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

Case 1:05-cv-00999-MMS I.

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

___________________________________ X
UNITED STATES OF AMERICA
- against -

SEALED INDICTMENT
05 Cr. ()

JEFFREY STEIN,

JOHN LANNING, RICHARD SMITH, JEFFREY EISCHEID, PHILIP WIESNER, JOHN LARSON, ROBERT PFAFF, RAYMOND J. RUBLE,. also known as "R.J. Ruble," and MARK WATSON,
Defendants.

o 5:CRIM.

8 88'
'fl.

----------------------------------- X

COUNT ONE (Conspiracy)
The Grand Jury charges:

Background
Pertinent Entities
1. At all times relevant to this Indictment, KPMG LLP ("KPMG"), a

co-conspirator not named as a defendant herein; was a limited liability partership
headquartered in New York, New York, and with more than 90 offces nationwide. KPMG LLP is and was a member firm ofKPMG International, a Swiss cooperative of

-

,, EXHIBIT

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which all KPMG fimis worldwide are members. At all times relevant to this Indictment,
KPMG was one of

the largest auditing fiims in the world, providing audit servìces to

many of the largest corporations in the United States and elsewhere. i
2. In addition, KPMG was in the busines~ of

providing tax services to
the wea~thiest individuals in the

corporate and individual clients, including some of

United States. These tax services included, but were not lirlited to, prepariri¡; tax returns,

providing tax planning and tax advice, and representing cli~nts in Internal Revenue
Service ("IRS") audits and Tax Court litigation with the IRS. The portion of

KPMG's
,

tax practice that specialized in providing tax advice to indi~iduals, including wealthy individuals, was known as Personal Financial Planning, or ¡'PFP." The KPMG group
i

focused on designing, marketing, and implementing tax shelters for individual clients
was known at different times as CaTS ("Capital Transactio;i Strategies"), and is

("Innovative Strategies"). The KPMG group focused on d~signing, marketing, and i
implementing tax shelters for corporate clients was known ias Stratecon. KPMG also had
I

a departent within the tax practice known as WashingtoniNational Tax, which was i
1

designed to provide expert tax advice to KPMG professioI1ls in the field, and which
i

participated in designing tax shelters and drafting opinion letters relating to those
shelters.
3. At all times relevant to this Indictment, "Bank A" was a foreign
i

bank with its principal United States branch located in Ne'Y York, New York, and an
1

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audit client ofKPMG.
4. At a1+ tImes relevant to this Indictment, "Bank B" was a foreign

bank \vith its principal United States branch located in New York, New Y ork a~d an

audit client ofKPMG.
5. At all times relevant to this Indictment, "Bank C" was a foreign

bank and an audit client ofKPMG.

,
.il ,

6. At all times relevant to this Indictment, "Bank D" was a foreign

bank with its principal United States branch located in New York, New York.
The Defendants

7. Defendant JEFFREY STEIN, a lawyer with a Master's in tax law,

was a tax parter at KPMG from at least in or about 1987 through in or about January

2004. In or about 1996, STEIN became the parter-in-charge ofKPMG's interatIonal
tax group; in or about March 1998, STEIN became Vice Chairman - Tax Operations; in
or about 2000, STEIN became Vice Chairman of

Tax Services; and in or about April

2002, STEIN became Deputy Chairman ofKPMG.
8. Defendant JOHN LANNING, a certified public accountant

("CPA"), was a tax parter at KPMG from at least in or about 1982 through in or about
2000. In or about October 1996, LANNING became Vice Chairman -Tax Operations,
and in or about March 1998, LANNING became Vice Chairman of

Tax Services.

9. Defendant RICHARD SMITH, a lawyer, was a tax parter at

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KPMG from at least in or about 1995 through in or about 2004. He worked In
Washington National Tax,; became a leader ofVvashington National Tax, became Area

Managing Paitner for the \Vestern Region ofKPMG's tax practice in January 2002, and
then in May 2002 became a Vice Chairman of KPMG in charge of tax.

i O. Defendant JEFFREY EISCHEID, a CPA, was a tax parer in
KPMG's Atlanta office from at least 1997 through in or about 2004. Duringthat period -l. ,
of

time, he served as head ofKPMG's Innovative Strategies group and Parter-In-

Charge ofKPMG's Personal Financial Planning group.
11. Defendant PHILIP WIESNER, a lawyer with a Master's in tax law

and a CPA, was a tax partner at KPMG from at least in or about 1984 through in or about
June 2004, and served as Partner-In-Charge of

Washington National Tax during 1998

and a portion of 1999.

12. Defendant JOHN LARSON, a lawyer and a CPA, was a KPMG

senior tax manager based in KPMG' s San Francisco, California, offce prior to 1997, and
defendant ROBERT PFAFF, a lawyer and a CPA, was a KPMG tax partner based in

KPMG's Denver, Colorado, office prior to 1997. In or about 1997, LARSON and
PFAFF resigned their positions at KPMG and formed a limIted liability company with its

principal offce located in San Francisco and a satellite office located in Denver. In or
about 1999, LARSON, PFAFF, and another individual formed another limited liability
company with its principal office located in San Francisco and a satellte office located in

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Denver. As detailed more fully below, LARSON, PFAFF, and others, used the two

limited liabilty compani~ described in this paragraph, and certain related entities
(collectively referred to herein as the "Larson/Pfaff Entities") to paiiicipate in certain tax
shelter transactions as, among other things, the purported investment advisor.
13. Defendant R.A. YMOND J. RUBLE, also known as "R.I. Ruble," a

lawyer, was a tax parter in the New York, New York offce of a prominenfnational law
0;.

firm (the "Law Firm").
14. Defendant MARK WATSON, a CPA, was a KPMG tax parter and
the partner in charge of the PFP division of

Washington National Tax from at least June

1998 through July 2000. In or about August 2000, WATSON was transferred to a

KPMG affiiate partnership located in Amsterdam.

Tax Shelter Fraud
15. During the period from at least in or about 1996 through at least in
or about 2003, the defendants JEFFREY STEIN, JOHN LANNING, RICHARD
SMITH, JEFFREY EISCHEID, PHILIP WIESNER, JOHN LARSON, ROBERT

PFAFF, RAYMOND J. RUBLE, also known as "RJ. Ruble," and MARK WATSON,
and others known and unknown to the Grand Jury (hereinafter their "co-conspirators")
participated in a scheme 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 fied with the IRS false and fraudulent U.S. individual income tax returns containing

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the fraudulent tax shelter losses, and by fraudulently concealing from the IRS those
shelters.
16. The conspirators designed and marketed these shelters as a means

for wealthy individuals with taxable income or gains generally in excess of $1 0 milion

in 1997 and of $20 millon in 1998-2000 fraudulently to eliminate or reduce the tax paid
to the IRS on that income or gains. As marketed and implemented, instead óf the :.
wealthy clients paying U.S. individual income taxes generally exceeding 20% of

the

income or gain, the client could choose the amount of

tax loss desired, and pay certain of
the

the conspirators and others an all-in cost generally equal to approximately 5 to 7% of

desired tax loss. This "all-in" cost included the fees ofKPMG, the Larson/PfaffEntities,
the varous law firms that supplied opinion letters, including the Law Fim1, the bank

participants, and others, as well as a small portion that would be used to execute

purported "investments" that were designed to make it appear that the shelters were
legitimate "investments" rather than tax shelters. The size of

the purported

"investments," the timing of the transactions, and the amount of the fees to certain
conspirators and participants were all determined based on the tax loss to be generated.
1 7. In order to conceal the tre nature of the tax shelter from the IRS

and shield the wealthy clients from IRS penalties for underpayment of

U.S. individual

income taxes, KPMG and/or a law firm provided the clients with opinion letters
containing false and fraudulent representations and statements and claiming that the tax

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shelter iosses were "more likely than not" to survive IRS challenge. The law in effect
from at least in or about August 1997 provided that if

a taxpayer claimed a tax benefit

that was later disallowed, the IRS would impose substantial penaíties, usually a,t least
20% of

the tax deficiency, unless the tax benefit was supported by an independent

opinion relied on by the taxpayer in good faith that the tax benefit was "more likely than

not" to survive IRS challenge. Thus, the conspirators issued false and fraudulent opinion .;
letters with the intent that the clients would provide the opinion letter and/or the false and
fraudulent representations and statements contained therein to the IRS if and when the
client was audited.
18. Among the fraudulent tax shelter transactions designed, marketed,

and implemented by the defendants JEFFREY STEIN, JOHN LANNING, RICHARD

SMITH, JEFFREY EISCHEID, PHILIP WIESNER, JOHN LARSON, ROBERT

PFAFF, RAYMOND J. RUBLE, also known as "RJ. Ruble," and MARK WATSON,
and their co-conspirators were FLIP ("Foreign Leveraged Investment Program"), OPiS ("Offshore Portfolio Investment Strategy"), BLIPS ("Bond Linked Issue Premium

Strcture"), SOS ("Short Option Strategy") and their variants.

19. FLIP was marketed and sold from at least in or about 1996 through
at least in or about 1999 to at least 80 wealthy individuals and generated at least $1.9

bilion in phony tax losses; KPMG's gross fees from FLIP transactions were at least $17

milion; the Law Firm's gross fees from FLIP transactions were at least $3 milion; the

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Larson/Pfaff

Entities' gross fees from FLIP transactions were at least $3 million.
20. OPI&was marketed and sold from at least in or about 1998 through

at least in or about 1999 to at least 170 wealthy individuals, and generated at least $2.3
bilion in phony tax .losses; KPMG's gross fees from OPIS transactions were .at least $28

million; the. Law Fimi's gross fees from OPIS transactions were at least $7 milion; the
Larson/Pfaff

Entities' gross fees from OPIS trnsactions were at least $12 nijllion.
"

21 . BLIPS was marketed and sold from at least in or about 1999
through at least in or about 2000 to at least 186 wealthy individuals, and generated at

least $5.1 billon in phony tax losses; KPMG's gross fees from BLIPS transactions were

at least $53 milion; the Law.Firm's gross fees from BLIPS transactions were at least $13

milion; the Larson/Pfaff Entities' gross fees from BLIPS transactions were at least $123

milion.
22. SOS was marketed and sold from at least in or about 1998 through

at least in or about 2002 to at least 165 wealthy individuals, and generated at least $1.9

bilion in phony tax losses; KPMG's gross fees from SOS transactions were at least $17

milion. Among the individuals who used BLIPS and SOS-tye shelters to evade their
own taxes were the defendants JOHN LARSON and ROBERT PFAFF, at least 14

KPMG parters, and other co-conspirators.
The Fraudulent FLIP and OPIS Shelters
23. In all material respects, FLIP and OPTS were the same. FLIP and

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OPiS were generally marketed only to people who had capital gains in excess of $1 0

million for FLIP and $2o-l1illon for OPiS. These shelters were designed to generate

substantial phony capital losses (i.e., in excess of$lO milion for FLIP and in e~cess of
$20 million for OPIS) through the use of an entity created in the Cayman Islands (a tax

haven), for purposes ofthe tax shelter transaction. The client purportedly entered into an
"investment" transaction with the Cayman Islands entity by purchasing a puworted ,.

warrant or entering into a purported swap. The Cayman Islands entity then made a prean-anged series of

purported investments, including the purchase from either Bank A

(which at the time was a KPMG audit client) or Bank D of either Bank A or Bank D
stock using money purportedly loaned by Bank A or Bank D, followed by redemptions
of

those stock purchases by the pertnent bank. The purported investments were devised

to eliminate economic risk to the client beyond the all-in cost and minimize the amount
of

the all-in cost used for the investment component. The purported investments were

also devised to last for only approximately 16 to approximately 60 days.
24. In return for fees totaling approximately 7% of

the desired tax loss,

including a fee to KPMG equal to approximately 1.25% of

the desired tax loss, the

defendants JEFFREY STEIN, JOHN LANNING, JEFFREY EISCHEID, JOHN
LARSON, and ROBERT PFAFF, and their co-conspirators implemented and caused to

be implemented FLIP and OPIS trnsactions and generated and caused to be generated
false and fraudulent documentation to support the transactions, including but not limited

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to KPMG opinion letters claiming that the PUlvorted tax losses generated by the shelters

were more likely than not-o withstand challenge by the IRS. The defendant
RA YMOND J. RUBLE, also known as "R.J. Ruble" also issued "more likely t~an not"

opinion letters in return for fees tyically of approximately $50,000 per opinion, which
opinions tracked, sometimes verbatim, the KPMG opinion letter. In general, all of these
opinion letters were identical, except for the names of the clients, the names:pf the

entities, the dates, and the dollar amounts involved in the transactions.

25. The defendants JEFFREY STEIN, JOHN LANING, JEFFREY
EISCHEID, JOHN LARSON, ROBERT PFAFF, and RAYMOND 1. RUBLE, also

known as "RJ. Ruble," and their co-conspirators issued and caused to be issued the
opinion letters although, as they well knew, (i) the tax positions taken were not more

likely than not to prevail against an IRS challenge if the true facts regarding those

transactions were known to the IRS, and (ii) the opinion letters and other documents used
to implement FLIP and OPIS were false and fraudulent in a number of

ways, including

but not limited to the following:
a. The opinion letters began by falsely stating that the client requested
KPMG's opinion "regarding the U.S. federal income tax consequences of

certin

investment portfolio transactions," when in truth and in fact, the conspirators
targeted wealthy clients based on the clients' large taxable gains and in return for
substantial fees to KPMG, the Larson/Pfaff

Entities, the Law Firm, certin co-

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conspirators, and others, offered to generate phony tax losses to eliminate income
tax on that gain, aM offered to provide a "more likely than not" opinion letter.

b. The opinion letter continued by falsely stating that the "investment

strategy was based on the expectation that a leveraged position in the Foreign

Bank securities would provide investor with the opportnity for capital
appreciation," when in trth and in fact the strategy was based on the::expected

f

phony tax benefits promised by certain conspirators.
c. The opinion letters also falsely claimed that the clients "reviewed

the economics underlying the investment strategy and believed it had a reasonable
opportnity to earn a r.easonable profit from each of

the transactions. . . in excess

of all associated fees and costs and not including any tax benefits that may occur"

when in truth and in fact, there was no such opportnity.
d. The opinions falsely claimed that one of the participants in the
transaction (an owner of

the Cayman Islands entity) was a foreign person

unrelated to the other participants, when in truth and in fact this foreign person
was simply a nominee who received a fee to assist KPMG, other co-conspirators,
and other participants in generating the phony tax losses, and one of

the foreign

persons had an ownership interest in the Larson/Pfaff Entities, which were
participants in many of

these transactions.

e. The opinion letters falsely stated that money was paid by the FLIP

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and OPIS clients for an "investment" component of

the transactions (a ""'arrant or

a swap), when in tmth and in fact that money constituted fees paid to KPMG, the

Law Finn, the bank participant, and the nominee foreign person, and other
participants, as well as money that was temporarily parked in the deal but
ultimately returned to the client.
f. The opinion letters also falsely claimed that there was n9 evidence
;'

of a "firm and fixed" plan to complete the steps making up the shelter in a
particular manner, when in truth and in fact, there was such a plan, and the
transactions in fact were completed in that particular manner which was designed
to generate the tax loss.
g. The opinion letters stated that the clients were "more likely than not"

to survive an IRS challenge to the transactions based on the "step transaction
doctrne" - a legal doctrne permitting the IRS to disregard certain transactions

having no economic substance or business purpose and the purported tax effects
of

those disregarded transactions. This assertion was false, as the conspirators

well knew. Indeed, a co-conspirator not named as a defendant herein ("CC 1 "),

who at the time was in charge of CaTS, instrcted KPMG partners involved in
marketing OPiS, including the defendants JEFFREY EISCHEID and MARK
WATSON, not to permit KPMG clients who were pitched OPIS to retain a copy

ofK.MG's powerpoint presentation describing the transaction "under any

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circumstances" because to do so would "DESTROY any chance the client may
have to avoid the srp transaction doctrine."

The Fraudulent BLIPS Shelter

26. BLIPS was designed to generate substantial capital and ordinary tax
losses through a series of

pre-arranged transactions that involved the client purportedly

borrowing money from one ofthree banks - Bank A, Bank B, or Bank C, áll of

,

,c

which

were audit clients of KPMG at the time - in order to make purported foreign currency
investments including currencies that were "pegged" to the United States dollar. The

bank involved in the purported loan also served as the counterpart on all of the
purported currency and other transactions involved in BLIPS. The transaction was

designed by the defendants RICHAR SMITH, JEFFREY EISCHEID, PHILIP
WIESNER, JOHN LARSON, ROBERT PFAFF, MARK WATSON, and RAYMOND J.

RUBLE, also known as "R.J. Ruble," under the supervision of defendants JEFFREY
STEIN and JOHN LANNING, and their co-conspirators, and others, so that after a short

period oftime (virtally always approximately 67 days), the client would exit the
purported BLIPS transaction and trigger the desired tax loss.
27. In return for fees totaling approximately 7% of

the desired tax loss,

including a fee to KPMG equal to approximately 1.25% of

the desired tax loss, a fee to

the Larson/Pfaff

Entities equal to approximately 2.75% of

the desired tax loss, and a fee

to the Law Finn generally equal to approximately $50,000 per transaction, the defendants

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

PHILIP WIESNER, JOHN LARSON, ROBERT PFAFF, RAYMOND J. RUBLE, also

known as "RJ. Ruble," and MARK WATSON, their co-conspirators, and others,
implemented and caused to be implemented the transactions and generated and caused to be generated false and fraudulent documentation to suppOli the transactions, including
but not limited to KPMG and the Law Firm, opinion letters claiming that thépurported t: ~

tax losses generated by the shelters were more likely than not to withstand challenge by
the IRS. In general, all of

these opinion letters were identical, except for the names of
dates, and the dollar amounts

the clients and entities involved, the

involved in the

transactions.
28. The defendants JEFFREY STEIN, JOHN LANNING, RICHARD

SMITH, JEFFREY EISCHEID, PHILIP WIESNER, JOHN LARSON, ROBERT
PFAFF, MARK WATSON, and RAYMOND 1. RUBLE, also known as "RJ. Ruble/'

and their co-conspirators issued and caused to be issued the opinion letters although, as
they well knew, (i) the tax positions taken were not more likely than not to prevail
against an IRS challenge if

the tre facts regarding those transactions were known to the

IRS, and (ii) the opinion letters and other documents used to implement BLIPS were
false and fraudulent in a number of

ways, including but not limited to the following:

a. BLIPS was falsely and misleadingly described as an investment

program, when in truth and in fact, BLIPS was designed, marketed, and

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implemented to

generate phon)' tax losses in order to eliminate income taxes for

wealthy clients aniigarner substantial fees and income for KPMG, the

LarsonJPfaffEntities, the Law Finn, the defendants JEFFREY STEIN, JOHN
LANNING, RICHARD SMITH, JEFFREY EISCHEID, PHILIP WIESNER,

JOHN LARSON, ROBERT PFAFF, RAYMOND J. RUBLE, also known as "R.I.
Ruble," and MARK WATSON, certain co-conspirators, and others. " ,I
~

b. BLIPS was falsely described as a three-stage, seven-year investment
program, when in truth and in fact, all partcipants were expected to withdraw at

the earliest opportnity and within the same tax year in order to obtain their tax
losses. Indeed, the defendants RICHARD SMITH, JEFFREY EISCHEID,
PHILIP WIESNER, JOHN LARSON, ROBERT PFAFF, RAYMOND J.

RUBLE, also known as "R.J. Ruble," and MARK WATSON, caused the opinion
letters to contain a false representation (which BLIPS clients adopted) that the
duration of

the client's participation in the three-phase, seven-year investment

program was dependent upon the performance of

the program relative to

alternative investments, when in trth and in fact, the duration ofthe client's
participation was dependant on the client's desire to obtain the phony tax losses to
be generated.

c. BLIPS was falsely described as a "leveraged" investment program,
when in trth and in fact, the purported loan transactions that were part of

BLIPS

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(and were the aspect of

BLIPS that purported to generate the tax loss) were shams

- no money ever left the bank and none of the banks assigned any capital cost to
these purported BLIPS loans. Indeed, at least one of

the banks did not fund the

loans at all - it neither set aside from its own funds nor obtained from the market
any money to cover these purported "loans" and "loan premiums." In addition,

the sham loans were not in any way used in the purported "investmerit program
,

involving trades relating to pegged currencies but, instead, were used only to

generate a phony tax loss. The only money used in making and securing the
trades involving pegged currencies as part of

BLIPS was money contrbuted by

the client as part of the 7% all-in cost.
d. The BLIPS opinion letters falsely stated that the client (based on the

client's purported "independent review") as well as the Larson/Pfaff Entities

"believed there was a reasonable opportnity to earn a reasonable pre-tax profit from the (BLIPSJ transactions," when in trth and in fact, there was no
"reasonable likelihood of earning a reasonable pre-tax profit" from BLIPS, and
instead the "investment" component of BLIPS was negligible, unrelated to the

large sham "loans" that were the key elements of the purported tax benefits of
BLIPS, and was simply window dressing for the BLIPS tax shelter fraud. Indeed,

the defendant MARK WATSON, calculated that because none of the purported
"loan" proceeds were used in any investments, the small "investment" component

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funded with a portion of

the 7% all-in cost would have to generate a 240% annual

return in order to oover a portion of the large fees paid to the bank, and would

require an even higher return to cover fees paid to KPMG and other conspirators

and participants, just to break even. WATSON performed this calculation and
distrbuted it to others involved in designing, reviewing, and approving

BLIPS
~

prior to the implementation of any BLIPS transaction and prior to the)ssuance of
any KPMG BLIPS opinion letters.
e. The opinion letters and other documents were misleadingly drafted

to create the false impression that KPMG, the Larson/PfaffEntities, the Law Finn,
and the banks were all independent service providers and advisors, rather than copromoters and .designers of

the BLIPS shelter. Thus, for example, the KPMG

BLIPS opinion letter misleadingly claims that the client "requested our opinion

regarding the U.S. federal income tax consequences of certain investment

transactions that have been concluded" but the opinion letters, which falsely
described a purported seven-year investment program and a withdrawal from that

program based on the purported investment performance of the program, were
drafted prior to the commencement of any BLIPS transaction.
f. Similarly, the KPMG engagement letter used for BLIPS contained

the following false and fraudulent statements, among others, (i) that the client had

engaged KPMG "to provide tax consulting services. . . with respect to

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participation in an investment program involving investments in foreign currency

positions," when in trth and in fact KPMG marketed a tax shelter to the clients,
and the clients engaged KPMG to assist the clients in generating phony .tax losses

using the tax shelter; (ii) that KPMG "understands that Client intends to engage"
the Larson/Pfaff

Entities "to provide Client with investment advisory services and

trading strategies," when in trth and in fact, the Larson/Pfaff Entiti~ were
engaged to assist the clients in generating phony tax losses using a tax shelter; (iii)

that the Larson/Pfaff Entities "had advised the Client that the utilization of a high
degree of leverage is integral to the Investment Program," when in truth and in
fact, the purported "le:verage" was a sham loan designed only to support the
creating of

phony tax losses; and (iv) that KPMG's fees would not be dependent

on "the amount of any tax savings projected," when in trth and in fact the
amount ofKPMG's fee, as well as the size of

the nominal investment made as part

of the fraudulent tax shelter, and fees for the LarsonJfaff Entities and other
participants in the transaction were all determined by the amount of phony tax

losses desired by the client to offset income or gain received from other sources.
29. At various points during the development of BLIPS, the defendants

RICHARD SMITH, PHILIP WIESNER, and MAR WATSON, their co-conspirators,
and others, identified various significant defects of BLIPS, including that the description
of

BLIPS and the factual representations contained in the BLIPS opinion letter and in

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other documents were false, but nevertheless. SMITH, WIESNER, and WATSON, and
their co-conspirators, app1ved the marketing of BLIPS and the issuancé òf BLIPS

opinion letters. When Washington National Tax approved the BLIPS documentation in
August 1999, one of

the KPMG tax shelter salesmen who helped devise BLIPS (a co-

conspirator not named as a defendant herein) wrote to the defendant RAYMOND J.
RUBLE, also known as "RJ. Ruble": "We have received our 'get out ofjail.,free card' ,l ,

from (Washington National Tax)."
30. In or about Februar 24,2000, the defendant PHILIP WIESNER

wrote to the defendants JEFFREY STEIN, JOHN LANNING, MARK WATSON, and
others that (a) of

the BLIPS transactions implemented in 1999, all clients terminated the

transaction at their earliest opportnity and prior to year-end i 999, and (b) questioned.
whether the factual representations in future BLIPS transactions would be credible, but
nevertheless recommended that BLIPS opinion letters for the 1999 transactions be issued
without revision.
31. In addition, in or about March 2000, and prior to the issuance of any

BLIPS opinion letters to clients, during a meeting attended by the defendants JEFFREY

STEIN, JOHN LANNING, RICHARD SMITH, JEFFREY EISCHEID, certain coconspirators, and others, a top KPMG technical expert involved in reviewing the KPMG

BLIPS opinion told the other paricipants in substance and in part that if the IRS litigates
BLIPS in court, the BLIPS participants would "lose." In addition, another member of

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KPMG's tax leadership informed the participants at the meeting, in substance and in part,

that the tax position taken-in BLIPS was "close to frivolous." During that meeting, the
participants also discussed the risks of proceeding with tax shelter transactions like

BLIPS, including the risk of criminal investigation, civil penalties, civil1iability for
fraud, action by the IRS's Director of

Professional Practice, and action by state Boards of

Accountancy. Nevertheless, and despite the obviously fraudulent nature of

BLIPS and
t. ,

the warnings conveyed, the defendants JEFFREY STEIN and JOHN LANNG, and
others, decided to proceed (i) with the issuance of "more likely than not" opinion letters
on all of

the 1999 transactions, and (ii) continued to implement more BLIPS tax shelter

transactions in 2000.

The Fraudulent SOS Shelter

32. SOS and its variants were designed to generate substantial capital
and ordinary tax losses through a series of pre-arranged transactions that involved the

clients entering into virtally offsetting foreign currency option positions with a bank,
including but not limited to Bank A, transferrng the offsetting positions to a parership

or other entity, and then withdrawing from the transaction, claiming a loss in the desired
amount. KPMG's Washington National Tax office and the defendant RICHARD

SMITH considered whether KPMG should issue "more likely than not" opinions

regarding SOS-tye transactions, and they concluded that the phony losses generated by
those transactions were not more likely than not to withstand IRS challenge. Moreover,

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the defendant RICHARD SMITH reviewed a draft "more likely than not" SOS opinion

letter prepared by the defendant RAYMOND J. RUBLE, also known as "R.I. Ruble,"
and determined that it was not more likely than not to withstand IRS challenge.

Nevertheless, between 1998 and 2002, the defendants RICHARD SMITH and JEFFREY
EISCHEID, and their co-conspirators, assisted in implementing SOS-tye transactions
for KPMG clients for a fee to KPMG generally equal to 1 % of

the tax losses/o be

generated, and prepared and caused to be prepared tax returns based on the phony SOS
tax losses. For many of

these SOS-tye transactions, KPMG did not issue an opinion

letter, but instead certain lawyers, including RUBLE, issued "more likely than not"

opinion letters with respect to those transactions. The 80S opinion letters, and other
associated documents, were false and fraudulent in a number of ways well known to the

defendants SMITH, EISCHEID, RUBLE, and their co-conspirators, including the
following:
a. They misrepresented SOS as an investment, when in trth and in

fact, it was a tax shelter designed to generate tax losses in order to eliminate

income taxes for wealthy clients and garner substantial fees and income for

KPMG, the Law Firm, certain co-conspirators, and others.
b. They falsely claimed that the client would have entered into the
option positions independent of

the other steps that made up SOS, when in trth

and in fact, the clients would not have entered into those positions absent the

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anticipated tax loss to be generated.
c. They-falsely claim that the option positions were contrbuted to a

partership or other entity to "diversify" the client's "investment\l when in trth
and in fact, the contrbution was simply a necessary step in the tax shelter, was
executed for the purpose of generating the tax loss, and was not executed to
"diversify" any "investment."
-,/0

d. They falsely claim that the client entered into the offsetting option

positions for "substantial non-tax business reasons," and contrbuted the option

positions to the partership or other entity for "substantial non-tax business
reasons," when in trth and in fact, the transactions were undertaken in order to
generate the phony tax losses SOS purported to generate and not for any

"substantial non-tax business reason."
33. In addition, from at least in or about 1999 through at least in or

about 2002, a KPMG partner, who is a co-conspirator not named as a defendant herein
("CC 2"), with the approval of

members ofKPMG's tax leadership, marketed and

implemented dozens of SOS-type transactions to KPMG clients, often charging fees well
in excess of 1 % of

the phony tax loss to be generated. CC 2 also arranged SOS-tye

transactions for at least 14 KPMG parters so that those parters could evade their own

taxes. In connection with the SOS-type transactions arranged by CC 2, CC 2 issued
KPMG opinion letters or caused others to issue opinion letters that falsely claimed that

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the tax losses purportedly generated by SOS were more likely than not to withstand IRS
challenge. These Opiniom; were false and fraudulent in a number of

ways well known to

CC 2 and the conspirators, including but not limited to tne following:
a. They misrepresented SOS as an investment, when in trth and in

fact, it was a tax shelter designed to generate tax losses in order to eliminate
income taxes for wealthy clients and gamer substantial fees for KPM.tJ, certain co,.

conspirators, and others.

b. They falsely claimed that the client would have entered into the
option positions independent of

the other steps that made up SOS, when in truth

and in fact, the clients.would not have entered into those positions absent the

anticipated tax loss to he generated
c. They falsely claim that the option positions were contrbuted to a

partnership or other entity to "diversify" the client's "investment" when in trth
and in fact, the contribution was simply a necessary step in the tax shelter, was

executed for the purpose of generating the tax loss, and was not executed to

"diversify" any "investment."
d. They falsely claim that the client entered into the offsetting option

positions for "substantial non-tax business reasons," and contrbuted the option
positions to the partnership or other entity for "substantial non-tax business

reasons," when in trth and in fact, the transactions were undertaken in order to

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generate the phony tax losses SOS purported to generate and not for any

"substantial non-tæc business reason."

Fraudulent Concealment of Tax Shelters
34. In addition to preparing and causing to be prepared false and

fraudulent documentation relating to and implementing the shelter transactions, and in addition to preparing and causing to be prepared tax returns that frauduleritl~ "
L

incorporated the phony tax shelter losses, the defendants JEFFREY STEIN, JOHN

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

LARSON, ROBERT PFAFF, RAYMOND J. RUBLE, also known as "R.J. Ruble," and
MARK WATSON and their co-conspirators employed various means fraudulently to

conceal from the IRS the fraudulent tax shelters they designed; marketed and

implemented, including but not limited to the following: (i) not registering the tax
shelters with the IRS as required by law; (ii) preparing and causing to be prepared tax

returns that fraudulently concealed the phony losses from the IRS; (iii) attempting to
conceal from the IRS the tax shelter losses and transactions with sham attorney-client

privilege claims; and (iv) obstrcting IRS and Senate investigations into their tax shelter
activities.

Failing to Register Tax Shelters
35. Under the law in effect at all times relevant to this Indictment, an

organizer of a tax shelter was required to "register" the shelter by fiing a form with the

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IRS describing the tTansaction. The IRS in turn would issue a number to the shelter, and
all individuals or entities -elaiming a benefit from the shelter were required to include

with their income tax returns a form disclosing that they had participated in a registered

tax shelter, and disclosing the assigned registration number. Notwithstanding these legal
requirements, the defendants JEFFREY STEIN, JOHN LANNING, JEFFREY

EISCHEID, JOHN LARSON, ROBERT PFAFF, and RAYMOND J. RUBI:E, also ;"

known as "R.J. Ruble," and their co-conspirators caused the entities with which they
were associated not to register as required any of the tax shelters they devised, marketed

and implemented, and thereby ensured that registration numbers would not be included
on returns relating to unregistered shelters.
36. The defendants JOHN LAN.NING and JEFFREY STEIN and their

co-conspirators decided not to register FLIP, OPiS, or BLIPS based on a "business
decision" that to register the shelters would hamper KPMG's ability to sell them, and that the IRS penalties applicable to a failure to register would be dwarfed by the lucrative fees

KPMG stood to collect from sellng unregistered tax shelters. Indeed, CC 1, the head of
the CaTS practice, wrote a memorandum to the defendant JEFFREY STEIN arguing
that, assuming OPIS was required to be registered, KPMG should make a "business

decision" not to register OPiS because (i) registering the shelters would put KPMG at a
competitive disadvantage as compared to other accounting firms, law firms, and other

firms that were promoting tax shelters; and (ii) sellng unregistered shelters would be so

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lucrative that the benefits outweighed the risk of civil penalties that might be imposed.

Moreover, KPMG's office of general counsel, among others, advised that by deciding

not to register tax shelters, KPMG risked criminal prosecution, but like the CarS group,
advised that KPMG's tax leadership could nevertheless "make a business decision to not
register the activity as a tax shelter."

Fraudulently Concealing Shelter Losses and Income on Tax Returns ..~~ ;
37. The conspirators would and did prepare and cause to be prepared tax

returns that were false and misleading and were intended fraudulently to conceal the
fraudulent tax shelters from the IRS in a number of

ways, including but not limited to the

following:
a. Although the law requires that an individual's items of income, gain,

and loss be reported on an individual income tax return, the defendants JEFFREY

EISCHEID and JOHN LARSON and their co-conspirators advised certain clients
that the phony tax shelter losses and the income or gains that were to be sheltered

should not be reported on the client's individual income tax return, and instead
only the net of

those two figures should be reported on the return. One method of

"netting" pursued by the conspirators in order frudulently to hide the tax shelter
transactions from the IRS involved using a "grantor trst." A grantor trst is a

trst that, because of certain features enumerated in the tax code, is disregarded as

an entity for federal income tax purposes. CC 1 and his co-conspirators devised a

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scheme to insert a grantor trst into a tax shelter transaction, and then, rather than
disregarding the gæntor trust as required by the tax code, reporting the large
phony tax shelter loss and the taxable gain or income those losses were used to
offset only on the grantor trst information return, while reporting only the small

net of

those numbers on the client's individual income tax return. Although the
members of

defendant MARK WATSON notified other

the Innovatite Strategies
~

group, including the defendant JEFFREY EISCHEID, that to pursue this "grantor
trust netting" scheme was not a proper reporting position, and in fact would result

in the fiing of false income tax returns, EISCHEID instrcted KPMG partners
that each could decide for himself or herself whether to engage in grantor trst

netting. As a result, dozens of

tax returns for FLIP, OPiS, and BLIPS clients used

grantor trusts fraudulently to hide the tax shelter losses (and the gains they were
designed to shelter) on the clients' individual income tax returns.
b. In order to conceal tax shelter losses from the IRS, a co-conspirator

not named as a defendant herein ("CC 3"), and others, advised at least one client
that phony tax shelter losses could be concealed and made to look like losses from

the sale of a number of publicly traded stocks. In order to so conceal the losses,
the Larson/Pfaff Entities purchased publicly traded stock on behalf of the shelter
client, and then distributed those stocks to the client upon the client's withdrawal

from the transaction. CC 3 and others then advised that the shelter could be

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concealed on the client's tax return and instead reported as losses resulting from

the sale of the stoc.l so distiibuted. In order to further conceal the phony tax
shelter losses from the IRS, in some instances CC 3 and others purchased stocks
that had already suffered large losses during the year as the stocks to which the

shelter losses would be attached, in order to mislead the IRS into believing that

the losses resulted from those stocks' poor performance, rather than from the ,/. Î
fraudulent tax shelters.

Concealing Shelters with Sham Attorney-Client Privilege Claims
38. The conspirators also attempted to conceal their fraudulent tax

shelter activities by attempting to cloak communications regarding those activities and
certain .of the activities themselves with the attorney-client privilege, although the

communications in question were not privileged. For example, CC 2 attempted to
conceal his activities in this manner by purporting to have KPMG clients engage a law

firm to provide legal advice, which law firm would then purport to engage KPMG to

work under the direction of the law firm. Under United States v. Kovel, communications
by non-lawyer professionals such as accountants are protected under the attorney-client

privilege when the accountant is in fact working under the direction of an attorney.
Numerous Kovel arrangements established by CC 2 were sham arrangements because the

clients did not directly engage the law firm, in many instances never even spoke to the
lawyers whom they had purportedly engaged, and CC 2's work was done outside of

the

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purported lawyer-client privilege. The purpose of

this fraudulent conduct was to enable

the client, with the assistæice of CC 2 and the law firm, to conceal the fraudulent tax
shelter from the IRS by attempting to cloak all of

the work for the shelter Ín the attorney-

client privilege.
Obstrction of IRS and Senate Investigations
39. Despite the conspirators' efforts to prevent IRS scrutint.0fthese

,

fraudulent tax shelters, in October 2001 the IRS initiated an examination of

KPMG for

its failure to register the transactions with the IRS. As part of this examination, in early

2002 the IRS issued 25 summonses to KPMG callng for information relating to
numerous tax shelters with which KPMG may have been involved. In addition, the IRS
summonses required KPMG to designate a laowledgeable person to testify under oath at

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

parter in charge ofKPMG's Personal Financial Planning group, to testify. EISCHEID's
testimony was false, misleading, and evasive. Indeed, after one day of

testimony, another

KPMG parter who attended the testimony reported in an email to a KPMG tax leader
that KPMG's Office of

General Counsel and outside counsel "determined that the best

strategy was 'the less said the better, '" and that 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-dopeÆnron defense."
40. IRS summonses called for production of documents relating to SOS

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tax shelters, among other things. The defendant RICHAR SMITH was among the
KPMG personnel directing KPMG's response to the IRS summonses and SMITH was
aware ofK.MG's involvement in promoting SOS transactions. Nevertheless, none of

the

50S tax shelters marketed or implemented by KPMG, or in which KPMG personnel
participated, were disclosed to the IRS and on a number of occasions, SMITH and others

caused KPMG falsely to claim to the IRS that the production of documents and i
information relating to the summonses was substantially complete.
41. In addition, when the IRS in May 2003 specifically inquired about

KPMG's failure to produce SOS information, the defendant JEFFREY EISCHEID intentionally caused KPMG's representatives to falsely respond that KPMG was not
involved in SOS, but may have prepared a couple of

tax returns containing SOS losses.

42. In January 2003, a Subcommittee of

the 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 taxes. The subpoena specifically named CC 2 as well
as at least two KPMG parters who, in fact, had used SOS transactions to evade their
own taxes. The defendant RICHARD SMITH was among the KPMG personnel
directing KPMG's response to the Senate investigation. In addition, SMITH was aware
of at least one KPMG parter who used an SOS-tye shelter to offset the parter's own
income or gain, and was aware of

related documents responsive to the Senate subpoena.

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However, the defendant SMITH and his co-conspirators caused KPMG's representatives

falsely to respond to the stibpoena as follows: "to the best of its knowledge and belief,
after reasonable inquiry to date, the firm has not yet identified any documents ~at are

responsive to this request."
43. In or about November 2003, the defendants RICHARD SMITH,

JEFFREY EISCHIED, PHILIP WIESNER, JOHN LARSON, certain CO-coD$pirators,
~.

and others testified before the Senate Subcommittee investigating tax shelter activities of

KPMG and others. The defendants SMITH, EISCHEID, and WIESNER testified
together in panel format. During this testimony, among other things, EISCHEID falsely
denied that KPMG's fee was_a percentage of

the tax loss to be generated by the shelters.

In addition, when asked by a Senator whether FLIP, OPiS and BLIPS were "designed
and marketed primarily as tax reduction strategies," EISCHEID falsely stated "Senator, I

would not agree with that characterization." 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
the purorted loan, and falsely

transaction regardless of

the purported 7-year strcture of

denying that FLIP was designed primarily for tax deductions.

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Statutory AIJeeations

44. From at least in or about 1996 through at least in or about 2003,
JEFFREY STEIN, JOHN LANNING, RICHARD SMITH, JEFFREY EISCHEID,

PHILIP WIESNER, JOHN LARSON, ROBERT PFAFF, RAYMOND J. RUBLE, also

known as "R.J. Ruble," and MARK WATSON, the defendants, and their co-

conspirators, unlawfully, wilfully and knowingly, did combine, conspirei confederate /
and agree together and with each other to defraud the United States and an agency
thereof, to wit, the Internal Revenue Service ("IRS") of the United States Departent 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
45. It was a part and an object of

the conspiracy that JEFFREY STEIN,

JOHN LANNING, RICHAR SMITH, JEFFREY EISCHEID, PHILIP WIESNER,
JOHN LARSON, ROBERT PFAFF, RAYMOND J. RUBLE, also known as "R.I.
Ruble," and MARK WATSON, the defendants, and their co-conspirators, unlawfully,

wilfully and knowingly would and did defraud the United States of America and the IRS
by impeding, impairng, defeating and obstrcting the lawful governmental functions of

the IRS in the ascertainment, evaluation, assessment, and collection of income taxes.
46. It was further a part and an object of

the conspiracy that JEFFREY

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

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WIESNER, JOHN LARSON, ROBERT PFAFF, RAYMOND J. RUBLE, also known as

"RJ. Ruble," and MARK-WATSON, the defendants, and their co-conspirators,

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.
the conspiracy that

47. It was further a part and an object of

JEFFREY
~.

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

WIESNER, JOHN LARSON, ROBERT PFAFF, RAYMOND J. RUBLE, also known as "R.J. Ruble," and MARK WATSON, the defendants, and their co-conspirators,
unlawfully, wilfully and knowingly would and did make and subscribe and cause others

to make and subscribe United States individual, corporation, and partership income tax
returns, which returns contained and were verified by written declarations that they were

made under the penalties of peIjury, and that the defendants and their co-conspirators did
not believe to be true and correct as to every material matter, in violation of Title 26,
United States Code, Section 7206(1).

48. It was further a part and an object of the conspiracy that JEFFREY

STEIN, JOHN LANNING, RICHARD SMITH, JEFFREY EISCHEID, PHILIP
WIESNER, JOHN LARSON, ROBERT PFAFF, RAYMOND 1. RUBLE, also known as

"RJ. Ruble," and MARK WATSON, the defendants, and their co-conspirators,
unlawfully, wilfully and knowingly would and did aid and assist in, and procure, counsel,

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and advise the preparation and presentation under, the internal revenue laws, of certain
United States individual, -corporation, and partnership income tax returns which were
fraudulent and false as to material matters, in violation of

Title 26, United Stat~s Code,

Section 7206(2).

Means and Methods of the Conspiracy

49. Among the means and methods by which JEFFREY St;EIN, JOHN

. ;

LANNING, RICHARD SMITH, JEFFREY EISCHEID, PHILIP WIESNER, JOHN
LARSON, ROBERT PFAFF, RAYMOND 1. RUBLE, also known as "R.J. Ruble," and

MARK WATSON, the defendants, and their co-conspirators would and did carr out the
conspiracy were the following:

a. . They would and did concoct tax shelter transactions and false and
fraudulent factual scenarios to support them so that wealthy United States citizens

would pay certain of the conspirators and other participants in the transactions
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

deceive the IRS, including but not limited to, engagement letters, transactional
documents, representation letters, 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

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those shelter transactions.

d. The)"would and did prepare and provide to their clients false and
fraudulent representations that the clients were required to make in order to obtain

opinion letters that purported to justify using the phony tax shelter losses to offset

income or gain. At times, the conspirators presented to their clients these false
and fraudulent client representations after the all-in costs of approxii~ately 5 to
~
7% of

the desired tax loss were collected from the tax shelter clients.

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

phony tax losses and therefore substantially understated the tax due and owing by
the shelter clients.

f. They would and did (i) fraudulently omit on certain tax returns the
losses and the gain or income they sheltered; and (ii) disguise the shelter losses on

certain tax returns in a manner intended to deceive the IRS.
g. They would and did take various steps to prevent the creation and

retention of documents that might reveal to the IRS the true facts regarding the
fraudulent tax shelters as well as certain conspirators' role in designing,

marketing, and implementing them, including but not limited to concealing from the IRS that the opinion letters provided by KPMG, the Law Firm, and other firms
were not independent and were instead prepared by entities involved in the design,

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marketing, and implementation of the tax shelters.

h. They-ould and did take various additional steps to conceal from
the IRS the existence of

the shelters, their tre facts, and certain conspir~tors' role

in designing, marketing, and implementing the shelters, including, but not limited to, failing to register the shelters, using sham attorney-client privilege claims, and

concealing documents and providing false and misleading informatiöl in response
to IRS and Senate investigations.
Overt Acts

50. In furtherance of

the conspiracy and to effect the ilegal objects

thereof, JEFFREY STEIN, JOHN LANNING, RICHARD SMITH, JEFFREY
EISCHEID, PHILIP WIESNER, JOHN LARSON, ROBERT PFAFF, RAYMOND J.

RUBLE, also known as"RJ. Ruble," and MARK WATSON, the defendants, and their
co-conspirators, 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 preparer to create a
grantor 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.
b. On or about July 18, i 997, the defendant ROBERT PFAFF prepared

a memorandum to the defendants JOHN LANNING and JEFFREY STEIN

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discussing how KPMG and the Larson/Pfaff Entities should jointly devise,
market, and implement tax shelter transactions and how their fees should be
divided.
c. On or about August 16, 1997, the defendant JOHN LANNING sent

an email to the defendants JEFFREY STEIN, JEFFREY EISCHEID, JOHN

LARSON, ROBERT PFAFF, CC 1, and others regarding a meeting focusing on t
successfully completing LARSON and PFAFF engagements, continuing to grow

and expand the "Tax Advantaged Transactions" practice that LARSON and
PF AFF had been overseeing, and endeavoring to forge an ongoing and successful

relationship with the "Pfaff/Larson firm."
d. In or about September 1997, CC 1 on behalf of KPM G and the

defendant JOHN LARSON on behalf of the Larson/Pfaff Entities signed an
"operating agreement" regarding joint marketing and implementation of

FLIP

transactions.
e. On or about December 15, 1997, the defendant RAYMOND 1.

RUBLE, also known as "R.J. Ruble," told certain co-conspirators that his
managing parter had approved his working with KPMG on a joint basis 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

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substance and in part, that revenue credit for OPiS transactions be divided among
KPMG practice groups in a particular mann.eI' based on the similarities between
FLIP and OPIS.

g. On or about May 26, 1998, CC 1 advised the defendant JEFFREY

STEIN and others that KPMG should not register OPIS because to do so would
put KPMG at a severe competitive disadvantage in marketing tax shtilters. ,
h. On or about June 8, 1998, CC 1 advised the KPMG team marketing

OPIS not to leave the OPIS PowerPoint presentation "with clients or targets under

any circumstances" because doing so "wil DESTROY any chance the client may

have to avoid the step-transaction doctrne."
1. On or about September 10, 1998, the defendant JEFFREY

EISCHEID sent an email to defendant JOHN LANNING and others proposing an
"alliance" with a competitor of the Larson/Pfaff Entities to implement OPIS

transactions and noting that "we have very little time to work with if we are going
to execute trades such that our clients can generate the desired benefits in calendar
1998."
J. On or about December 3, 1998, the defendant RAYMOND J.

RUBLE, also known as "R.J. Ruble," prepared a memorandum to certain co-

conspirators proposing strcturing BLIPS with a fixed-rate loan for purposes of
avoiding a rule that would block the generation of

BLIPS phony tax losses.

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k. On or about December 15, 1998, the defendant RAYMOND J.

RUBLE, also known as "RJ. Ruble," sent an email to his management stating that
he had worked closely with KPMG in developing tax products and had agreed to

issue "concurrng" "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.
,

z "

1. On or about January 22, 1999, the defendant JEFFREY EISCHEID

instrcted KPMG parters that each parter should decide for himself or herself
whether to attempt to conceal losses from the IRS using a grantor trst.

m. On or about April 30,1999 and May 1, 1999, the defendants
JEFFREY EISCHEID, MARK WATSON, JOHN LARSON, CC 3, and certain
co-conspirators met in Dallas, Texas for a BLIPS task force meeting.
n. On or about May 9, 1999, the defendant MARK WATSON

proposed false representations to be included in the BLIPS opinion letter.

o. On or about May 10,1999, the defendant MARK WATSON
proposed 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 August 4,1999, the defendant PHILIP WIESNER

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announced that BLIPS was approved for marketing by KPMG personneL.
r. On Of about August "s 1999, a co-conspirator not named as a

defendant herein sent an emai1 to the defendant RAYMOND J. RUBLE, also
known as "RJ. Ruble," in the Southern District of

New York stating that he and

the attorney had received a "get out of jail free card" as a result of obtaining
permission from Washington National Tax to proceed with BLIPS. ':~
,
s. In or about September or October 1999, Domenick DeGiorgio, a

co-conspirator not named as a defendant herein, met at the offices of Bank B in
the Souther Distrct of

New York with the defendant ROBERT PFAFF, and on

another occasion, with JOHN LARSON and others, including a co-conspirator not

named as a defendant herein ("CC 4").
t. In or about 1999, in the Southern Distrct of

New York and

elsewhere, Banks A, B and C, prepared and caused to be prepared transactional
documents relating to BLIPS tax shelter transactions.
u. On or about September 27, 1999, CC 4 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 manner it

was strctured.
v. In or about October 1999, CC 4 requested a treasury official of

Bank

B in the Southern Distrct orNew York to execute a swap transaction involving a

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BLIPS "loan" by employing two separate trade tickets rather than a single s\vap
transaction ticket. ~
w. 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,
New York offices of

Bank B to aid in processing various BLIPS transactions in

order to allow the transactions to be initiated and termnated by the end of the .~ ,
calendar year.

X. On or about November 30, 1999, CC 3 advised a BLIPS client to
divide the phony tax shelter losses among 10 stocks that have been losers.

y. 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
the IRS

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

were to discover such a document it could look very bad for the client."
z. On or about March 7,2000, the defendants JEFFREY STEIN,

JOHN LANNING, JEFFREY EISCHEID, and RICHARD SMITH, 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.
aa. On or about March 21, 2000, a co-conspirator not named as a

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defendant herein advised others involved in marketing BLIPS that they should

"NOT put a copy M' an email in their BLIPS file because "it is a roadmap for the
taxing authorities to all the other listed transactions."
bb. In or about March and April 2000, in the Southern District of

New

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

BLIPS opinion letters.;"
F

cc. In or about 1998,1999, and 2000, in the Southern District of

New

York and elsewhere, certain conspirators, including KPMG personnel and clients,

and others involved in FLIP and OPIS tax shelter transactions prepared, signed

and filed tax returns that falsely and fraudulently claimed over $4.2 billon in
phony tax losses generated by FLIP and OPIS transactions.
dd. In or about 2000 and 2001, in the Southern Distrct of

New York

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

others involved in BLIPS tax shelter transactions prepared, signed and fied tax
returns that falsely and fraudulently claimed over $5.1 bilion in phony tax losses
generated by BLIPS transactions.
ee. In or about 1999, 2000, and 2001, in the Southern District of New

York and elsewhere, certain conspirators, including KPMG personnel and clients,

and others involved in 80S tax shelter transactions prepared, signed and filed tax
returns that falsely and fraudulently claimed over $1.9 bilion in phony tax losses

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generated by SOS.
ff. In or""bout March 2001, defendant JEFFREY EISCHEID and a co-

conspirator not named as a defendant herein ("CC 5") attempted to procure an
additiona11aw firm to author a favorable opinion letter for a BLIPS client who had
previously demanded that KPMG return all of

his fees to him.

gg.

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

EISCHEID provided false and misleading testimony under oath to the IRS.
hh. On or about October 2,2002, the defendant RICHARD SMITH sent
a letter to the IRS in the Southern Distrct of

New York falsely claiming that

"KPMG has at this time virta