Deutsche Bank AG (DBK), BDO Seidman LLP and an ex-BDO Seidman partner were sued over claims they designed a fraudulent tax shelter that caused losses for a former chief operating officer of a Fortune 100 software company.
The plaintiff, R.J. Lane, didn’t identify his former employer in the complaint, which was filed yesterday in state court in Chicago.
The tax shelters described in the lawsuit are similar to those used by Ray J. Lane, the former Oracle Corp. (ORCL) COO and president and former Hewlett-Packard Co. (HPQ) chairman, who reached a $100 million agreement with the Internal Revenue Service over a tax shelter called Partnership Option Portfolio Securities, or POPS. Lane used POPS to shield $250 million of income through what tax regulators ruled were “sham” transactions.
R.J. Lane, identified as a California resident in his complaint yesterday, said he placed his trust in senior tax partner Michael Kerekes at BDO Seidman, who advised him in the POPS strategy. Kerekes, who worked as a partner at BDO Seidman’s Los Angeles office from 1998 to 2008, pleaded guilty in 2009 to conspiracy to defraud the U.S. and tax evasion.
“In reality, BDO, Deutsche Bank, and A&P were peddling a tax shelter that they knew was illegal and that they knew possessed no chance for profit after the subtraction of fees and costs,” R.J. Lane’s attorneys said in the complaint. A&P is the law firm Arnold & Porter LLP, which is also named as a defendant.
Deutsche Bank, Germany’s largest bank, admitted criminal wrongdoing in 2010 and agreed to pay $553.6 million to avoid prosecution over its participation in 15 fraudulent tax shelters, including POPS transactions. BDO, now known as BDO USA LLP, said in June 2012 it would pay $50 million to settle a charge of tax-fraud conspiracy for helping wealthy individuals evade about $1.3 billion in taxes from 1997 to 2003.
Jerry Walsh, a spokesman for BDO, and Catherine Wooters, a spokeswoman for Deutsche Bank, didn’t immediately respond to e-mail messages yesterday after regular business hours seeking comment on the lawsuit.
James Ross Smart, an attorney for Kerekes, and Darryl Van Duch, a spokesman for Arnold & Porter, didn’t immediately respond after business hours yesterday to e-mails seeking comment on the case.
Ray Lane left Oracle with more than $1 billion in stock and stock options in mid-2000 and agreed to settle with the IRS on a tax bill that could be as much as $100 million.
“My tax advisers put me into an investment,” he said in an interview in June. “Somewhere along the way I knew these things were being questioned by the IRS.”
Ray Lane, who is also a partner emeritus at venture-capital firm Kleiner Perkins Caufield & Byers, didn’t immediately respond to e-mail and voice-mail messages seeking comment on the lawsuit.
The case is Lane v. Deutsche Bank AG, 2014L00039, Cook County Circuit Court, Illinois (Chicago).
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