LawFuel.com –
PREET BHARARA, United States Attorney for the Southern
District of New York, and PATRICIA J. HAYNES, Special
Agent-in-Charge of the New York Field Office of the Internal
Revenue Service (“IRS”), Criminal Investigation Division,
announced that former KPMG partner ROBERT PFAFF pleaded guilty
today to participating in a conspiracy to defraud the IRS by
concealing from the IRS and the Saipan taxing authorities
millions of dollars of fee income received from tax shelter
transactions. PFAFF also admitted his participation in a
conspiracy to defraud a company located in Saipan of the right to
the honest services of its employees by sharing tax shelter fee
income with officers of that company who in turn failed to
disclose those secret payments to the Saipan company’s Board of
Directors.
According to the Court records and statements made
during PFAFF’s guilty plea proceeding:
Between 1993 and 2002 PFAFF and his co-conspirators
arranged for various entities and individuals — including
co-conspirators in the Philippines and Norway, and senior
officers of the Saipan company, known as the United Micronesia
Development Association (“UMDA”) — to participate with United
States and Saipan taxpayers in certain tax shelter transactions.
The tax shelter transactions, including those involving UMDA as a
corporate taxpayer, generated millions of dollars of fee income,
which was divided between PFAFF and the other designers,
marketers, and implementers of the tax shelter transactions.
Between 1993 and 2000, PFAFF received more than $3,750,000 in fee
income from those tax shelter transactions, and thereafter used
the fee income for various personal purposes, including:
• to purchase his principal residence in Englewood,
Colorado, and a weekend home in Breckenridge,
Colorado;
• to purchase his mother’s home in Wisconsin;
• to purchase various automobiles, including a
Porsche for himself, a Mercedes Benz for his
sister, and a Subaru for his wife;
• to purchase various interests in mutual funds;
• to fund various trusts for his children;
• to make gifts to family members;
• to pay initiation fees at his country club;
• to renovate and landscape his Colorado home;
• to pay dentist bills; and
• to purchase a Steinway piano and Hawaiian artwork.
PFAFF and his co-conspirators employed various
fraudulent means in order to conceal the receipt of tax shelter
fee income from the IRS and the Saipan taxing authorities and in
order to allow the Saipan co-conspirators to defraud UMDA and its
shareholders of their intangible right to the honest services of
its officers and employees. PFAFF and his co-conspirators’
efforts to conceal the tax shelter fee income included sending
millions of dollars of tax shelter fee income from bank accounts
in the United States and Saipan to bank accounts in Manila,
Philippines (the “Philippines bank accounts”) — accounts that
were nominally controlled by the Philippines co-conspirator and
others.
PFAFF and his co-conspirators controlled the accounts and
paid the Philippines co-conspirator to disburse the tax shelter
fee income from the Philippines bank accounts in accordance with
their instructions. PFAFF and his co-conspirators also created
false and fictitious documentation to make it appear that the fee
income PFAFF received from the Philippines co-conspirator was
part of a series of loans rather than income to PFAFF — which
income he failed to report as required on his income tax returns.
PFAFF also provided false testimony to the IRS regarding his
receipt of fee income stemming from the tax shelter transactions.
Further, PFAFF and his co-conspirators caused the payment of the
tax shelter fees to PFAFF to be concealed from KPMG, in violation
of KPMG’s partnership bylaws and/or rules and procedures, and
caused the payment of the tax shelter fees to the Saipan
co-conspirators to be concealed from UMDA.
Mr. BHARARA also announced today that, through a
parallel civil forfeiture case, the United States forfeited funds
in the amount of $1,837,605. According to the forfeiture
complaint, those funds — representing a portion of the proceeds
of the scheme involving PFAFF’s fraud on the IRS, the Saipan tax
authorities, and UMDA — were transferred by PFAFF during the
conspiracy to a co-conspirator located in the Philippines, who
turned over the funds following the filing of the forfeiture
complaint.
Three co-conspirators — CHANDLER S. MOISEN, MICHAEL
GRANDINETTI, AND DOMENICK DEGIORGIO — have previously pleaded
guilty in connection with the conspiracy to which PFAFF pleaded
guilty. They are all awaiting sentencing.
PFAFF, 59, who is currently serving a 97-month sentence
as a result of his conviction at trial in United States v.
Stein, is to be sentenced by United States District Judge RICHARD
BERMAN on November 16, 2009, at 12:30 p.m.
Mr. BHARARA praised the investigative work of the IRS.
Assistant United States Attorneys STANLEY J. OKULA,
DANIEL LEVY, and SHARON FRASE are in charge of the prosecution.
09-307 ###
