The bizarre saga involving former Hollywood tax attorney Matthew G. Krane appears to finally have come to a close.
Krane was sentenced yesterday to 2-1/2 years in federal prison for his role in a tax shelter scheme. Krane had pleaded guilty in 2009 to evading tax by failing to claim $36 million in undeclared income and attempting to obtain a false passport to flee the country after his participation in the scheme was discovered; at the time of his arrest, law enforcement officials found the fake passport, along with crystal meth, date-rape drugs and horse tranquilizers. Krane also agreed to pay $23 million in back taxes as part of his sentence.
The relatively meager sentence reflected Krane’s cooperation in a lengthy federal investigation into the scheme. Krane testified against Jeffrey Greenstein and former tax attorney Charles Wilk, who were the alleged masterminds behind a tax shelter referred to as the Portfolio Optimized Investment Transaction or POINT. Six investors, including Robert Wood Johnson IV (heir to the Johnson & Johnson fortune and owner of the New York Jets) and Haim Saban, contributed more than $1.5 billion to the tax shelter, which generated false losses.
Part of Krane’s sentence also requires him to refund nearly $18 million in fees to Saban, who was not aware of the criminal nature of the scheme. Saban’s family has indicated that they will donate the returned money to charity. They don’t appear to need it; Saban has consistently been ranked by Forbes magazine as one of the richest people in America for the past few years. Much of Saban’s wealth is a result of his promotion of the annoyingly popular Power Rangers (trust me, you’ve seen at least one kid dressed as a Power Ranger every single Halloween). Saban is also considered one of the Democratic Party’s biggest individual donors though he supported Bush’s re-election in 2004 on national security issues.
Krane’s testimony against Greenstein and Wilk helped prosecutors obtain a guilty plea. Greenstein is the co-founder and former chief executive of the Quellos Group LLC. Quellos was considered one of the world’s largest managers of mutual funds made up of hedge funds: the funds portion of the company was sold to BlackRock in 2007 for $1.7 billion (BlackRock was not part of the investigation). Greenstein and Wilk had initially argued that the scheme was reviewed and blessed by outside firms, including, reportedly, mega-firms Cravath and Bryan Cave but eventually took responsibility.
Under the plea, Greenstein and Wilk agreed to charges of conspiracy to defraud the government and aiding in the filing of a false tax return. They must pay $7 million in penalties plus the cost of their prosecution. They were also required to deliver speeches at their graduate schools about ethics which is kind of weird considering that Greenstein clearly didn’t learn much from the ethics courses that he attended as an attorney. Nonetheless, Greenstein delivered his speech to the University of Washington. Wilk planned to speak at his alma mater, NYU, but the school turned him down and that part of his sentence was eventually dropped. Each of the men were also sentenced to four years in prison.
Now, with Krane’s sentence, the saga involving more than $1.5 billion in tax shelter investments has finally ended – until Hollywood gets ahold of it, course.
