By Martha Graybow
NEW YORK (Reuters) - Two former KPMG executives and an outside lawyer were found guilty by a federal jury on Wednesday of multiple counts of selling improper tax shelters that the government said helped wealthy clients evade tax payments.
A fourth defendant was acquitted.
Convicted were former KPMG tax partner Robert Pfaff and former senior tax manager John Larson, and Raymond Ruble, a former partner at law firm Sidley Austin. The federal court jury in New York acquitted former KPMG tax partner David Greenberg.
Larson, 57, and Pfaff, 58, were convicted on 12 counts of tax evasion, and Ruble, 63, on 10 counts of tax evasion related to clients who evaded taxes through a vehicle known as a BLIPS tax shelter.
Prosecutors said the three men represented BLIPS as a way to eliminate capital gains or regular income of clients who had at least $20 million in income in a given year.
They face a maximum sentence on each count of five years in prison.
KPMG
The case has been watched by legal experts as its outcome has been seen as having an impact on the U.S. government's continuing investigations into questionable tax shelters.
The defendants were charged with conspiring to evade taxes for more than 600 clients in a case that was touted as the largest criminal tax prosecution when it started in 2005 with 19 people charged with wrongdoing.
The government said the defendants helped clients evade more than $100 million in taxes.
But after charges were dismissed against most of the defendants, the case became much smaller.
The trial began in October. Prosecutors said that between 1996 and 2005, the defendants put together tax shelters known as FLIP, OPIS, BLIPS and SOS that were designed to generate phony tax losses. But defense lawyers argued that their clients acted with good faith in their dealings.
A lawyer for Greenberg said his client, who was in custody for five months and spent 2-1/2 years under house arrest, never should have been charged.
"We are pleased that the jury found Mr Greenberg innocent of all charges and we are pleased that he was finally exonerated, after a three-year battle in this case, of any wrongdoing," said attorney Richard Strassberg.
Attorneys for the other three defendants were not immediately available for comment.
Larson and Pfaff are set to appear for a bail hearing on January 8. A sentencing hearing is set for March 20.
(Reporting by Martha Graybow; Additional reporting by Grant McCool and Gina Keating; Editing by Gary Hill)
