TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, December 14, 2009

L.A. Tax Lawyer Pleads Guilty to Tax Evasion in Hollywood Kickback Scheme

American Lawyer, L.A. Tax Lawyer Pleads Guilty to Tax Evasion in Kickback Scheme:

The strange story of Matthew Krane took another turn late Thursday as the former partner of renowned entertainment lawyer Jacob Bloom pled guilty to federal passport fraud and tax evasion charges in a scheme involving overseas tax shelters.

We previously covered Krane's legal troubles in July, when the Hollywood tax lawyer sued a former client, entertainment industry billionaire Haim Saban, over a $36 million fee Krane was paid for referring Saban to a Seattle-based hedge fund. [TaxProf Blog, Teenage Mutant Ninja Turtle Tax Evasion (July 23, 2009).]

Known as the Quellos Group, the fund was the subject of a federal tax investigation that resulted in an indictment against two senior executives being unsealed in June. Former Quellos CEO Jeffrey Greenstein and in-house lawyer Charles Wilk are accused of masterminding an alleged $400 million tax fraud scheme.

Prosecutors claim that a $36 million finders fee paid by Quellos to Krane for enrolling Saban in the fund's tax shelters actually was actually a kickback for a cut of the fees earned from enrolling a high-profile client. Krane served as Saban's longtime tax advisor, and the billionaire needed the lawyer's counsel after realizing $1.5 billion in capital gains from the sale of his stake in the Fox Family Channel to Walt Disney in 2001.

Saban was forced to pay $250 million in back taxes and penalties as a result of his enrollment in the tax shelter. Saban testified before a Senate committee in 2006 that his lack of a formal education prevented him from understanding that the shelter was illegal. The Senate later issued a report raising questions about Quellos and tax evasion; federal prosecutors began their investigation after the report was issued.

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