Renowned Entertainment Lawyer
Pleads Guilty to Tax Evasion
By Brian Baxter
The American Lawyer
New York Lawyer
December 14, 2009
The strange story of
Matthew Krane took another turn late Thursday as the former
partner of renowned entertainment lawyer Jacob Bloom pled guilty
to federal passport fraud and tax evasion charges in a scheme
involving overseas tax shelters.
Am Law Daily previously
covered Krane's legal troubles in July, when the Hollywood tax
lawyer sued a former client, entertainment industry billionaire
Haim Saban, over a $36 million fee Krane was paid for referring
Saban to a Seattle-based hedge fund.
Known as the Quellos
Group, the fund was the subject of a federal tax investigation
that resulted in an indictment against two senior executives
being unsealed in June. Former Quellos CEO Jeffrey Greenstein
and in-house lawyer Charles Wilk are accused of masterminding an
alleged $400 million tax fraud scheme.
Prosecutors claim that
a $36 million finders fee paid by Quellos to Krane for enrolling
Saban in the fund's tax shelters actually was actually a
kickback for a cut of the fees earned from enrolling a
high-profile client. Krane served as Saban's longtime tax
adviser, and the billionaire needed the lawyer's counsel after
realizing $1.5 billion in capital gains from the sale of his
stake in the Fox Family Channel to Walt Disney in 2001.
Saban was forced to pay
$250 million in back taxes and penalties as a result of his
enrollment in the tax shelter. Saban testified before a Senate
committee in 2006 that his lack of a formal education prevented
him from understanding that the shelter was illegal. The Senate
later issued a report raising questions about Quellos and tax
evasion; federal prosecutors began their investigation after the
report was issued.
Saban then sued Krane
in Austria seeking to recoup the fee and Krane countersued his
former client in Los Angeles Superior Court.
The passport fraud
charge tacked on against Krane stems from the tax case. Earlier
this year, federal agents searching Krane's West Hollywood home
found illegal narcotics and documents relating to a passport
application with Krane's photo identifying him as "Christopher
Thomas Sullivan."
Robert Bernhoft and
Robert Barnes of The Bernhoft Firm - of Joe Francis and Wesley
Snipes fame — are advising Krane. The firm took over Krane's
criminal case this summer from Foley & Lardner white-collar
defense chair Pamela Johnston.
Krane's lawyer for his
suit against Saban, Michael Holtz of Los Angeles entertainment
litigation boutique Lavely & Singer, did not respond to a
request for comment about how Krane's criminal plea could
possibly affect his civil litigation. Krane faces up to five
years in prison for the two convictions on the passport fraud
and tax evasion charges at his sentencing in March 2010.
The trial of the two
Quellos executives — Greenstein and Wilk - is tentatively
scheduled for September 2010. Quellos sold its investment
management unit to BlackRock in June 2007 for $1.7 billion.
Dechert's Andrew
Levander is representing Greenstein, while Wilk has turned to
John Keker of Keker & Van Nest.
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