Thank you for sharing!

Your article was successfully shared with the contacts you provided.
With the Internal Revenue Service after him for stashing nearly $100 million in questionable offshore tax shelters, telecommunications entrepreneur Peter T. Loftin tried to deflect the blame onto his financial planners at KPMG and other firms. But Senior U.S. District Court Judge Kenneth L. Ryskamp in Florida threw Loftin’s lawsuit out of court. Loftin last year sued the accounting giant for racketeering, fraud and negligence in U.S. District Court in West Palm Beach. As many as eight lawsuits similar to Loftin’s have been filed around the country against KPMG, according to the Wall Street Journal. Last week’s ruling is believed to be the first major ruling in any of those cases. Ryskamp found that Loftin’s claim against each defendant under the federal Racketeer Influenced and Corruption Organizations Act was barred by a securities litigation reform law passed in 1995. The judge also held that Loftin’s accompanying state law claims for fraud, malpractice and breach of fiduciary duty were “premature” because Loftin failed to establish that he’s suffered any actual injury. It was not immediately clear whether Ryskamp’s ruling will impact the other lawsuits. But Amy Dunbar, an accounting professor at the University of Connecticut, said such cases are flimsy anyway. “The tax shelter clients are hardly victims; they undoubtedly knew exactly what they were buying. Now they are simply paying the taxes they should have paid in the first place,” she said. Loftin came to public attention last when the IRS identified him and about 160 other wealthy people as participants in tax shelters that it was investigating as possible abuses of the law. Last year, the IRS sued KPMG and another accounting giant, BDO Seidman to obtain documents about their tax shelter promotions. Other shelter clients named by the IRS included the late race car driver Dale Earnhardt, New Line Cinemas chairman Robert Shayne and Bill Simon, a Republican who lost the California governor’s election last year to Gray Davis. Besides KPMG, Loftin sued First Union/Wachovia, and advisers QA Investments LLC and its Seattle-based parent, Quellos Group LLC, San Francisco-based Presidio Growth LLC and the law firm Brown & Wood in New York. He had sought to recover at least $3.9 million in fees and other compensation he paid for allegedly bad tax advice and the treble damages allowed by federal RICO statutes. “We believed the allegations were without merit and are pleased with the court’s ruling,” said Greg Dvorken, a spokesman at KPMG’s headquarters in Montvale, N.J. KPMG was represented by three attorneys at Akerman Senterfitt in Miami, partner John F. O’Sullivan, associate Julie E. Nevins and of counsel David C. Goodwin. O’Sullivan declined comment on Ryskamp’s ruling. Loftin’s lawyers were Rachel S. Fleishman and Brad N. Friedman, partners at Milberg Weiss Bershad Hynes & Lerach in New York. Friedman declined to comment on the ruling or on any future course of action. Judge Ryskamp’s order said that First Union/Wachovia and Loftin agreed to arbitrate their dispute in July. The bank was dismissed as a defendant and negotiations continue, according to a source familiar with the matter. Other wealthy KPMG clients have filed suits similar to Loftin’s regarding the sale of tax shelters that now are under IRS scrutiny. KPMG did not respond to an inquiry about the exact number of suits it faces. Dvorken said, “We provide tax planning services for clients in an appropriate manner and believe the allegations in those cases are without merit.” Loftin, a former door-to-door salesman, built a fortune as founder and chairman of BTI Telecom Corp., a privately held company based in Raleigh, N.C. with reported annual revenues in excess of $271 million. He gained international attention in 2000 when he paid $19 million for the Ocean Drive mansion formerly owned by the slain fashion designer Gianni Versace in Miami Beach. In court papers, Loftin said he invested in the tax shelters after netting $30 million from the 1997 sale of his individual interest in FiberSouth, a BTI subsidiary. He said he hired KPMG for tax planning at the suggestion of his bankers at First Union in Charlotte, now known as Wachovia. In 1999, Loftin collected an additional $65 million from the sale of a portion of his equity stake in BTI and again turned to KPMG for advice on how best to invest it, according to court papers. Loftin claimed that in 1997, KPMG persuaded him to sink $30 million into an illegal, unregistered tax shelter known as a FLIP, or foreign leveraged investment program. That shelter used a company based in the Cayman Islands, Larkhaven Capital, to generate losses from the sale of stock and warrants; Loftin later used those losses to offset his large capital gains. Two years later, Loftin said, he was steered to put $65 million into something called a BLIP. Judge Ryskamp’s order said Loftin provided the court with no detailed description of that strategy. Nonetheless, the BLIP led Loftin to report “capital losses of approximately $100 million” on his 1999 and 2000 income tax returns. In 2000, the IRS commenced an audit of Loftin’s 1997 tax return. In Loftin’s lawsuit, the defense filed a series of motions to dismiss in the months leading up to Ryskamp’s order. Last week, Ryskamp agreed with the defense that the federal Private Securities Litigation Reform Act of 1995 barred Loftin’s RICO claim and dismissed it. Under the reform act, plaintiffs generally are prohibited from using allegations of securities fraud as the basis for a RICO complaint. “The court finds that this case presents facts that fall within the purview of the PLSRA bar,” the 18-page order said. Ryskamp also ruled that Loftin’s complaint wasn’t “ripe” because it failed to state claims for fraud and negligent representation. The suit, the judge said, “merely establishes that Loftin is in the midst of a dispute with the IRS. Loftin speculates that he will have to pay the IRS a ‘hefty sum’ as a settlement” but until that’s done it’s not possible to know if he was actually damaged. “Indeed, if Loftin’s settlement payment amounts to nothing more than payment for back taxes and interest, he will not have suffered any injury,” Ryskamp wrote.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.