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December 11, 2009 3:19 PM

L.A. Lawyer Pleads Guilty to Tax Evasion in Kickback Scheme

Posted by Brian Baxter

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.

We 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 advisor, 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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