Ernst & Young partners charged in tax fraud case

By Emily Chasan

NEW YORK (Reuters) - Federal prosecutors on Wednesday charged two current and two former partners of accounting firm Ernst & Young ERNY.UL with tax fraud conspiracy arising out of the sale of tax shelters.

The defendants, who pleaded not guilty at U.S. District court in Manhattan, are accused of creating and marketing tax shelters at the "Big Four" accounting firm from 1998 through 2004 based on fraudulent scenarios that allowed wealthy individuals to reduce the federal taxes they would have to pay.

The indictment comes after years of investigations into the sale of aggressive tax shelter strategies. Sixteen former partners at rival "Big Four" firm KPMG KPMG.UL are also facing trial in September.

The four men accused on Wednesday include Robert Coplan, former National Director of Ernst & Young's Center for Family Wealth Planning; Martin Nissenbaum, the firm's former national director of Personal Income Tax and Retirement Planning; former Ernst & Young partner Richard Shapiro and Brian Vaughn, a former senior manager at the firm.

A lawyer for Shapiro, John Tigue, said his client has cooperated with the government's inquiry for the last five years.

"He intends to vigorously defend himself," Tigue said in a statement.

At a hearing before U.S. District Judge Sidney Stein, Copland, Shapiro and Nissenbaum were released on $1 million bail with travel restrictions, while Vaughn was released on $300,000 bail with travel restrictions.

If convicted of the charges, Coplan, 54, could face 18 years in prison; Nissenbaum, 51, could serve as many as 13 years, while Shapiro, 58, and Vaughn, 39, could each face 10.

Defense lawyers maintained their clients were innocent.

"We have provided them (the U.S. attorney's office) over the past year with evidence that Mr. Nissenbaum did not engage in any unlawful activity," Brian Linder, an attorney for Nissenbaum said in a statement.

Vaughn's attorney, Peter Barrett, said his client "looks forward to trial in this case, to his acquittal, and complete exoneration of all of these allegations."

A lawyer for Coplan would not comment.

NEW TACTIC

Prosecutors allege the four schemed to defraud U.S. tax authorities by deceiving the Internal Revenue Service (IRS) about tax shelters marketed to clients with incomes higher than $10 million or $20 million.

The indictment also charges that Coplan, Nissenbaum and Shapiro used tax shelters in 2000 to evade their own taxes and arranged for eight other Ernst & Young partners to participate, evading $3.7 million in taxes.