MATTHEW G. KRANE, 56, of Los Angeles, California, was sentenced today by United States District Court Judge Ricardo S. Martinez in U.S. District Court in Seattle to 32 months in prison and two years of supervised release for Tax Evasion and False Statement in a Passport Application. KRANE has also agreed to forfeit approximately $23.1 million to the U.S. Treasury in back-taxes and return approximately $17.9 million in illegal fees to his former client, Haim Saban.

In June 2009, KRANE was indicted along with the former Chief Executive Officer of Quellos Group L.L.C. (“Quellos”), Jeffrey I. Greenstein, 48, of Mercer Island, Washington, and an attorney and principal of the investment firm, Charles H. Wilk, 52, of Seattle, in connection with a fraudulent tax shelter scheme. KRANE pleaded guilty in December 2009 and agreed to cooperate with the government in its prosecution of Greenstein and Wilk. Subsequently, in January 2011, Wilk and Greenstein pleaded guilty, paid $7 million in penalties to the IRS, and were each sentenced to 50 months in prison in January 2011.

“Our system of tax reporting and collection depends in substantial part on tax professionals following our tax laws,” said Chief of the Criminal Division Robert Westinghouse. “When they fail to do so, it hurts all law-abiding citizens. The criminal conviction and sentence in this case justly punishes this kind of wrongdoing. Collecting more than $23 million in back taxes, interest, and penalties places an exclamation point on this important law enforcement effort.”

“Tax evasion is a classic symptom of overarching greed,” said Kevin Hanff, Assistant Special Agent in Charge of the IRS Criminal Investigation for the Pacific Northwest. “As this case demonstrates, no matter how you earn the money, you still have to pay taxes on it.”

Greenstein and Wilk agreed to secretly split Quellos’ fees with KRANE in exchange for KRANE’s assistance in enrolling a wealthy client in the tax shelter scheme. The client, Haim Saban, had more than $1 billion in capital gains in 2001, and Greenstein and Wilk promised KRANE a cut of the fees if Saban purchased the tax shelter scheme. Saban was never informed of the fee arrangement, or illegal nature of the scheme. Between March 2001, and October 2001, the men drafted false fee agreements that made it appear that Saban was paying $46 million to Quellos to participate in the tax shelter strategy. In fact, nearly $36 million of that fee was actually diverted by Wilk and Greenstein to an offshore account controlled by KRANE. KRANE failed to pay taxes on the income. In addition, when KRANE learned of the criminal investigation of Quellos in February 2008, he applied for a passport in a false name, using a false Social Security Number and California Driver’s License number.

The Saban family issued a statement through their attorney regarding the funds that will be returned to them: “Cheryl and Haim Saban are gratified that through the efforts of the United States Attorney's Office, the IRS and their counsel, they have recovered the funds held in a foreign bank, and justice has been done. To show their appreciation they have decided to donate these funds to the Saban Foundation for use by the following charitable groups, among others: Childrens Hospital of Los Angeles, The Saban Free Clinic, Operation Homefront, and Para Los Ninos. The monies will help those most in need.”

The case was investigated by the Internal Revenue Service Criminal Investigation (IRS-CI).

The case was prosecuted by Assistant United States Attorneys Katheryn Kim Frierson, Robert Westinghouse, Jerrod Patterson and Mike Dion.

 

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