Investment advisors plead guilty to tax scheme
Greenstein, Wilk's POINT took in $9.6 bil in fake biz lossesTwo investment advisors at the heart of a phony tax shelter scheme which ensnarled Hollywood mogul Haim Saban among others pleaded guilty on Friday in Seattle to conspiracy and aiding in the filing of false tax returns.
Jeffrey Greenstein and his partner Charles Wilk, who headed the Quellos Group, had initially pleaded not guilty, but have now admitted the tax scheme they called POINT generated some $9.6 billion in fake business losses to offset the capital gains of wealthy clients like Saban.
The government said it was cheated out of $240 million in taxes. The two men could get up to six years in prison, and no less than two years under their plea agreement.
In addition Greenstein has to pay the IRS $6.4 million and Wilk $600,000 on the day they are sentenced. In addition, prior to sentencing, they must address students at their former universities on ethics. Greenstein will speak at the University of Washington school of business and Wilk at the New York University school of law.
POINT was first offered in 1999. It came to the attention of Los Angeles attorney Matthew Krane, brother of producer Jonathan Krane, who was a close advisor to Saban. When Saban made about $1.5 billion in capital gains on the sale of the Family Channel in 2001, Krane put him into POINT as a way to save taxes. Saban invested about $740 million in the scheme.
Saban was one of six large investors. Others included Robert Wood Johnson IV, heir to the Johnson & Johnson fortune.
The Quellos tax shelter operated through a series of complex trades that used fake transactions to create fake losses that were used to off set real taxable capital gains. It was all done through an off shore shell company on the Isle of Man, which the government later said was part of an effort to obscure and hide what they had done.
The scheme unraveled in 2006 and Saban was charged with evading taxes on $250 million. Saban was also among those called to testify before the U.S. Senate. Saban told Senators that he was not well-educated and counted on Krane to guide him through the legal and tax laws in the matter.
Krane later pleaded guilty and was sentenced first to house arrest and then to five years in prison.
Saban eventually paid $250 million in back taxes and penalties. He then sued Krane for $36 million he had received in a kickback from the scheme and parked in a bank in Austria. Krane counter-sued saying Saban had no right to that money. That case continues.