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KPMG Ex-Tax Partner Pleads Guilty
By Paul Davies and David Reilly
The Wall Street Journal
Tuesday, March 28, 2006

Just days before a key court hearing to determine whether to dismiss the KPMG LLP tax-shelter case, one of the 19 defendants pleaded guilty Monday to conspiracy and one charge of tax evasion in exchange for federal prosecutors dropping other charges against him.

David Rivkin, a tax partner in KPMG's San Diego office from July 1999 to April 2004, originally faced 39 counts of tax evasion for his role in a tax-shelter scheme in which he helped nine wealthy individuals avoid paying a combined $235 million in taxes.  The government alleges the tax-shelter scheme generated about $2.5 billion in illicit tax savings.

Mr. Rivkin is one of 17 former executives at the giant accounting firm to be charged in connection with the sale of the questionable products.  The other two defendants are an outside lawyer and investment adviser who helped KPMG structure and sell the products.

Mr. Rivkin's plea deal is expected to increase pressure on the other 18 defendants scheduled to go to trial in the fall in what is seen as one of the most complex and wide-ranging tax cases ever brought by federal prosecutors.  New York-based KPMG last year reached its own deal with prosecutors, agreeing to pay $456 million and admit criminal wrongdoing as part of a deferred-prosecution pact.  The pact allowed the firm to avoid a criminal indictment.

Under terms of his deal with prosecutors, Mr. Rivkin, 42 years old, faces as many as five years in prison for each count but is expected to receive a reduced sentence for his testimony against other defendants in a trial expected to start in September.  He remains free on bail and is scheduled to be sentenced next February.

It isn't clear how much light Mr. Rivkin will be able to shed on actions by more senior KPMG employees, because he was less involved with the shelters than some others charged.  Other KPMG employees charged in the matter include Jeffrey Stein, the firm's former deputy chairman;  Richard Smith, former vice chairman for tax;  and John Lanning, former vice chairman for tax services.

A certified public accountant, Mr. Rivkin worked in California at the firm's Innovative Strategies group, which designed and marketed tax-shelter products for individual clients.  That unit's chief was Jeffrey Eischeid, who also has been charged in the case.

In court Monday, Mr. Rivkin said that, in April 1999, he and other KPMG employees attended a meeting in Dallas where they were trained in the sale and marketing of tax-shelter schemes known as a Bond Linked Issue Premium Structure, or BLIPS, and Offshore Portfolio Investment Strategy, or OPIS.  The shelters were to be marketed as long-term investments, but the real purpose was to generate "phony tax losses," Mr. Rivkin said.  He added that the shelters were "designed and approved" by senior partners at KPMG and that he was given a list of people with incomes of more than $20 million on whom to call.

Mr. Rivkin's plea came just three days before lawyers for the other defendants are scheduled to argue before U.S. District Judge Lewis A. Kaplan on motions to dismiss the charges against their clients.

Write to Paul Davies at and David Reilly at