MANHATTAN (CN) – A former vice chairman of international accounting firm BDO Seidman pleaded guilty Wednesday to a scheme that provided bogus tax shelters that helped wealthy clients avoid paying more than $200 million in taxes, by creating over $1 billion in fraudulent losses.
Charles Bee Jr. admitted that he conspired with former BDO executive Adrian Dicker, the company’s chief executive and the now-defunct law firm Jenkins & Gilchrist, to market the illegal tax shelters to affluent clients.
Dicker pleaded guilty to conspiracy and tax evasion in March and is awaiting sentencing.
Bee, who is also a CPA, headed the firm’s “Tax Solution Group” from 1998 to 2000. The group designed and marketed two fraudulent tax shelters – one known as a short sale transaction and the other known as short options strategy, or SOS. The schemes were designed to generate paper losses, but not financial losses for clients, prosecutors said.
Jenkins & Gilchrist issued legal opinions to support the tax shelters and sent authorization letters to clients, and other documents used to “execute the preplanned steps” of the scheme. The law firm issued one opinion concluding that it was “more likely than not” that a client would prevail in claiming the tax benefits from the tax shelter if challenged by the IRS.
In return, BDO, Jenkins & Gilchrist and an unnamed New York bank received millions of dollars in contingency fees.
In 2000, Bee, Dicker and the CEO obtained a compensation agreement from the accounting firm in which the Tax Solution Group leaders would be paid 30 percent of the net profits, which they shared equally, the government said.
Bee earned more than $13 million in profits from sales of the tax shelters, in addition to his salary and other bonuses, according to prosecutors.
Another former BDO executive, Michael Kerekes, pleaded guilty in February to his role in the fraud. Former chief executive Denis Field has not been charged.
Jenkins & Gilchrist closed in 2007 after being ordered to pay $76 million to the IRS.
Bee, who lives in Fredericksburg, Va., agreed to forfeit $20 million, three homes in Boca Raton, Fla., one in Saddle Brook, N.J., and a 40-foot recreational vehicle.
He faces up to 15 years in prison on three fraud counts. No sentencing date has been set.
BDO Seidman, headquartered in Chicago, said in a statement that the tax shelter group had been dissolved several years ago.