Saturday, January 13, 2007

Link identified

Guambat recently reported on a tax shelter fraud case primarily involving KPMG. More on that here.

One of the users of the tax shelter was, it now appears, a venerable association of Micronesian and US investors who have a long history of involvment in the development of the infrastructure of the Micronesian islands, including airlines and telecommucications.

It seems that the asscociation's accountant, who was reported as the Saipan "link", was involved in bringing the tax shelter to it, and that he failed to disclose to the association that he was receiving a fee for doing so.


Kiplinger reports on the latest details to be released:

Michael Grandinetti, a senior executive with the United Micronesia Development Association, entered his plea at a hearing before U.S. District Judge Thomas P. Griesa.

At the hearing, Grandinetti, 54 years old, said he lied to a prosecutor and an Internal Revenue Service agent when he told them in a March 2006 telephone call that he had disclosed to the UMDA's board of directors that he received secret side payments from a group of tax shelter promoters.

"The statement was not true and I knew it was not true," Grandinetti said prior to entering his plea.

Grandinetti faces up to five years in prison on the charge. Bail was set at $10,000.

Prosecutors have charged 16 former KPMG executives and two others with allegedly participating in a scheme that allowed wealthy individuals to avoid paying billions of dollars in taxes to the Internal Revenue Service. The case is tentatively set for trial in September.

A conspiracy charge was dropped against KPMG itself last month after the firm fulfilled the terms of its 2005 deferred prosecution agreement with the government, in which KPMG agreed to pay $456 million and admitted to fraudulent conduct in the design and marketing of certain tax shelters.

Grandinetti, a U.S. citizen, is a former certified public accountant and one-time partner at an unnamed large accounting firm, according to court documents. The unnamed firm isn't KPMG.

At Thursday's hearing, Grandinetti said tax-shelter promoters in the U.S., including one in Denver, suggested UMDA engage in tax-shelter transactions to avoid paying millions of dollars of Saipan corporate income taxes. Saipan is the capital of the United States Commonwealth of the Northern Mariana Islands.

He also admitted to agreeing to share in certain fees generated by the promoters as a result of UMDA's participation in the shelters.

UMDA participated in the tax-shelter transactions in tax years 1996 and 1997, according to court documents.

Grandinetti is the fifth person to plead guilty to criminal charges in the matter.

On Wednesday, Steven M. Acosta, a California accountant and insurance salesman, pleaded guilty to conspiracy, tax evasion and two courts of obstructing an investigation by the Internal Revenue Service. David Rivkin, a former KPMG tax partner, pleaded guilty to conspiracy and tax evasion last March.

Reuters and the NY Times are also following the story, the primary focus of which is on the massive US tax losses allegedly associated with the KPMG tax shelter boondoggle.

UMDA isitself an association, and its associates have come and gone over time and have included investors, entrepreneurs and politicians from throughout the Pacific and US. It appears that in the 1990s it had some significant relationships with Larry Hillblom and DHL. But its associates are spread wider.

See:
"UMDA's principals Joseph Waechter, Michael Grandinetti, and Larry Hillblom"

"Joseph Weachter: Mr. Waechter, age 50, is the former President of DHL, the world's leading express and logistics company. After DHL he was the President and Chief Executive Officer of United Micronesia Development Association, Inc. (UMDA)."

And in this FCC fiing, some recent geneology is reported:
On September 20, 2006, Guam Cable Group, Inc. (“GCG”), Startec Global Operating Company (“Startec” or “Transferor”), and Guam Telecom, LLC (“GTL” or “Transferee”) (collectively, “Applicants”), filed an application, pursuant to section 63.04 of the Commission’s rules, requesting authority to transfer control of Startec’s 50 percent interest in GCG to GTL.

GCG, a Delaware corporation headquartered in Hagåtña, Guam, offers long distance services to business and residential customers in the Territory of Guam. Startec, a Delaware corporation, offers long distance services to residential customers nationwide. Startec owns fifty percent of the outstanding common stock of GCG.

GTL, a Delaware limited liability company headquartered in Dededo, Guam, offers domestic and long distance services to business and residential customers in the Territory of Guam. GTL is wholly–owned by MCV Guam Investments, LLC, a Delaware limited liability company. MCV Guam Holding Corp, a Guam corporation, owns 99.7 percent of MCV Guam Investments, LLC. In turn, MCV Guam Holding Corp. is wholly-owned by MCV Acquisition, LLC, a Delaware limited liability company. Seaport Capital Partners II, LP, a Delaware limited partnership, owns 89.9 percent of MCV Acquisition, LLC. United Micronesia Development Association, a U.S.-based investment entity, owns 8.3 percent of MCV Acquisition, LLC. CEA Investment Partners II, LLC, a U.S.-based limited liability investment company, is the sole general partner of Seaport Capital Partners II, LLC. Seaport Associates, LLC, a Delaware limited liability investment company, and CEA Seaport Holdings, LLC, a Delaware limited liability investment company, own 75 percent and 25 percent, respectively, of CEA Investment Partners II, LLC. The J. Patrick Michaels Family Trust, a U.S-based investment entity, holds the controlling interest in CEA Seaport Holdings, LLC. William Luby and James Collis, both U.S. citizens, are the managing members of Seaport Associates, LLC. The ultimate controlling ownership interests in GTL are thus held by the J. Patrick Michaels Family Trust, William Luby, and James Collis.
The California Public Employees’ Retirement System, a U.S-Based retirement administrator, owns 13.7 percent of Seaport Capital Partners II, L.P. Applicants state that there is no interest holder with a derivative interest in GTL of 10 percent or greater.
Applicants state that J. Patrick Michaels, Jr., Trustee of the J. Patrick Michaels Family Trust, holds a cognizable interest in CEA Capital Corp, which indirectly holds a controlling voting interest in Reserve Long Distance, Inc., a rural incumbent local exchange carrier providing voice and date services in Reserve and La Place, Louisiana.
Applicants state that William Luby and James Collis hold cognizable interests in Seaport Associates III, L.P., which indirectly holds a controlling voting interest in Everest Midwest, LLC, a competitive local exchange carrier providing voice and data services in the Kansas City metropolitan area.

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