Wednesday, April 1, 2009

NEW YORK (AP) - A lawyer and two former executives from the KPMG accounting firm were sentenced Wednesday in what the government once touted as the biggest tax fraud case ever.

U.S. District Judge Lewis Kaplan sentenced former KPMG executive John Larson to 121 months in prison; a fellow executive, Robert Pfaff, received 97 months.

The judge said Larson, 57, and Pfaff, 58, had leadership roles and were “centrally involved” in the scheme to help rich people evade more than a billion dollars in taxes.

Lawyer Raymond Ruble, 63, was sentenced to 78 months in prison.

The men were convicted in December of multiple counts of tax evasion. The government said they used tax shelters marketed by KPMG LLP to help wealthy clients make it appear they sustained large tax-deductible losses by getting loans for business ventures when they had not.

“There was a lot of concealment,” the judge said. “These defendants were intimately involved in seeing that the loan documents were carefully constructed to conceal the true nature of the loans.”

At one time, 19 defendants were charged in the case, which the government announced as a major strike against fraud and the biggest tax fraud case in U.S. history.

But charges against most defendants were dismissed after the judge concluded the government had unfairly blocked the company from paying legal fees for employees.

The government suffered another setback in December, when a defendant whom the prosecutors had portrayed particularly negatively early on, former $500,000-per-year KPMG partner David Greenberg, was acquitted. Greenberg had been kept in jail for five months after his arrest and was required to wear electronic monitoring for 2 1/2 years afterward.

Prosecutors had argued at trial that the defendants created tax shelters that were shams meant to appear to be legitimate investments.

Defense lawyers said their clients did not break the law and simply helped people avoid paying too much in taxes.

KPMG has signed a deal admitting its role in the tax shelter scheme. The firm avoided criminal prosecution by cooperating with authorities but was fined $456 million, including $128 million in forfeited fees from sales of the shelters.

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