LAWFUEL – The Legal Newswire – MICHAEL J. GARCIA, the United States Attorney for the Southern District of New York, announced that DAVID AMIR MAKOV, an investment advisor previously affiliated with Presidio Growth LLC (“Presidio”), pled guilty in Manhattan federal court earlier
today to participating in a conspiracy to defraud the United
States Treasury, evade taxes and file false tax returns. MAKOV
is a defendant in the pending criminal case of United States v.
Stein, 05 Cr. 888 (LAK). The allegations in the underlying
indictment as to the remaining defendants are merely allegations
and the defendants are presumed innocent. According to the onecount
Superseding Information to which MAKOV pleaded and
statements in court during his plea:
From at least 1999 through at least 2005, MAKOV
participated in a conspiracy with other defendants in United
States v. Stein — along with various representatives of the
accounting firm KPMG and of several banks — to defraud the
United States and evade taxes by devising, marketing, and
implementing fraudulent tax shelters, by preparing and filing (or
causing to be prepared and filed) false and fraudulent U.S.
individual income tax returns claiming the fraudulent tax shelter
losses, and by fraudulently concealing those tax shelters from
the Internal Revenue Service (the “IRS”).
The fraudulent tax shelters described in the
Superseding Information were collectively known as “BLIPS” tax
shelters, for “Bond Linked Issue Premium Structure.” As
described in the Superseding Information, the conspirators
marketed and sold the BLIPS tax shelters to wealthy clients for
the purpose of evading those clients’ U.S. personal income taxes;
rather than paying the taxes that were legally owed, the clients
could choose the amount of tax loss desired and pay certain of
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the conspirators an “all-in” cost generally equal to
approximately 7% of the desired tax loss. In order to conceal
the true nature of the BLIPS tax shelters from the IRS, attempt
to evade the clients’ taxes, and shield the clients from IRS
penalties for underpayment of taxes, certain of the conspirators
provided the client with opinion letters containing false and
fraudulent representations and statements and claiming that the
tax shelter losses were “more likely than not” to survive IRS
challenge. In the opinion letters BLIPS was falsely and
misleadingly described as an investment program utilizing a large
loan, when in truth and in fact, as MAKOV stated today, BLIPS was
designed, marketed, and implemented to generate phony tax losses
in order to eliminate income taxes for wealthy clients and
generate substantial fees and income for KPMG, Presidio and
related entities, and the individual conspirators.
An integral part of the BLIPS transaction was the very
large loan, which was used only to generate the tax loss. As
MAKOV explained, it was expressly agreed among the parties that
the funds from the purported loans would not be used in the
purported investment program and would not be put at risk. The
conspirators drafted the loan documents so as to make it look
like the purported “loan” could be used in a range of investment
options, when in truth and in fact those documents as drafted and
executed gave the bank a veto over any possible investments using
the purported loan and thus gave the bank effective control over
the purported loan proceeds. The opinion letters also falsely
stated that BLIPS was based on a 7-year investment program in
foreign currency and that the loan would be used to fund the
currency investments, when in truth, as MAKOV admitted, the loan
money was not used for currency trading and the taxpayers planned
in advance to exit the transaction in 60 days to secure the tax
benefit.
In a sworn deposition about BLIPS in 2005, MAKOV
provided false and misleading testimony under oath to attorneys
from the Civil Enforcement Section of the Tax Division of the
United States Department of Justice, in an effort to mislead them
into believing that there were legitimate business and economic
purposes for structuring the BLIPS transaction in the manner in
which it was structured, when (as MAKOV admitted today he knew
full well all along) there were no such legitimate business or
economic purposes for that structure and that the true reason for
that structure was to generate a tax loss.
Finally, MAKOV evaded his own U.S. income taxes in 2000
by falsely and fraudulently deducting BLIPS tax shelter losses on
his personal tax returns, thereby substantially understating his
income and the tax due and owing by him for those years.
Mr. GARCIA praised the investigative efforts of the IRS
Criminal Investigation Division.
MAKOV faces a maximum sentence of five years in prison
on the charge to which he pleaded guilty. He agreed in his plea
agreement agreed to forfeit $10 million to the United States.
United States District Judge LEWIS A. KAPLAN set a sentencing
date of June 20, 2008.
Assistant United States Attorneys JOHN M. HILLEBRECHT
and MARGARET GARNETT, and Special Assistant United States
Attorney KEVIN M. DOWNING (who is also a Senior Trial Attorney in
the Tax Division of the United States Department of Justice), are
in charge of the prosecution.
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