NYC real estate middleman charged with tax evasion

* Barry Gross charged with evading taxes on $1 mln bonus

* Hong Kong group sold big undeveloped Manhattan property

* Buyers were Extell and Carlyle Group, for $1.76 bln

By Grant McCool

NEW YORK, Sept 17 (Reuters) - A project director for Riverside South Properties, one of New York's largest real estate transactions, evaded taxes on a $1 million bonus he received for his role in the 2005 sale, prosecutors said on Thursday.

Manhattan District Attorney Robert Morgenthau told reporters that Barry Gross, 45, of Lawrence, N.Y.. was arrested and indicted on charges of grand larceny, falsifying business records and filing a false personal tax return. He faces up to seven years imprisonment.

The district attorney said Gross served as the intermediary between the majority owners, Hudson Waterfront Associates of Hong Kong, and the buyers, Extell and the Carlyle Group [CYL.UL]. The deal was finalized in November 2005 for $1.76 billion and Hudson paid the bonus.

Prosecutors said Gross asked his bosses in Hong Kong to label the bonus as a fee payable to a shell corporation that Gross controlled called Itamar Capital.

"This falsification of Hudson's business records allowed Gross to receive the $1 million through Itamar thus evading New York City and State taxes," Morgenthau said.

At the time of the 2005 deal, the site on a former railyard along the Hudson River was the largest parcel of undeveloped land in Manhattan. It was bought from the Hong Kong consortium and Donald Trump. The real estate tycoon sued his partners in 2005 saying they sold it for much less than it was worth.

Officials in Morgenthau's office said Extell and the Carlyle Group were cooperating in the probe.

Gross's attorney Benjamin Brafman said in a statement by email that he believed the case "should have been handled as a civil tax matter."

Separately, Morgenthau said at a news conference that his office was investigating a $17 million diversion to a company in the British Virgin Islands called Fineview related to the Riverside transaction. He said Fineview was controlled out of Hong Kong as a shell firm for the sellers.

Representatives for Hudson Waterfront Associates and Fineview could not be reached for comment. (Editing by Gary Hill)