Two Seattle-area men were sentenced on Friday to four years in prison for concocting a bogus tax shelter to help a Hollywood mogul, the owner of the New York Jets football team and other wealthy clients avoid making US$240 million in payments.
Jeffrey Greenstein, 48, was the founder and chief executive of the boutique investment firm Quellos Group and Charles Wilk, 52, was its tax attorney. They acknowledged that they ran the tax shelter from 1999 to 2006, to make it appear that their clients’ princely financial windfalls were offset by losses from offshore funds so no taxes would be owed.
They somberly told US District Judge Ricardo they were sorry and deeply humiliated.
“I failed to live up to the standards I set for myself,” Greenstein said. “There’s no way to minimize what I did, justify it or rationalize it.”
Seattle US Attorney Jenny Durkan called the case one of the biggest tax frauds in US history and said the US$240 million could have provided loans to hundreds of small businesses or a month’s worth of hot breakfasts for 1 million schoolchildren.
The shelter’s five clients included Haim Saban, and philanthropist and New York Jets owner Robert Wood Johnson IV.
Prosecutors said the clients were misled about the nature of the tax shelter and they have paid the IRS back all US$240 million, plus interest. Greenstein paid back all of the money he made from the scheme — US$6.4 million — and Wilk paid back the US$600,000 he made. The pair also reimbursed the government nearly US$300,000 for the cost of their prosecution.
BlackRock, a prominent investment firm, acquired Quellos’ main business for US$1.7 billion in 2007.
US District Judge Ricardo Martinez told the defendants he struggled with balancing their criminal behavior against their otherwise exemplary lives.
For decades, Greenstein has been a generous donor to and volunteer with organizations ranging from the Seattle Art Museum and University of Washington School of Medicine to the Jewish Federation of Greater Seattle. Friends and supporters wrote about 200 letters to the court on his behalf.
Greenstein and Wilk pleaded guilty to fraud and to assisting in the filing of a false tax return in September. As part of the deal, prosecutors agreed to recommend no more than six years in prison, and defense attorneys sought no less than two years.
The wealthiest among Quellos’ clients was Saban, who sold his half of the Fox Family Channel, which included the Power Rangers, to the Walt Disney Co in 2001 in a US$5.2 billion deal. He enlisted former Los Angeles lawyer Matthew Krane to handle taxes on the transaction.
Krane then hired Quellos to offset the capital gains in exchange for a US$36 million kickback from the company. He pleaded guilty to charges of tax evasion and false statements and was scheduled to be sentenced next week.
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