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A state judge has reinstated tax shelter claims against law firm Sidley Austin and German banking giant HypoVereinsbank (HVB) on the grounds that a federal deferred prosecution agreement signed by HVB in February presented new evidence of a conspiracy. Investor E. Roger Williams filed suit last year against Sidley Austin and former partner Raymond J. Ruble, as well several other defendants. Mr. Williams alleged they schemed to induce him to participate in a tax shelter subsequently declared illegal by the Internal Revenue Service. In March, Manhattan Supreme Court Justice Bernard J. Fried (See Profile) threw out Mr. Williams’ fraud and conspiracy claims, finding the plaintiff had failed to allege any misrepresentations with particularity. But Mr. Williams then moved for reconsideration based on HVB’s Feb. 17 deferred prosecution agreement with the Southern District U.S. Attorney’s Office. HVB, which provided financing for the tax shelters, agreed to pay $29.6 million in fines for its role. In a statement of admitted facts annexed to the agreement, HVB acknowledged it had engaged “in activity, with others, including accounting firms, investment advisory firms, various individuals affiliated with those entities, lawyers and clients . . . all directed toward the implementation of the tax shelters designed to defraud the United States.” The bank also agreed to the entry of a criminal information that alleged an HVB executive worked directly with Mr. Ruble on the schemes, which generated fees equivalent to 5 percent of tax reductions. In a Sept. 22 decision in Williams v. Sidley Austin, 600808/05, Justice Fried granted Mr. Williams’ motion to reconsider the earlier dismissal of fraud and conspiracy claims, finding the deferred prosecution agreement “supplies the element of scienter” the complaint had been missing. The decision appears on page 22 of the print edition of today’s Law Journal. “HVB’s admissions show that Sidley Austin, Ruble and HVB purposefully participated with accountants and promoters to market and implement fraudulent tax shelters . . . and indicates that, contrary to the positions taken in support of the initial motions to dismiss, HVB, Ruble and Sidley Austin were more than just peripheral parties used to conduct otherwise lawful business transactions or provide subsequent support services,” the judge wrote. In opposing Mr. Williams’ motion, HVB had pointed to November 2001 correspondence in which Mr. Williams had said HVB played no part in inducing him to participate in the tax shelter, but Justice Fried said the deferred prosecution agreement contradicted that statement, raising a triable issue of fact. The judge also noted that, in the deferred prosecution agreement, HVB charged that Mr. Williams, far from being an unwitting victim of a conspiracy, was himself a co-conspirator. This was also an issue for trial, the judge said. Sidley Austin and other parties involved in promoting prohibited tax shelters have been targeted in several lawsuits by individuals as well as classes of plaintiffs. The law firm fired Mr. Ruble in 20003 KPMG, the accounting firm that marketed the tax shelters, signed a deferred prosecution agreement last year requiring it to pay $456 million in fines. Several former KPMG employees, as well as Mr. Ruble, are facing criminal charges over the tax shelters, which the IRS has said cost the government some $2.5 billion in evaded taxes. Anthony Lin can be reached at [email protected]

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