3 convicted in KPMG tax fraud

In a big case largely gone bust, a jury has convicted three men who used tax shelters marketed by accounting giant KPMG to help rich people escape more than $1 billion in taxes, but it exonerated a fourth man who had been jailed for five months.

The only trial in what the government once touted as its biggest tax fraud case ever ended Wednesday with U.S. District Judge Lewis A. Kaplan in Manhattan telling David Greenberg that his exoneration proved he had suffered an unfortunate injustice.

Convicted of multiple counts of tax evasion but acquitted of conspiracy were a lawyer, Raymond Ruble, and two former KPMG executives, John Larson and Robert Pfaff. Their lawyers declined to comment afterward.

The case once involved 19 defendants, but charges against most of the group were dismissed after Kaplan ruled that the government had unfairly blocked the company from paying legal fees for employees.

Greenberg’s acquittal was especially striking because prosecutors had treated him harshly when the case was brought three years ago, telling Kaplan that the former $500,000-a-year KPMG partner was an “ongoing danger to the community” and a flight risk.

Greenberg was jailed for five months and required to wear electronic monitoring for 2 1/2 years afterward.

Kaplan ordered that Greenberg’s electronic bracelet be removed immediately after his acquittal.

Greenberg’s lawyer, Richard M. Strassberg, said his client had endured “three years of horrible injustice.”

He added: “It’s terrific that the jury saw that and exonerated him completely because he was innocent of these charges.”

Even Assistant U.S. Atty. John Hillebrecht conceded in closing arguments that Strassberg had reduced a key government witness against Greenberg to a bumbling cooperator who kept shifting his story.

Hillebrecht called the witness, Steve Acosta, “a catastrophe” who was “utterly incapable of giving a straight answer on cross examination.”

He said he “wanted to crawl under the table” as Acosta testified.

All four men on trial had been charged with conspiring to obstruct the Internal Revenue Service, evading taxes and filing false tax returns.

Assistant U.S. Atty. Margaret Garnett said the defendants created tax shelters that were actually shams meant to appear to be legitimate investments.

Lawyer Jack S. Hoffinger told jurors it was impossible to conclude the defendants purposefully tried to break the law. He said they did not try to hide what they were doing from the IRS or others.

Jurors in the two-month trial declined to comment as they left the courtroom Wednesday. The most serious charge of which the three men were found guilty carries a penalty of up to five years in prison.