CHICAGO (CN) – A former chief operating officer of Oracle Corp. claims in court that his financial advisers recommended he invest in a sham tax haven, costing him $100 million in back taxes and IRS fines.
R.J. Lane sued Deutsche Bank, BDO Seidman, Arnold & Porter, Michael Kerekes, Denis Field, Robert Greisman, and Peter Cinquegrani in Cook County Court.
Lane describes his former employer in the complaint only as a “Fortune 100 computer software company.” But the tax shelters named match those used by Raymond J. Lane, the former COO and president of Oracle and former chairman of Hewlett-Packard, according to a June 2013 Bloomberg news story.
Lane, who left Oracle with more than $1 billion in stock options, claims he invested $250 million in an investment vehicle known as the “Partnership Option Portfolio Securities,” (POPS) based on advice from BDO Seidman adviser Michael Kerekes.
“Even though Lane was a very successful businessman and corporate executive, he nonetheless relied on Kerekes and BDO to provide him with the best and most current advice with respect to tax planning and complex financial investments. Put another way, Lane’s corporate acumen did not make him a tax or financial planning expert,” the complaint states.
But the IRS already had informed the defendants that the POPS tax strategy was illegal, according to the 92-page lawsuit.
“BDO, Deutsche Bank, and Arnold & Porter were well aware, as they carried out the POPS transaction on Lane’s behalf, that the United States government had already deemed the strategy illegal,” the complaint states. “On August 11, 2000, the IRS published a notice entitled ‘Tax Avoidance Using Artificially High Basis’ warning accountants and tax attorneys that the ‘purported losses arising from certain types of transactions,’ including strategies like POPS, ‘are not allowable for federal income tax purposes.'”
Nonetheless, Lane says, Kerekes and BDO told him the strategy was approved by the IRS, exposing him to back taxes, IRS penalties and interest.
“Each of the defendants was aware, at the time they sold and/or carried out Lane’s POPS transaction, that the straddle losses generated by Deutsche Bank would result in unlawful deductions on Lane’s year 2000 tax returns,” the complaint states.
Lane paid the IRS $100 million this year to settle the tax claims against him.
In 2010, Deutsche Bank admitted it had provided fraudulent tax shelters, including POPS, to wealthy people, helping clients evade about $5.9 billion in income tax. It paid the Justice Department $553.6 million to avoid prosecution.
BDO also settled tax-fraud conspiracy charges, agreeing to pay $50 million for helping customers evade $1.3 billion in taxes.
Kerekes pleaded guilty in 2009 to conspiracy to design and market illegal tax shelters such as POPS, according to the complaint.
Lane seeks punitive damages for breach of fiduciary duty, fraud, aiding and abetting, and conspiracy.
He is represented by Gary Mauney, with Lewis & Roberts, of Charlotte, N.C.
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