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Conviction upheld for ex-KPMG exec John Larson in tax-shelter case

Ex-KPMG senior manager John Larson’s conviction for selling illegal tax shelters was upheld by a U.S. appeals court. But the court ordered a recalculation of his $6-million fine to below $3 million.

The three-judge panel in New York said the prosecution’s evidence supported the jury’s finding that the shelters were “marketed solely as tax-avoidance schemes.” The convictions of two co-defendants were also upheld. The court threw out Larson’s fine, saying U.S. District Judge Lewis Kaplan hadn’t followed controlling case law in making his calculation.

The U.S. initially accused 17 ex-KPMG executives, including former Deputy Chairman Jeffrey Stein, and two outsiders of selling shelters that cost the Treasury $2 billion. Kaplan in January 2007 dismissed charges against all but four defendants, saying prosecutors had violated their right to counsel by pressuring KPMG to withhold their legal fees. An appeals court later upheld his ruling.

David Greenberg, a former partner, was acquitted at trial. Larson, along with Robert Pfaff, a former KPMG partner, and Raymond Ruble, a former partner at law firm Brown & Wood, was convicted in December 2008 after a two-month trial in a case that began as “the largest criminal tax case in U.S. history.”

Charges against New York-based KPMG, one of the Big Four U.S. accounting firms, were dismissed in January 2007 after it paid a $456-million fine. Among those who pleaded guilty to tax charges in the case were David Amir Makov, ex-KPMG partner David Rivkin and former HVB Group accountant Domenick DeGiorgio.

The shelters allowed clients to falsely claim to have taken large loans to buy stock, prosecutors said. Clients seeking a certain amount of losses paid fees equal to 7% of that amount. Kaplan ruled that the scheme caused losses of more than $100 million.

The appeals court said Kaplan’s calculation of the harm or loss caused by Larson’s crimes had been made without a jury finding. Without jurors’ input, he was limited, under higher-court precedent, to a maximum of $250,000 per count, or $3 million.

Larson, who was convicted of 12 counts of federal tax evasion, was sentenced last year to 10 years in prison. Ruble was given a 6 1/2-year sentence. Pfaff was sentenced to an eight-year term.

“We’re obviously terribly disappointed by the ruling and are considering our options for further review,” said Steven Bauer, a lawyer for Larson.


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