2 plead guilty in Seattle to scheme that helped wealthy avoid paying $240M in taxes

2 plead guilty in Wash. to massive tax scheme

SEATTLE — Two Seattle-area men pleaded guilty Friday to federal charges stemming from an illegal tax shelter that enabled wealthy clients — including philanthropist Robert Wood Johnson IV and Hollywood mogul Haim Saban — to avoid paying taxes on $1.3 billion in capital gains.

The men ran an investment firm called Quellos Group LLC. Jeffrey Greenstein, 48, of Mercer Island, was its chief executive and Charles H. Wilk, 51, of Seattle, was its tax attorney.

Both pleaded guilty to charges of conspiracy to defraud the government and aiding in the filing of a false tax return, the U.S. attorney’s office said. They agreed to pay the Internal Revenue Service $7 million in penalties, pay $400,000 to cover the cost of their prosecution, and to give speeches at their graduate schools about business ethics.

Wilk and Greenstein admitted that from 1999 to 2006, they purported to offset the tax liability of clients who expected large capital gains by using losses from the sale of depreciated stocks held in an offshore fund.

The fund was a shell entity with nominee administrators and no assets or employees, and the losses Quellos created for its clients were fabricated, prosecutors said.

Quellos’ clients did not know the tax shelter was fraudulent, prosecutors said, and they voluntarily paid the more than $240 million they owed in back taxes.

The biggest among Quellos’ clients was Saban, who made a fortune by licensing the Power Rangers from Japan in the 1990s. He sold his half of the Fox Family Channel, which included the Power Rangers, to The Walt Disney Co. in 2001 in a $5.2 billion deal — and enlisted former Los Angeles lawyer Matthew Krane to handle taxes on the transaction.

Krane hired Quellos to offset the capital gains in exchange for a $36 million kickback from the company. He pleaded guilty late last year to charges of tax evasion and false statements.

The fictitious shelter enabled Saban to avoid paying nearly $140 million in taxes that year, and other complicated maneuvers later disallowed by the IRS saved him a roughly equal amount. He repaid the IRS in full, as did Quellos’ other clients.

Greenstein and Wilk were scheduled to go to trial Oct. 12, following intensive pretrial litigation during which they tried unsuccessfully to block the government from taking the depositions of London-based witnesses who refused to travel to the U.S. Prosecutors were scheduled to visit London for a second round of depositions next month, accompanied by U.S. District Judge Ricardo S. Martinez, who is presiding over the case.

The pair are scheduled to be sentenced in January. Under a plea deal, the government can recommend no more than six years in prison, and defense attorneys can recommend no less than two.

Greenstein is expected to speak to students at the University of Washington business school, and Wilk is to speak at New York University’s. No dates have been scheduled.

Robert Westinghouse, the criminal division chief of the U.S. attorney’s office in Seattle, said he’s looking forward to attending the speeches and making sure Wilk and Greenstein own up to their misdeeds.

“Our goal is to cause students to think twice about their ethics,” he said.