Criminal Justice

2 Lawyers Charged in $400M Tax Shelter Prosecution of Former Quellos CEO

A federal indictment unsealed today that charges the former chief executive of a major Seattle-based investment fund with conspiracy, fraud and tax evasion also names two attorneys as defendants. All are accused concerning an alleged scheme to defraud the Internal Revenue Service out of $400 million in capital gains tax through the misuse of offshore tax shelters.

In addition to former Quellos Group head Jeffrey Greenstein, 47, the attorney defendants are in-house lawyer Charles Wilk, 51, who oversaw a tax-shelter business for a Quellos unit, and Matthew Krane, a Los Angeles tax lawyer who represented a celebrity client of Quellos, according to the New York Times, the Seattle Post-Intelligencer and the Seattle Times. Greenstein and Wilk live in the Seattle area.

A lawyer for Greenstein says his client relied on professional tax advisors and expects to be exonerated. Attorneys representing Wilk could not be reached by the New York Times for comment. Krane’s lawyer, Robert Bernhoft, told the New York Times: “We look forward to the truth coming out.”

Although it makes no accusations of misconduct in this regard, the indictment also says that two major law firms were duped into signing opinion letters that OK’d inappropriate tax shelters, reports the Am Law Daily.

The two law firms and a former attorney at one of the partnerships who testified before Congress concerning the Quellos tax shelters either did not immediately respond or declined to comment, the Am Law Daily reports. In the past, however, the firms have said they had no knowledge of Greenstein’s alleged wrongdoing.

The law blog notes that one firm earned about $125,000 for four opinion letters, and another was paid about $1.3 million for writing two, according to a 2006 congressional report (PDF).

Additional coverage:

Wall Street Journal Law Blog: “Queasy Over Quellos: Were Cravath and Bryan Cave Lied To?”

Am Law Daily: “Dechert Defends Former Hedge Fund Heavy”

Updated June 5 to include comment from Krane’s lawyer and link to subsequent Wall Street Journal Law Blog post.

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