By Reynolds Holding
NEW YORK, Dec 4 (Reuters Breakingviews) - Greed may not be
good, but it's perfectly legal. U.S. judges are affirming as
much. An appeals court just tossed a tax shelter case against
two Ernst & Young partners, even though they helped deny Uncle
Sam some $2 billion. The ruling underscores how hard it is to
prove dodgy financial conduct is criminal.
Appellate courts almost never overrule a jury's assessment
of evidence. Yet in last week's decision, judges said
prosecutors misconstrued emails, distorted motives and otherwise
fell far short of proving the two men involved meant to mislead
the IRS, no matter what jurors believed.
It's not the first major prosecution of its kind to founder.
In 2006, a federal judge dismissed charges against 13 KPMG
lawyers and bean-counters because the government forced the
accounting firm to stop paying their legal fees. And last year,
another jurist tossed three convictions involving BDO because of
juror misconduct that, in fairness, wasn't the fault of
prosecutors.
In each case, dodgy shelters pushed - and sometimes
overstepped - legal boundaries so that ultra-wealthy folks could
save billions of dollars. Some professionals, however, were
accused despite scant evidence they thought the schemes were
improper.
Public pressure may have played a role. In 2003, a U.S.
Senate subcommittee released a high-profile report harshly
criticizing lawyers, accountants and investment bankers for
promoting tax shelters. The Justice Department soon launched
criminal investigations.
It's a familiar pattern. Last year, the same Senate
subcommittee asked federal prosecutors to scrutinize Goldman
Sachs for its role in the financial crisis. Separately, the
Financial Crisis Inquiry Commission issued a report largely
blaming Wall Street for the economy's collapse. Investigations
ensued, but no charges. And very few criminal cases have been
brought against the financial industry over the crisis.
Many critics say the Justice Department just isn't trying
hard enough. Maybe. It remains hard to understand why cases
couldn't be built against the likes of Dick Fuld or former
Countrywide Financial boss Angelo Mozilo.
Most likely, prosecutors simply lack the evidence to meet
the high standard of proof. And in that sense, the Ernst & Young
reversal is a reality check for those still baying for Wall
Street blood.
CONTEXT NEWS
- A U.S. Court of Appeals on Nov. 29 reversed the 2010
convictions of two former Ernst & Young lawyers for tax evasion,
false statements and other crimes in connection with tax
shelters that prosecutors claimed cost the government $2 billion
in revenue.
- Martin Nissenbaum and Richard Shapiro had been sentenced
to 30 months and 28 months in prison, respectively, for helping
create five tax shelters that allowed people netting more than
$10 million a year to create paper losses or pay taxes at the
capital gains rate rather than the higher rate for ordinary
income. The appeals court ruled 2-1 that there wasn't enough
evidence to support the convictions. The court, however,
affirmed the related convictions of three other defendants.
- It is at least the third major tax-shelter prosecution in
recent years to faces serious problems. In 2006, A U.S. district
judge tossed charges against 13 defendants after prosecutors
violated their rights by pushing accounting firm KPMG to stop
paying their legal fees. Last year, another federal jurist cited
juror misconduct in throwing out the convictions of two lawyers
and former BDO chief executive Denis Field on illegal
tax-shelter charges.
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
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