for himself and the Beverly Hils Businessman that reported the
BLIPS losses as if they had resulted from the sale of these various stocks. In addition,
although the Laronffaff entities purchased these stocks on behalf of

RITCHIE and the

Beverly Hils Businessman on or about December 6, 1999, RITCHIE falsely reported

that these stocks had been purchased on "varous" dates to furter conceal the BLIPS
shelter and to mislead the IRS into thining that the losses resulted from the poor
perormance of

these stocks durig the year. a
70. The defendant RICHAR ROSENTHAL 1;onducted an SOS

transaction in 1999. ROSENTHAL used approximately $248,000 in ta losses from this

transaction to evade 1999 taxes, and approximately $248,000 in tax losses from this
transaction to evade 2000 taes.

71. The defendant DAVID GREENBERG received approximately $1.6

millon in income frm KPMG in 1999,2000, and 2001. On his tax returns for those
years, he claimed losses of approximately $1.6 millon with the notation "nominee," and

therefore fraudulently understated his taxable income and paid virtally no tax on the
money he received from KPMG. GREENBERG reported this money as income on the
tax returns for an entity controlled by GREENBERG and a co-conspirator not named as a
defendant herein ("CC 11 "), but that entity conducted tax shelter transactions to generate
phony losses that offset virtally all of

that income. GREENBERG only reported on his

individual income tax returns a total of$185,000 in income from this entity.

44

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 10 of 35

Statutory AlIeeatlons

72. From at least in or about 1996 though at least in or about 2005,

JEFFREY STEIN, JOHN LANING, RICHAR SMITH, JEFFREY ~!SCHEID,
PHILIP WIESNER, JOHN LARSON, ROBERT PFAFF, DAVID AMIRMAOV,
LARRY DELAP, STEVEN GREMMINGER, RAYMOND 1. RUBLE, also known as

"R.J. Ruble," GREGG RITCHIE, RANDY BICKHAM, MARK WATSON, CAROL

WAREY, DAVID RIVKI, CAR HASTING, RICHAR ROSE'NTHAL, and
DAVID GREENBERG, the defendants, and their co-conspirators, including coconspirators not named as defendants herein KPMG and Dominick DeGiorgio,
unlawfully, wilfully and knowingly, did combine, conspire, confederate and agree
,
togeter and with each other to defraud the United States and an agency

'thereof, to wit,

the Internal Revenue Service ("IRS") of

the United States Deparent of

Treasury, and

to commit offenses against the United States, to wit, violations of

Title 26, United States

Code, Sections 7201, 7206(1), and 7206(2).

Objects of the Conspiracy
73. It was a part and an object of

the conspiracy that JEFFREY STEIN,

JOHN LANNING, RICHARD SMITH, JEFFREY EISCHEID, PHILIP WIESNER,
JOHN LARSON, ROBERT PFAFF, DAVID AMIR MAKOV, LARRY DELAP, STEVEN GREMMINGER, RAYMOND 1. RUBLE, also known as "R.I. Ruble,"

GREGG RITCHIE, RANDY BICKHAM, MAR WATSON, CAROL WARLEY,

45

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 11 of 35

DAVID RIVK, CARL HASTING, RICHAR ROSENTHAL, and DAVID

GREENBERG, the defendants, and their co-conspirtors, including co-conspirators not
named as defendants herein KPMG and Dominick DeGiorgio, unlawfully, willfully and .-

knowingly would and did defraud the United States of America and the IRS by
impeding, impairig, defeating and obstrcting the lawful governental functions of the

IRS in the ascertainment, evaluation, assessment, and collection of income taxes.
74. It was further a part and an object ofthe conspii4icy that JEFFREY

STEIN, JOHN LANNING, RICHARD SMITH, JEFFREY EISCHEID, PHILIP

WIESNER, JOHN LARSON, ROBERT PFAFF, DAVID AMIR MAKOV, LARRY

DELAP, STEVEN GREMMINGER, RAYMOND J. RUBLE, also known as "R.J.

Ruble," GREGG RITCHIE, RANDY BICKHAM, MAR WATSON, CAROL

WAREY, DAVID RIVKIN, CARL HASTING, RICHAR ROSENTHA, and
DAVID GREENBERG, the defendants, and their co-conspirators, including coconspirators not named as defendants herein KPMG and Dominick DeGiorgio,

unlawfully, wilfully and knowingly would and did attempt to evade and defeat a
substantial part of

the income taxes due and owing to the United States by tax shelter

clients and others, in violation of Title 26, United States Code, Section 7201.
75. It was further a part and an object of

the conspiracy that JEFFREY

STEIN, JOHN LANING, RICHAR SMITH, JEFFREY EISCHEID, PHILIP
WIESNER, JOHN LARSON, ROBERT PFAFF, DAVID AMIR MAKOV, LARRY

46

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 12 of 35

DELAP, STEVEN GREMMINGER, RAYMOND J. RUBLE, also known as "R.J.

Ruble," GREGG RITCHIE, RANDY BICKHAM, MAR WATSON, CAROL

WARLEY, DAVID RI, CAR HASTING, RICHARD ROSENTHAL, and
DA ViD GREENBERG, the defendants, and their co-conspirators, including co-

conspirators not named as defendants herein KPMG and Dominick DeGiorgio,
unlawfully, wilfully and knowingly would and did make and subscribe and cause others

to make and subscrbe United States individual, cOIporation, and pa&ership income ta
returns, which returns contained and were verified by wrtten declarations that they were

made under the penalties of perjur, and that the defendants and their co-conspirators did
not believe to be tre and corrct as to every material matter, in violation of

Title 26,

United States Code, Section 7206(1).

76. It was furter a par and an object of

the conspiracy that JEFFREY

STEIN, JOHN LANNING, RICHARD SMITH, JEFFREY EISCHEID, PHILIP

WIESNER, JOHN LARSON, ROBERT PFAFF, DAVID AMIR MAKOV, LARRY
DELAP, STEVEN GREMMINGER, RAYMOND 1. RUBLE, also known as "R.J.

Ruble," GREGG RITCHIE, RANDY BICKHAM, MAR WATSON, CAROL
WAREY, DAVID RIVK, CARL HASTING, RICHARD ROSENTHAL, and

DAVID GREENBERG, the defendants, and their co-conspirators, including coconspirators not named as defendants herein KPMG and Dominick DeGiorgio,
unlawfully, wilfully and knowingly would and did aid and assist in, and procure, counsel,

47

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 13 of 35

and advise the preparation and presentation under, the interal revenue laws, of certin

United States individual, corporation, and parèrship income tax returns which were
fraudulent and false as to material matters, in violation of

Title 26, Unit~~ States Code,

Section 7206(2).

Means and Methods of the Conspiracy
77. Among the mean and methods by which JEFFREY STEIN, JOHN

LANING, RICHAR SMITH, JEFFREY EISCHEID, PHILIP wiSNER, JOHN
LARON, ROBERT PFAFF, DAVID AMIR MAKOV, LARY DELAP, STEVEN
GREMMINGER, RAYMOND J. RUBLE, also known as "R.J. Ruble," GREGG

RICHIE, RANDY BICKHAM, MARK WATSON, CAROL WAREY, DAVID
RI, CAR HASTING, RICHARD ROSENTHAL, and DAVID GREENBERG,
the defendants, and their co-conspirators, including co-conspirators not named as
defendats herein KPMG and Dominick DeGiorgio, would and did car out the

conspiracy were the following:
a. They would and did concoct tax shelter trnsactions and false and

frauduient factual scenaros to support them so that wealthy United States citizens
would pay cern of

the conspirators and other participants in the trsactions

approximately 5 to 7% of income or gain instead of paying federal and state taxes
on that income or gain.
b. They would and did prepare false and fraudulent documents to

48

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 14 of 35

deceive the IRS, including but not limited to, engagement letters, transactional
documents, reresentation letter, and opinion letters.

c. They would and did conceal the contents of tax shelter sales

presentations in order to prevent the IRS from discovering the tre facts regarding
those shelter transactions.

d. They would and did prepar and provide to their clients false and

frudulent representations that the clients were required to make in order to obtan
opinion lett that purported to justify using the phony ta shelter losses to offset

income or gain. At times, the conspirators presented to their clients these false

and frudulent client representations after the all-in costs of approximately 5 to
7% of the desird tax loss were collected from the ta shelter clients.

e. They would and did prepare and cause to be prepared ta returns
that were false and fraudulent becuse, among other things, they incorporated the

phony ta losses and therefore sùbstantially understated the tax due and owing by
the shelter clients.
-,. f. They would and did (i) fail to report on certain ta returns the losses

and the gain or income they sheltered and thus fraudulently understate gross
amounts of income and gain; and (ii) disguise the shelter losses on certain ta

returns in a manner intended to deceive the IRS.
g. They would and did tae varous steps to prevent the creation and

49

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 15 of 35

retention of documents that might reveal to the IRS the tre facts regarding the
fraudulent tax shelter as well as certin conspirators' role in designing,

marketing, and implementing them, including but not limited to concealing from

the IRS that the opinion letter provided by KPMG, the RUBLE Law Fin, and
other firms were not independent and were instead prepared by entities involved
in the design, marketing, and implementation of the tax shelters.
h. They would and did take varous additional steJ' to conceal from
the IRS the existence of

the shelters, their tre facts, and-certin conspirators' role

in designing, marketing, and implementing the shelters, including, but not limited

to, failng to register the shelters, using sham attorney-client privilege claims, and
concealing documents and providing false and misleading information in response
to IRS and Senate investigations.
Overt Acts

78. In furterace of

the conspiracy and to effect the ilegal objects

thereof, JEFFREY STEIN, JOHN LANNING, RICHARD SMITH, JEFFREY
EISCHEID,-PHILIP WIESNER, JOHN LARSON, ROBERT PFAFF, DAVID AMIR

MAKOV, LARRY DELAP, STEVEN GREMMINGER, RAYMOND J. RUBLE, also
known as "R.J. Rub1~," GREGG RITCHIE, RANDY BICKHAM, MARK WATSON,

CAROL WARLEY, DA VID RIVKI, CARL HASTING, RICHARD ROSENTHAL,
and DA VID GREENBERG, the defendats, and their co-conspirators, including co-

50

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 16 of 35

conspirators not named as defendants herein KPMG and Dominick DeGiorgio,
committed the following overt acts, among others, in the Southern Distrct of

New York

and elsewhere:

a. On or about January 30, 1997, defendants JEFFREY EISCHEID

and JOHN LARSON advised a FLIP client and his return prearer to create a
grtor trst for the purposes of concealing on the client's tax return the FLIP tax

loss to be generated and the client's gain from other sources. II
b. On or about July 18, 1997, the defendant ROBERT PFAFF prepared

a memorandum to the defendats JOHN LANNING and JEFFREY STEIN
discussing how KPMG and the Larson/faffEntities should

jointly devise,

market, and implement tax shelter trnsactions and how their fees should be

divided.
c. On or about August 16, 1997, the defendat JOHN LANNING sent

an email to the defendants JEFFREY STEIN, JEFFREY EISCHEID, JOHN
LARSON, ROBERT PFAFF, GREGG RITCHIE, and others regarding a meetig
focus-iDg on successfully completing LARSON and PFAFF engagements,

continuing to grow and expand the "Tax Advantaged Transactions" practice that
LARSON and PFAFF had been overseeing, and endeavoring to forge an ongoing

and successful relationship with the "PfafIarson firm."
d. In or about September 1997, the defendant GREGG RITCHIE on

51

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 17 of 35

behalf ofKPMG and the defendant JOHN LARSON on behalf of

the

LarsonlfaffEntities signed an "operating agrement" regarding

joint marketing

and implementation of

FLIP trnsactions.

e. On or about December 15, 1997, the defendant RAYMOND J.

RUBLE, also known as "R.J. Ruble," told the defendant RANDY BICKHAM,
who in turn told the defendat GREGG RITCHIE that RUBLE's managing
parter had approved his working with KPMG on a joint basi~ to develop and

market tax products and jointly to share in the fees.
f. On or about March 14, 1998, the defendant JEFFREY STEIN sent

an email to the defendant JOHN LANNING and others recommending, in
'substance and in part, that revenue credit for OPIS transactions be divided among

KPMG practice groups in a paricular manner based on the similarties between
FLIP and OPIS.
g. On or about May 26, 1998, the defendant GREGG RITCHIE

advised the defendant JEFFREY STEIN and others that KPMG should not
regisièr OPIS because to do so would put KPMG at a severe competitive
disadvantage in marketing tax shelters.
h. On or about June 8, 1998, the defendant GREGG RITCHIE advised

the KPMG team marketing OPIS not to leave the OPIS PowerPoint presentation

"with clients or targets under any circumstaces" because doing so ''wil

52

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 18 of 35

DESTROY any chance the client may have to avoid the step transaction doctre."
i. ori òr'about September 10, 1998, the defendant JEFFREY

EISCHEID sent an email to defendant JOHN LANING and others proposing an
"allance" with a competitor of

the Larson/faffEntities to implement OPIS
we ar going

transactions and noting that "we have very little time to work with if

to execute trades such that our clients can generate the desired benefits in calendar

1998." (I

j. On or about December 3, 1998, the defendat RAYMOND J.

RUBLE, also known as "R.J. Ruble," prepared a memorandum to the defendant

RANDY BICKH and another co-conspirator not named as a defendant herein
proposing strcturing BLIPS with a fixed-rate loan for purposes of avoiding a rule
that would block the generation of BLIPS phony tax losses.
k. On or about December 15, 1998, the defendant RAYMOND J.

RUBLE, also known as "R.J. Ruble," sent an email to his management stating that

he had worked closely with KPMG in developing tax products and had agreed to
issue -,iconcurrng" "more likely than not" opinion letters for those products in
return for a fee from KPMG of

$50,000 per deal for 1997, and a fee for 1998

based on deal size.
1. On or about Januar 22, 1999, the defendant JEFFREY EISCHEID

instrcted KPMG parers that each parer should decide for himself or herself

53

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 19 of 35

whether to attempt to conceal losses from the IRS using a grtor trst.

m. On or about April 30, 1999 and Mày 1, 1999, the defendants

JEFFREY EISCHEID, MA WATSON, JOHN LARSON, DAVI AMIR
MAOV, RANDY BICKHAM, CAROL WAREY, DAVID RIVK, and
CAR HASTING, and cerin co-conspirators met in Dallas, Texas for a BLIPS
task force meeting.
n. On or about May 9, 1999, the defendant MAiuW A TSON sent an
the defendants JEFFRY EISCHEID, PHILIP

email to

WIESNER, LARY

DELAP, and RAY BICKHAM proposing false representations to be included
in the BLIPS opinion letter.

o. On or about May 10, 1999, the defendant MAR WATSON sent an
email to the defendants RICHARD SMITH, JEFFREY EISCHEID, PHILIP

WIESNER, LARRY DELAP, and RANDY BICKH proposing a false
representation to be included in the BLIPS opinion letter.
p. On or about May 10,1999, the defendant JEFFREY STEIN sent an

email to others in which he recommended that KPMG market and implement

BLIPS.
q. On or about May 18, 1999, the defendant LARRY DELAP sent an

emaIl stating that marketing of

BLIPS was approved.

r. On or about August 4, 1999, the defendant PHILIP WIESNER

54

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 20 of 35

anounced that BLIPS was approved for marketig by KPMG personnel.

s. On or about August 5, 1999, the defendant RANDY BICKHAM
sent an email to the defendant RAYMOND J. RUBLE, also known as "R.J.
Ruble," in the Southern Distrct of

New York stating that he and the attorney had

received a "get out of jail fre car" as a result of obtaining permssion frm
Washington National Tax to proced with BLIPS.

t. On or about Augut 30, 1999, the defendant RANDY BICKH
sent the defendant GREGG RITCHIE a BLIPS powerpoint presentation for the
Beverly Hils Businessma.
u. In or about September or October 1999, Domenick DeGiorgio, a

Ii.

co-conspirator not named as a defendant herein, met at the offces of Ban B in
the Southern Distrct of

New York with the defendant ROBERT PFAFF, and on

another occasion, with JOHN LARSON and DAVID AMIR MAOV and others.
v. In or about 1999, in the Southern Distrct of

New York and

elsewhere, Banks A, B and C, prepared and caused to be prepared trsactional

documents relatig to BLIPS ta shelter trnsactions.
w. On or about September 24, 1999, a co-conspirator not named as a
defendant herein ("KPMG Parer i ") instrcted the Innovative Strategies group
that because bank were unwiling to execute as many BLIPS deals as had been
sold to clients, the Innovative Strtegies group should consult with DAVID

55

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 21 of 35

GREENBERG regarding a tax shelter transaction that BLIPS clients could use
instead of

BLIPS to shelter their income and gain.

x. On or about September 24,1999, the defendat RICHA
ROSENTHAL advised defendant DAVID GREENBERG that defendat MAR

WATSON would contact GREENERG to arange tax shelter trsactions for

clients to whom KPMG had offered BLIPS, but for whom KPMG could not

arange BLIPS transactions.

Ii

y. On or about September 27, 1999, the defendant DAVID AMIR

MAKOV prepared a "loan premium rationale" designed to falsely make it appear

that there were legitimate business and economic purposes for strcturing the
BLIPS purported loan in the maner it was strctued.

z. On or about October I, 1999, the defendant LARRY DELAP

approved the sale of OPIS transactions to clients who were promised BLIPS but
for whom KPMG could not arrange BLIPS transactions.
aa. In or about October 1999, the defendant DAVID AMIR MAKOV
requested a treasury offcial of Bank B in the Southern Distrct of

New York to

execute a swap transaction involving a BLIPS "loan" by employing two separate
trade tickets rather than a single swap transaction ticket.
bb. In or about mid-October 1999, a co-conspirator not named as a

defendant herein, caused KPMG professionals to be deployed to the New York,

56

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 22 of 35

New York offces of

Ban B to aid in processing various BLIPS trsactions in

order to allow the transactions to be initiated and termated by the end of the
calendar year.

cc. On or about October 18,1999, the defendant RICHAR

ROSENTHAL instrcted a co-conspirator not named as a defendat herein

("KPMG Parer 2") to send no furter emaIls regarding a tax shelter client who
had been pitched BLIPS, but then had been sold an SOS tax %helter trnsaction by

DAVID GREENBERG ("DAVID GREENBERG Clienl1 "), resulting in a fee

trple the fee that would have resulted from BLIPS.
dd. On or about December 1999, the defendant CAR HASTING sent

an email to the defendant RICHARD ROSENTHAL reportng $437,500 revenue
from a BLIPS transaction arnged for the husband of a KPMG parer and

assigning to the KPMG parter "Teamwork Revenue" credit for this trnsaction.
ee. On or about November 30, 1999, the defendant CAROL WAREY
advised a BLIPS client to divide the phony tax

shelter losses among 10 stocks that

have been losers.

ff. On or about December 3, 1999, the defendant CAR HASTIG
sent an email to the defendant JEFFREY EISCHEID in which he itemized SOS

transactions and $700,000 in fees due to KPMG. EISCHEID wrote 'Just a word
of caution. . . DPP has mandated that we receive no value added fees from the

57

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 23 of 35

client and no payment from (CC 10). At $350 per hour, your $700,000 is 2,000

hours."
gg. On or about December 8, 1999, the defendant MARK WATSON

advised others involved in marketing and implementing BLIPS that a document
on which the client selected how much of

the BLIPS loss should be ordinary and

how much should be capital should not be kept in the file because "if the IRS

were to discover such a document it could look very bad for fle client."
hh. On or about Januar 9, 2000, the defendan CAR HASTING sent

an email to the defendant RICHAR ROSENTHAL reportng $470,000 revenue
from two SOS transactions arnged by HASTING and assigning to
ROSENTHAL "Teamwork Revenue" credit for these trsactions.
11. On or about March 7,2000, the defendants JEFFREY STEIN,

JOHN LANNING, RICHARD SMITH, JEFFREY EISCHEID, LARRY DELAP,
and STEVEN GREMMINGER, and others met in the Southern Distrct of

New

York to discuss the risks of civil penalties and criminal investigation associated with completing the implementation of 1999 OPIS and BLIPS transactions.
JJ. On or about March 21, 2000, a co-conspirator not named as a

defendant herein advised other involved in marketing BLIPS that they should
''NOT put a copy of' an email in their BLIPS fie because "it is a roadmap for the

taing authorities to all the other listed transactions."

58

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 24 of 35

kk. In or about March 2000, the defendat STEVEN GREMMINGER
called KPMG's relationship parer at Law Firm 2 about the Law Firm 2 Memo

and stated that Law Firm 2 was intederg with a KPMG tax trsaction and that
senior tax parers àt KPMG were irate. BLIPS was the KPMG ta trsaction

referred to by GREMMINGER.
n. On or about March 29, 2000, the defendant DAVID GREENBERG

issued to defendant RICHA ROSENTHA an opinion leJr relating to
ROSENTHAL's SOS ta shelter trsaction. GREENBRG issued the opinion
letter with the name of a nominee as the purported author in order to conceal

GREENBERG's involvement in implementig the trsaction, and with CC 11 as
the purported addressee in order falsely to make it appear that the opinion letter
was covered by the attorney-client privilege.
mm. In or about March and April 2000, in the Souther Distrct of

New

York, the defendant RAYMOND J. RUBLE, also known as "R.J. Ruble,"
prepared and caused to be prepared dozens of

BLIPS opinion letters.

nn. On or about November 9, 2000, defendant DAVID GREENBERG

sent an email to CC 11 instrcting CC 11 to establish entities and bank accounts to

be used to execute SOS transactions for five KPMG parers and one KPMG
former parer.

00. In or about 1998, 1999, and 2000, the defendant RAYMOND J.

59

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 25 of 35

RUBLE, also known as "R.I. Ruble," caused dozens of

invoices and opinion

letters relating to frudulent tax sheIter trsactions to be'sent by overnight carer

from the RUBLE Law Firm in New York, New York to KPMG's Atlanta office.
pp. In or àbout 1998J 1999, and 2000, in the Southern Distrct of

New

York and elsewhere, cerin conspirators, including KPMG personnel and clients,
and others involved in FLIP and OPIS tax shelter trnsactions prepared, signed

and fied ta returns that falsely and frudulently claimed ove~ $4.2 bilion in

phony tax losses generated by FLIP and OPIS transactions.
qq. In or about 2000 and 2001, in the Southern Distrct of

New York

and elsewhere, cerin conspirators, including KPMG personnel and clients, and

others involved in BLIPS tax shelter trsactions preparedJ signed and fied tax

retrns that falsely and fraudulently claimed over $5.1 bilion in phony ta losses
generated by BLIPS trsactions.

IT. In or about 1999,2000, and 2001, in the Southern Distrct of

New

York and elsewhere, certin conspirators, including KPMG peronnel and clients,
and oThers involved in SOS tax shelter trsactions prepared, signed and filed ta

returns that falsely and frudulently claimed over $1.9 bilion in phony tax losses
generated by SOS.
ss. In or about March 2001, defendants JEFFREY EISCHEID and

STEVEN GREMMINGER attempted to procure an additional law firm to author

60

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 26 of 35

a favorable opinion letter for a BLIPS client who had previously demanded that
KPMG return all of

his fees to him.

tt. On or about Februar 12 and 27, 2002, the defendant JEFFREY

EISCHEID provided false and misleading testiony under oath to the IRS.

uu. On or about October 2, 2002, the defendant RICHAR SMITH sent
a letter to the IRS in the Southern Distrct of

New York falsely claiming that

"KPMG has at this time virally completed its compliance wfth the summonses"
although as SMITH well knew, KPMG had produced no. documents or

information regarding its involvement in marketing and implementing SOS
transactions.

vv. On or about Februar 19, 2003, the defendants RICHAR SMITH
and STEVEN GREMMINGER and others caused KPMG's outside counsel to
falsely represent to the Senate that "after reasonable inquiry to date, the fir has

not yet identified any documents" relating to shelter transactions used by KPMG
parers to shelter their own income or gains, although SMITH and

GREMMINGER well knew that KPMG had varous documents responsive to this
subpoena request.

ww. On or about November 18,2003, the defendat JEFFREY
EISCHEID provided false and misleading testimony under oath to a
Subcommittee of the United States Senate.

61

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 27 of 35

xx. On or about November 18, 2003, the defendat RICHA SMITH
provided evasive testimony under oath to a Subcommttee of

the United States

Senate.

yy. On or' about November 20, 2003, the defendat JOHN LARSON
provided false and misleading testimony under oath to a Subcommittee of the
United States Senate. zz. On or about January 22, 2004, a BLIPS client ("CAROL WAREY
Client 2") provided false and misleading testiony under oath to the IRS.

(Title 18, United States Code, Section 371.)

COUNTS TWO THROUGH FORTY (Tax Evasion)
The Grand Jury furter charges:

79. The allegations set fort in pargraphs 1-71 are repeated and
realleged as if fully set fort herein.
80. From on or about January 1 of each of

the calendar year set fort

below, through at least on or about the filing dates set fort below for each said calenda
year, in the Southern Distrct of

New York and elsewhere, JEFFREY STEIN, JOHN

LANNING, RICHARD SMITH, JEFFREY EISCHEID, PHILIP WIESNER, JOHN

LARSON, ROBERT PFAFF, DAVID AMIR MAKOV, LARRY DELAP, STEVEN

GREMMINGER, RAYMOND J. RUBLE, also known as "R.I. Ruble," GREGG

RITCHIE, RANDY BICKHAM, MAR WArSON, CAROL WARLEY, DAVID
62

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 28 of 35

RIVK, CAR HASTING, RICHA ROSENTHAL, and DAVID GREENBERG,
the defendants, along with their co-conspirators, unlawfully, wilfully and knowingly did

attempt to evade and defeat a substatial par of the income ta due and owing by the tax

shelter clients and by certin defendats and entities controlled by defendats set forth
below to the United States of America for the calendar years set forth below, by

committng and causing to be commtted the following acts, among others:
a. prearng and executing false and frudulentdJcuments to deceive

the IRS, including but not limited to, engagement letters trsactional documents,
reresentation letters, and opinion letters;
b. creating entities to be used in executing ta shelter transactions;

c. executing financial trnsactions to implement the fraudulent ta

shelters;

d. preparng and fiing false and frudulent tax returns; and
e. taking various steps to conceal from the IRS the existence ofthe

shelters, their tre facts, and certin conspirators' role in designing, marketing,

and implementing the shelters, including, but not limited to, failng to register the
shelters, using sham attorney-client privilege claims, and concealing documents

and providing false and misleading information in response to IRS and Senate
investigations.

63

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 29 of 35

2

Beverly Hils

1999 1040

$120 millon

. 08/23/2000
10/15/2001

Businessman
3
Beverly Hils

2000 1040

$41 millon

Businessman
4
5

GREGO RITCHIE

1999 1040
2000 1040

$2.7 milion
$2.3 milion
$248,000
$248,000
$136 milion
Ii

10/14/2000
1 % 1/200 1

GREGG RITCHIE

6

RICHAR
ROSENTHAL

1999 1040
2000 1040

10/15/2000
10/15/2001

7

RICHAR
ROSENTHAL

8

CAROL WAREY
Client 1

1999 1040

04/15/2000
10/09/2001

9 10
11

CAROL WARLEY
Client 1

2000 1040

$74 millon

CAROL WARLEY
Client 1

20011040
1999 1040
1999 1040

$76 milion

10/15/2001

CAROL WARLEY Client 2

$36 milion

04/15/2000

12

CAROL WARLEY
Cttent 3

$10 milion

04/15/2000 04/15/2000
05/10/2000
04/15/2001

13

CAROL WARLEY Client 4

1999 1040

$6 million
$10 millon

14

JOHN LARSON
Client 1

1999 1040

15

JOHN LARSON
Client 1

2000 1040

$47 milion

64

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 30 of 35

16

JOHN LARSON Client 1 Trust JOHN LARSON Client 1 Trust
Hedge Fund
Manager 1

1999 1041

$20 milion

. 05/10/2000
04/15/2001

17

2000 1041

$47 milion

18

1999 1040

$52 millon
~

08/01/2000
04/15/2000

19

DAVID RIKI
Client 1

1999 1040

$25 milion

20
21

DAVID RIVKIN Client 2

1999 1040

$59 million
$20 millon

04/15/2000 04/15/2000
10/15/2001

DAVID RI
Client 3

1999 1040
2000 1040

22
23

DAVID RIVKI
Client 4

$3 Ö milion

DA VlD RI
Client 5

19991040
2000 1040

$9 millon
$17 milion

10/19/2000
06/18/2001

24
25

DAVID RIVKI
Client 5

CAR HASTING
Cllent 1

1999 1040

$36 milion

04/15/2000
10/15/2000
09/1912000

26
27 28 29

CARL HASTING Client 2 CARL HASTING
Client 3

1999 1040
1999 1040

$50 millon

$7 millon
$590,000
$68 milion

KPMG Parter 2

2000 1040
1999 1040

10/1 0/200 1

Venture Capital Fund
Manager 1

10/1612000

65

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 31 of 35

30
31

Other Client 1

19991040
1999 1040
1999 1040
1999 1040

$81 millon

04/15/2000
04/15/2000
10/13/2000

Other Client 2

$8 millon $8 millon $8 millon $8 millon
$25 millon $25 milion
$25 millon

32
33

JOHN LARSON
ROBERT PFAFF

10/15/2000
Ii 06/19/2000

34
35 36

Laron/faff entity 1 1999 1040

Laron/faff entity 2 1999 1120

02/21/2001
12/03/2001

Larson/faff entity 2 2000 1120

37 38

Larson/faff entity 3 2000 1120

09/27/2001

DAVID 19991040
GREENBERG Client
1

$19 milion

10/15/2000

39

DAVID 1999 1040
GREENBERG Client 2

$1.4 millon

10/15/2000

40

DAVID 2000 1120
GREENBERG Client
3

$119 milion

09/30/2001

(Title 26, lJ.nited States Code, Section 7201, Title 18, United States Code, Section 2.)

COUNTS FORTY-ONE THROUGH FORTY-FOUR RUBLE's Income Taxes)
(Evasion of

The Grand Jury furter chares:

81. The allegations set fort in paragrphs in 52-53 are reeated and
realleged as if fully set fort herein.

66

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 32 of 35

82. For the ta years 1997-2001, RUBLE knowingly omitted frm his

U.S. Individual Income Tax Returns over $1,482,000 in income in the form of

side

payments paid to him by the CC-1 O-related entities and by the LARSON and PFAFF
nominee entities.
f
From on or about Januar 1 of each of

83.

the calendar yea set forth

below, through at least on or about the fiing dates set fort below for each said calendar
(I
year, in the Southern Distrct of

New York and elsewhere, the defendants listed below,

unlawfully, wilfully, and knowingly, did attempt to evade and defeat a substantial par of

the income taxes due and owing by RUBLE to the United States of America for the

calendar years 1998-2001 by varous means, including, among others (a) opening and
causjng to be opened in New York, New York a bank account in the name ofa trst

controlled by RUBLE; (b) depositing and causing to be deposited in this trst bank

account in New York, New York and another bank account certin side payments he
received from tax shelter promoters; (c) falsely informing the RUBLE Law Firm that he
had no outside income; (d) causing the issuance by the RUBLE Law Fin of

IRS Form

K-l that under-reported RUBLE's income for the calendar years 1998-2001; and (e)
preparing and causing to be prepard, signing and causing to be signed, and filing and

causing to be fied with the IRS, false and fraudulent U. S. Individual Income Tax
Returns, Form 1040, for the calendar year 1998-2001, which returns falsely omitted

income in the amounts set fort below, which falsities caused RAYMOND 1. RUBLE to

67

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 33 of 35

substatially understate his taxable income and ta due and owing each year, as set fort
below:

41

RAYMOND 1. RUBLE, JOHN LARSON, ROBERT PFAFF

1998 10/15/99 $350,000 $148,089

42
43

RAYMOND J. RUBLE
RAYMOND J. RUBLE, JOHN LARSON, ROBERT PFAFF
RAYMOND 1. RUBLE

1999 09/30/00 $175,000 $71,379

2000 10/15/01 1250,000 $107,299

44

2001 10/15/02 $500,000$201,365

(Title 26, United States Code, Section 7201, Title 18, United States Code, Section 2.)

COUNTS FORTY-FI AND FORTY-SIX
(Obstruction of the IRS)

The Grand Jury further charges:

84. The allegations set forth in paragraphs 1-71 are repeated and
realleged as ~r fully set fort herein.
85. On or about the dates set fort below, in the Southern Distrct of

New York and elsewhere, the defendants listed below unlawfully, wilfully, and
knowingly did corrptly obstrct and impede and endeavor to obstrct and impede the

due administration ofthe Interal Revenue laws by commttng or causing to be
committd the acts set forth below:
68

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 34 of 35

45

10/02/2002 RICHARD SMITH, STEVEN GREMMINGER

False statement to the IRS in the SDNY that "KPMG has at this time virtally completed its compliance with the summonses"

46

OS/28/2003 JEFFREY EISCHEID, STEVEN GREMMINGER

Telephone call by KPMG
representative to IRS

representatives in the SDNY and
Washington, Q.C. falsely

claiming that KPMG did not promote or market SOS, but
KPMG prepared at least 2 ta

returns relating to SOS.

(Title 26, United States Code, Secton 7212, Title 18, United States Code, Section 2.)

~

7niJ¡l- L lja~
MICHAEL 1. GARCIA United States Attorney

69

Case 1:05-cv-00999-MMS

Document 10-9

Filed 01/13/2006

Page 35 of 35

Form No. USA-33s-274 (Ed. 9-25-58)
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NE YORK

UNITED STATES OF AMRICA

-vJEFFREY STEIN,

JOHN LANING, RICHA SMITH,
JEFFREY EISCHID,
JOHN LARSON, ROBERT PFAFF,

PHILIP WIESNER, if
STEVN GREMINGER,

DAVID AMIR MAOV, LARY DELAP,
RAYMOND J. RUBLE,

also known as "R. J. Ruble,"

RAY BICK,
MAK WATSON,
CAROL WAREY,

GREGG RITCHIE,

DAVID RIVKIN,

CAL HATING,

RICHA ROSENT, and
DAVID GREENBERG,

Defendants.
SUPERSEDING INDICTMNT
81 05 Cr. 888 (LAK)

18 U.8.C. § 371, 26 U.S.C. §§ 7201, 7212, 1a U.8.C. § 2

A~¥

MICHAEL J. GARCIA

Uni ted States Attorney.

Foreperson.