April 10 (Reuters) - A U.S. federal judge ruled on Tuesday
in favor of Swiss bank UBS AG in a lawsuit brought by Igor
Olenicoff, a billionaire former client who ran afoul of the
tax-collecting Internal Revenue Service and tried to blame the
Olenicoff sued UBS in 2008, accusing the bank of fraud,
conspiracy and other charges in handling some $200 million he
kept in offshore accounts and claiming that UBS had wrongfully
advised him that he did not have to report them to the IRS.
Judge Andrew Guilford of the U.S. District Court in Santa
Ana, California, issued a harshly worded ruling on Tuesday,
about a month before the case was due to go to trial.
Olenicoff, a Russia-born American property developer,
pleaded guilty to tax evasion in 2007 and to lying on his tax
returns by failing to disclose the offshore accounts. He paid
$52 million in back taxes. In March, Forbes estimated
Olenicoff's wealth at $2.6 billion.
The judge wrote that Olenicoff's case was "built upon a
simple premise: UBS gave Olenicoff bad tax advice, which
Olenicoff believed." But the judge said that having pleaded
guilty to tax evasion, Olenicoff already had placed "nearly
every room of his legal house of cards into jeopardy."
Drawing on the maxim, "two wrongs do not make a right," the
judge said that "UBS's admission of guilt does not give
Olenicoff the right to sue UBS for fraudulent tax advice."
Olenicoff's civil case, asking up to $1.7 billion in
damages, had sought in part to probe whether clients of Swiss
banks could legally rely on their private bankers' assertions
that there was no need to disclose the accounts on their tax
returns or sign required disclosures.
U.S. residents may legally hold offshore bank accounts, but
the IRS requires taxpayers to disclose the accounts on their tax
returns and to sign disclosures provided by the banks, known as
In 2009, UBS paid a $780 million fine to the U.S. Justice
Department as part of a deferred prosecution agreement in which
it admitted to fraud and conspiracy in helping about 19,000
wealthy Americans hide up to $20 billion in secret bank
UBS spokeswoman Torie Von Alt said in a written statement,
"We are pleased with the Court's decision. It corresponds with
our view that Olenicoff's claims for damages have been without
merit. The judge confirmed that Olenicoff cannot turn to UBS to
blame it for his own omissions/failures to disclose his offshore
accounts and to pay taxes."
Lawyers for Olenicoff could not immediately be reached for
UBS had filed motions to dismiss Olenicoff's case, arguing
that its clients have a duty to know what to declare on their
U.S. tax returns. The judge granted UBS's motions, ending the
Olenicoff had also named his former UBS private banker,
Bradley Birkenfeld, as a defendant in his lawsuit. Because the
UBS motions to dismiss the case were joined by Birkenfeld, the
judge's granting of the motions also ended Olenicoff's case
against his former private banker.
The judge wrote that Olenicoff's case was ironic because UBS
had argued in various motions that it had merely assisted U.S.
clients in evading taxes, not forced them to evade taxes. The
judge further noted that because Olenicoff already had pleaded
guilty to tax evasion, "It is directly inconsistent for him now
to claim that he unwittingly relied on UBS's counsel."
In his ruling, the judge critizied Olenicoff's past dealings
with the IRS. He noted that around 2003, Olenicoff had persuaded
a former Russian army general to meet with the IRS on his
The general, the judge wrote, was trying to show that
offshore accounts for a Bahamas company called Sovereign Bancorp
Ltd and owned by Olenicoff were in fact set up at the request of
former Russian president Boris Yeltsin and were not under
"During his meeting with the IRS agent, the general became
frustrated and told the agent that several years ago he was in
charge of pushing the button that would have wiped the IRS off
the Washington map," the judge wrote in his ruling. The general
was not identified.
The judge also found that Olenicoff's lawyers had not shown
that UBS's investment scheme for their client had resulted in
any measurable harm.
The case unfolded at a time when U.S. authorities are
investigating the Swiss banking industry. The U.S. Justice
Department has indicted one Swiss private bank, Wegelin, and
charged scores of Swiss bankers and their American clients with
Olenicoff's case differs in one key aspect from a separate
one brought by former clients of UBS against the bank in a
Chicago federal court last June. In that case, the former
clients have not faced criminal legal charges from the IRS.
The Chicago case, which seeks class-action status, was filed
in June 2011 on behalf of former UBS clients Matthew Thomas of
California and Himanshu Patel of Arizona. Thomas and Patel
previously paid back taxes, interest and penalties to the IRS
related to their Swiss accounts. They are accusing UBS of fraud
and breach of fiduciary duty, claiming UBS told them that their
accounts, opened when the two worked overseas during the last
two decades, did not have to be disclosed to the IRS.
(Reporting by Lynnley Browning)
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