US prosecutors widen E&Y tax-shelter case

The US Federal prosecution widened a criminal case involving questionable tax shelters at Ernst & Young (E&Y) with fresh claims, adding more fraud charges against the original four E&Y defendants, who were accused last May, and indictments against two other defendants outside the firm.

The prosecutors accused David Smith, a lawyer and accountant based in San Francisco; and Charles Bolton, an investment adviser based in Memphis, and four the E&Y defendants Richard Shapiro; Robert Coplan, also a former Internal Revenue Service (IRC) official; Martin Nissenbaum; and Brian Vaughn of participating in a scheme between 1998 and 2006 to defraud IRS by designing, marketing, implementing and defending tax shelters aimed at helping people who earned taxable incomes of more than $US10m (₤5.1m) avoid or reduce income taxes, New York Times reports.

The new indictment, filed yesterday in US District Court in Manhattan, accused Smith of introducing a bogus tax shelter called CDS, for contingent deferred swap, to the E&Y defendants through his company, Private Capital Management Group. Ernst & Young sold the CDS shelter to wealthy investor clients. By 2000, Smith had licensed the CDS shelter and variations to Bolton and his firms, Bolton Financial Services and Bolton Capital Planning. Bolton said he intends to ‘fight these baseless accusations’.

The additional accusations are said to signal that the US government is stepping up its pursuit of aggressive tax shelters, following setbacks in a criminal case against former executives of KPMG.

Further reading:

E&Y partners charged with tax fraud conspiracy

Read story in the New York Times