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KPMG Tax Case Grows

Ten more people are indicted over alleged fraudulent shelters promoted by the firm.

October 18, 2005|Kathy M. Kristof and Josh Friedman | Times Staff Writers

The Justice Department on Monday indicted 10 more people in connection with alleged fraudulent tax shelters promoted by accounting firm KPMG, including a Pacific Palisades man who is chief financial officer for an investment firm owned by Global Crossing founder Gary Winnick.

Gregg Ritchie, a former tax partner in KPMG's Woodland Hills office, and other defendants were charged with conspiring to defraud the IRS by designing, marketing and implementing phony tax shelters. The scheme generated at least $11 billion in fraudulent tax losses and helped wealthy individuals dodge at least $2.5 billion in taxes, the government said.

Ritchie, 48, left KPMG in 1998 to work for Winnick's Global Crossing in Beverly Hills. Winnick has previously been identified as a participant in the tax shelters -- in a 2001 subpoena by the IRS, and in a civil suit filed in federal court in San Francisco this year.

Winnick was not named in Monday's indictment. But the document notes that Ritchie left KPMG in 1998 to work for a "Beverly Hills Businessman" who participated in KPMG-designed tax shelters.

"In 1999, the Beverly Hills Businessman participated in a ... transaction that generated $300 million of phony tax losses, a portion of which was attached to various publicly traded stocks," the indictment said.

The Internal Revenue Service launched an audit of the "Beverly Hills Businessman" in 2002, the indictment said, during which Ritchie represented him and "made a number of false and misleading statements."

Ritchie and Winnick did not return calls for comment, but Ritchie's lawyer said his client was innocent.

"The government is seriously overreaching in this case, and Mr. Ritchie looks forward to being vindicated at trial," attorney Michael E. Horowitz said.

Prosecutors declined to discuss Ritchie and Winnick beyond what was said in the indictment and a news release identifying Ritchie as chief financial officer of a Beverly Hills-based company.

Winnick owns the Pacific Capital Group investment firm in Beverly Hills. In the San Francisco civil case, Ritchie also is identified as a representative of GKW Unified Holdings, an investment firm owned by Winnick and his family.

Winnick was once considered the richest man in Los Angeles based on his stock holdings in telecommunications company Global Crossing.

The company was a Wall Street darling for a time, with its shares selling for nearly $60 each in its heyday and boasting a market value of $45 billion. But never profitable, Global collapsed, filing for bankruptcy protection in 2002.

Winnick and some other former Global executives later agreed to pay $325 million to settle a group of investor lawsuits.

Winnick is no longer associated with Global Crossing. In a brief interview this month, Ritchie confirmed that he continued to work for Winnick.

On Aug. 29, KPMG agreed to pay a $456-million fine to settle charges that it promoted fraudulent tax shelters. At that time, the government indicted eight former KPMG executives and an outside attorney in connection with the shelters, and listed seven unindicted co-conspirators.

On Oct. 7, The Times reported that Ritchie was the former executive referred to as unindicted co-conspirator No. 1 in the indictment.

The indictment filed Monday amends the original Aug. 29 indictment.

In addition to Ritchie, the filing named Richard Rosenthal, former managing partner of KPMG's Western region; Carl Hasting, a former KPMG partner from Woodland Hills; and David Greenberg, a former Los Angeles partner, who authorities allege devised a bogus agreement with an Orange County law firm to assert attorney-client privilege to keep certain tax shelter documents from the government.

The Justice Department took the unusual additional step of arresting Greenberg on Monday, said U.S. Atty. Sandra Brown.

"The government will be seeking to have Mr. Greenberg detained," she said, adding that detention notices are filed in tax cases only when the government believes the individual is "a flight risk or a danger to the community."

Also indicted were David Rivkin, a former KPMG tax partner from the company's San Diego office, and Randy Bickham, a former senior manager in the firm's San Francisco office.

Attorneys for Greenberg and Hasting declined to comment. Lawyers for Rosenthal, Rivkin and Bickham couldn't be reached.

Like the original indictment, the document filed Monday alleges that the tax shelters made it appear that wealthy individuals suffered enormous investment losses from 1996 to 2002, thus cutting their tax liability.

"It is hard to imagine anything that can serve to undermine our voluntary system of taxation more than the crimes charged today, where so many professionals banded together with, and actually recruited, wealthy individuals to perpetuate this massive fraud on the tax administration system," U.S. Atty. Michael Garcia said in a statement Monday. "This was an orchestrated case of deliberate tax evasion, and not legitimate tax planning."

Garcia added that the case puts both professionals -- and their clients -- "on notice that they will not succeed in what has been nothing less than highway robbery on the tax system."

Times staff writer Walter Hamilton in New York contributed to this report.

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