Rivkin tax shelter plea ''made out of fear'', claims attorney

David Rivkin's guilty plea in the case of bogus tax shelters involving former KPMG staff and bankers and lawyers, was "made out of fear and a lack of resources rather than any real guilt," according to Stanley Arkin, a lawyer for Jeffrey Eischeid, former head of KPMG's innovative strategies group. Eischeid goes on trial in the case with 17 ex-colleagues later this year.

Arkin told International Tax Review that his first reaction to hearing news of the guilty plea was "poor Mr Rivkin".

"It's very hard for a middle-class man in this country to defend himself when his company doesn't pay his fees. He was very vulnerable, he had to limit his liability to have some life left."

Arkin thinks that the plea will have little effect on the outcome.

"I don't think Rivkin weighs much in the balance. He's been privy to information but only like a lot of other people. I don't think he brings anything special or new to the prosecution case."

Rivkin, one of 17 ex-KPMG staff on trial, agreed to cooperate with the authorities as part of his guilty plea.

It is thought that cooperation may help prosecutors identify other accounting and law firms as well as banks that worked on the sale of bogus tax shelters.

The case centres on the sale of four types of tax shelters: foreign-leveraged investment programmes (FLIPS), offshore portfolio investment strategies (OPIS), bond linked issue premium structures (BLIPS) and short option strategies (SOS).

A court document filed on the day that Rivkin made his plea said that four unnamed banks, three of whom were audit clients of KPMG, worked with KPMG in making and selling the controversial tax shelters, according to prosecutors.

Rivkin, who was a partner in KPMG's San Diego office, pleaded guilty on March 28 to charges of conspiracy and tax evasion. He admitted to preparing false documents, declaring these documents confidential and concealing the existence of the tax shelters under investigation from the authorities. He faces up to five years imprisonment for the conspiracy charge and the same for the tax evasion charge. He will be sentenced on February 9 2007.

The 18 defendants aside from Rivkin will go on trial on September 11.They include Jeffrey Stein, former deputy chairman of KPMG, and two former vice-chairmen in charge of tax; John Lanning and Richard Smith.

Rivkin's lawyer, Patrick Hall of Seltzer Caplan McMahon Vitek in San Diego, made no comment regarding Arkin's statements.

After Rivkin's unexpected guilty plea on March 28, the other former KPMG employees facing charges got some better news on March 30 when Kaplan said that IRS prosecutors were not acting fairly in their bid to show the defendants sold illegal tax shelters.

Kaplan said that the behaviour of prosecutors which had caused KPMG to not pay the defendants' legal fees was "shameful" and was potentially depriving people of counsel.

The judge has ordered a hearing to find whether prosecutors put unfair pressure on KPMG to stop paying defendants' legal fees.

Kaplan also advised the prosecutors to drop some of the lesser individual tax counts.

Arkin said that the authorities had used KPMG's deferred prosecution agreement as a means to stop defendants saying that they considered the tax shelters to be lawful.

The deferred prosecution agreement was part of KPMG's $456 million settlement made in August 2005 and is in effect until December 31 2006. The sum comprised $228 million in lost IRS revenue, $128 million in criminal fines and $100 million for non-registration of the tax shelters.

KPMG had no comment to make on recent developments in the case. The IRS has labelled the trial "the largest criminal tax case ever filed". CJ