Ten more charged in KPMG tax shelter case

Ten more people have been charged with criminal offences in the KPMG tax shelter case, US
prosecutors announced on Monday.

Prosecutors also revealed that the range of alleged offences had been expanded from conspiracy to
defraud the Internal Revenue Service to tax evasion.

KPMG's US business admitted in August that it helped wealthy individuals to evade tax on billions of
dollars of income and capital gains by selling them "fraudulent" tax avoidance schemes between 1996
and 2002.

Seven former KPMG partners, and a former manager at the big accounting firm, were charged in August
with conspiracy to defraud the IRS. A former partner at a law firm that allegedly assisted KPMG with
the tax shelters was also charged.

Prosecutors on Monday released a revised indictment that charged 19 people with offences.

Nine additional former KPMG partners were named in the indictment, together with an executive at a
financial services firm that allegedly assisted with the tax shelters.

Michael Garcia, US attorney for the southern district of New York, whose office has led the
investigation into KPMG's tax shelters, described the case as a "massive fraud".

"This was an orchestrated case of deliberate tax evasion, and not legitimate tax planning," he said.

All 16 former KPMG partners named in the indictment who include Jeffrey Stein, former deputy head of
its US business were charged with conspiracy to defraud the IRS and tax evasion.

Three of the 16 were also charged with obstructing the IRS investigation into the tax shelters.

The additional former KPMG partners in the revised indictment include its former chief financial
officer and former associate general counsel.

KPMG's US business agreed in August to pay $456m in penalties as part of a deferred prosecution
agreement with the Department of Justice.

The agreement should ensure KPMG's survival. So long as its US business does not breach the terms,
KPMG will not be put on trial.

KPMG's US business said on Monday night that the revised indictment did not involve any of its
current personnel, and that it would be inappropriate to comment on individuals under investigation
by the justice department.

"This matter is now behind us," it added, in reference to its settlement with the justice
department. "KPMG is focused on moving forward and providing the highest quality audit, tax and
advisory services to our clients."

Mr Garcia said his office's investigation was "continuing".

A report by the Senate permanent sub-committee on investigations, published in February, alleged
that Deutsche Bank, HVB, and UBS played important roles in KPMG's tax shelters.

Copyright 2005 Financial Times
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Prosecutors broaden KPMG case
By Jonathan D. Glater The New York Times

TUESDAY, OCTOBER 18, 2005

NEW YORK U.S. prosecutors have significantly widened the criminal case against executives involved
in the sale of questionable tax shelters by the accounting firm KPMG, filing dozens of criminal
charges against a total of 19 defendants.

The new indictment, which was presented in a U.S. District Court in Manhattan on Monday, augments
and replaces an indictment of nine people filed in August.

The revised indictment accuses 17 former KPMG executives, an outside lawyer and an investment
adviser of scheming to defraud the Internal Revenue Service by "devising, marketing, and
implementing" fraudulent tax shelters; by preparing and filing or causing the filing of "false and
fraudulent U.S. individual income tax returns containing the fraudulent tax shelter losses"; and by
fraudulently concealing those shelters from the tax authorities.

Prosecutors described the case as the largest criminal tax case ever filed.

The shelters sold by KPMG have been under investigation for about two years, by the tax authorities,
Congress and prosecutors. Prosecutors charged on Monday that four shelters, known as Blips, Flip,
Opis and SOS, had created $11 billion in phony losses and allowed wealthy individuals to avoid
paying some $2.5 billion in income taxes.

Prosecutors described the superseding indictment as following the same theory as the initial one.

"We're looking at the same case that we were looking at before," Justin Weddle, an assistant U.S.
attorney on the case, told the court. He added that he thought a trial would take about three
months; the judge previously scheduled a trial to begin next May.

But the new indictment adds details on slightly different aspects of the case. For example, some of
the unidentified co-conspirators in the first indictment appear to have been identified and charged
in the new one. The new indictment also names specific cases in which a new defendant made false
statements to the authorities, and it charges that some of the new defendants used the shelters
themselves to claim hundreds of thousands of dollars in tax losses.

Both versions of the indictment contend that several of the defendants prepared opinion letters
advising that the Flip and Opis shelter transactions were "more likely than not" to withstand a
challenge from the tax authorities.

"As they well knew, 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 opinion letters
and other documents used to implement Flip and Opis were false and fraudulent in a number of ways,"
the indictment stated.

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