FORMER QUELLOS EXECUTIVES PLEAD GUILTY IN
OFFSHORE TAX SHELTER SCAM INVOLVING MORE THAN $9.6 BILLION IN PHONY STOCK SALES
Men Agree to Disgorge Profits, Pay Costs of Prosecution and Face Years in Prison
The former Chief Executive Officer of Quellos Group L.L.C. (“Quellos”) and its tax attorney, both principals of the investment firm, pleaded guilty this afternoon to Conspiracy to Defraud the United States, and aiding and assisting with the filing of a false tax return. Under the terms of their plea agreements Quellos founder and former CEO JEFFREY I. GREENSTEIN, 48, of Mercer Island, Washington, and former Quellos tax attorney CHARLES H. WILK, 51, of Seattle, face terms of imprisonment up to the statutory maximum of eight years. They will pay to the IRS, $7 Million in penalties, related to their personal gain realized from the design, promotion and implementation of the fraudulent tax shelter, which they called POINT. They will also pay all of the costs of their prosecution, estimated to be approximately $400,000. Additionally, the men will be required to speak at their graduate schools about business and legal ethics. Prosecutors will recommend no more than six years in prison when the men are sentenced by U.S. District Judge Ricardo S. Martinez on January 28, 2011.
“From the back room to the boardroom, we will hold people accountable,” said U.S. Attorney Jenny A. Durkan.
“These defendants defrauded the IRS by fashioning a fraudulent tax shelter which they promoted to the wealthiest taxpayers. They lied to the IRS, to the taxpayers and to the taxpayers’ financial advisors in an attempt to evade taxes on more than $1.3 Billion in real capital gains,” said Robert Westinghouse, Criminal Chief of the U.S. Attorney’s Office. “The IRS saw through this scheme, and collected all the back taxes, totaling more than $240 Million. Now these defendants will face extended periods of incarceration, forfeit the profits they made on this scheme, and pay for the prosecution that held them accountable.”
In their plea agreement, GREENSTEIN and WILK admit that their scheme was a fraud designed to assist taxpayers in avoiding payment of some $240 million in taxes. Specifically, GREENSTEIN and WILK admit that in 2001, they provided one taxpayer with a false loss figure of $614 million as part of the scheme. All taxes owed have since been paid.
Beginning in 1999 and continuing through August 2006, GREENSTEIN and WILK designed, implemented and defended before the IRS a fraudulent tax avoidance scheme known as POINT (Portfolio Optimized Investment Transaction). POINT purportedly permitted wealthy taxpayers who anticipated large capital gains to offset those gains by mixing those gains with losses derived from the sale of depreciated stock. POINT clients were told that a certain offshore investment fund owned billions of dollars worth of stock in well-known, publicly traded U.S. technology companies that had depreciated in value. The offshore investment fund purportedly formed various offshore and onshore partnership entities and contributed portions of its portfolio of stock into these entities. Because of certain provisions in the tax code, the POINT clients were advised that if they purchased one of these partnerships from the offshore fund, they could inherit the unrealized losses in the stocks and use them to shelter the gains from sales of other assets, and greatly reduce the clients’ tax liability.
GREENSTEIN and WILK did not tell clients, or the attorneys who evaluated the proposals, that the POINT transaction was predicated on a sham. They knew but did not disclose that there was no offshore investment fund, and that no shares of stock were actually purchased and possessed by any offshore investment fund. They knew that the purported offshore investment fund was merely a shell entity with nominee administrators and no assets or employees.
Prior to sentencing both men are required to return to their graduate schools and speak to students about business and legal ethics and their criminal conduct. GREENSTEIN will speak at the University of Washington School of Business, and WILK will speak at NYU Law School. The Criminal Chief of the United States Attorney’s Office, Robert Westinghouse, will attend both presentations to ensure the men candidly discuss their criminal conduct and unethical choices.
At sentencing, the defense can recommend a sentence of no less than two years in prison and the government can request no more than six years in prison. U.S. District Judge Ricardo S. Martinez is not bound by the recommendations. By statute the maximum possible sentence is 8 years in prison.
The case is being investigated by the Internal Revenue Service Criminal Investigation (IRS-CI).
The case is being prosecuted by Assistant United States Attorneys Robert Westinghouse, Katheryn Kim Frierson, Mike Dion and Jerrod Patterson.
For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110 or Emily.Langlie@USDOJ.Gov.