The Seattle Times, December 11, 2009
Mathew Krane, a Hollywood tax lawyer, who is a potential witness in what Internal Revenue Service officials have called a “staggering” cheat of the tax system, has pleaded guilty to a single count of tax evasion involving nearly $36 million in undeclared income.
Krane appeared before U.S. District judge in Seattle and entered the pleas to tax evasion, as well as falsely attempting to obtain a passport. As part of the deal, Krane has agreed to cooperate with federal prosecutors in exchange for a sentence of no more than five years in prison for the convictions.
Krane has pleaded guilty for failing to pay taxes for 2002, which is the year prosecutors allege he hid $35.9 million in overseas accounts. That money, according to the indictment unsealed last summer, was allegedly given to Krane as a kickback by two former officials of the Seattle investment firm Quellos Group for allegedly steering one of his wealthy Hollywood clients to Quellos.
Krane has agreed to cooperate with federal prosecutors in the case against former Quellos CEO Jeffery Greenstein and his business partner, Charles Wilk, according to court filings. Prosecutors say that Greenstein and Wilk were the architects of an investment plan called POINT first offered by Quellos in 1999. Over the next three years, six investors, including Krane’s client, placed a total of $1.6 billion into POINT.
POINT was scrutinized by Senate investigators looking at wealthy tax evaders and was found to be based on billions of dollars worth of fake securities transactions that were used to generate billions in capital losses, which POINT clients could then use to offset taxes that should have been paid for legitimate capital gains. Krane maintained that the money he was paid was a fee for his services.
Comment: There are many “ethical frauds” here. First, Krane cheated the government by not reporting $35.9 million of income. It makes no difference if Krane received the money as a kickback or as a fee for services - he didn’t report it as income and pay taxes. Second, Krane hid the money in overseas accounts, and I assume has not paid investment earnings on the money (since it was hidden) since 2002.
Third, he falsely attempted to obtain a passport. Fourth, he directed his clients money to a fraudulent investment firm Quellos. Fifth, Quellos faked security transactions to generate billions in false capital losses to enable their clients to offset legitimate capital gains. Sixth, the wealthy clients cheated on their tax returns reporting the false capital losses.
Need I say more? What a mess! Letting Krane plea bargain to serve “no more than five years” in prison is much too soft for the crimes he has committed.
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