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North Carolina Lawyers Weekly Top Settlements and Verdicts (2014) - Securities Fraud - $3 Million

Settlement amount: 
$3 Million

Jim Roberts was lead counsel for the plaintiff.

The case referred to above concluded with a confidential settlement. Many financial cases in litigation result in confidential settlements. This means that we cannot publicly discuss the terms and conditions of those settlements, including what the settlement amounts were. We can, however, provide descriptions of the types of cases we are working on now – which are comparable to those we have worked on before. The following summary relates to a case that we are either actively litigating or that we have litigated in the past.

Fraud in Connection with Derivative Transactions

See Illinois Supreme Court Petition No 120195, R.J. Lane v. Deutsche Bank, AG and BDO Seidman, LLP, Case No. 14-L-39 (Cook County Circuit Court in Illinois). In this case, we represent the plaintiff, a former software executive who exercised a $250 million block of his company’s stock options. The plaintiff turned to his accounting and tax advisors at BDO Seidman for advice on investment and tax planning with respect to the options.

BDO Seidman recommended that the plaintiff employ an investment and tax strategy using derivatives coupled with a loan swap guarantee. As part of the strategy, Deutsche Bank generated the derivatives and the loan swaps and the loan swap guarantee. By using this structure, BDO Seidman advised the plaintiff that he could potentially profit from the transactions, while simultaneously creating tax losses that could be used to offset the gain from the exercise of his stock options. In order for this plan to work, the derivatives and other related investments had to have genuine profit potential. Likewise, the loan swap guarantee was required to have legitimate risk. Otherwise, the tax losses from the derivatives and guarantee would never pass muster with the Internal Revenue Service.

After the transaction, the IRS audited the plaintiff and challenged the tax losses purportedly generated by the derivative transactions and loan swap guarantee. The IRS contended, among several arguments, that these transactions did not carry the legitimate risk necessary to generate lawful tax losses. Faced with this challenge, the plaintiff ultimately reached a settlement of his tax issues with the IRS. Through this settlement, the plaintiff owed millions of dollars in IRS interest and penalties. Plus, the plaintiff incurred massive losses associated with his investment.

In this case, the plaintiff alleges that BDO Seidman and Deutsche Bank worked together to create a fraudulent transaction. It is alleged that Deutsche Bank set up the derivative transactions so that the bank would incur no losses as the counter-party. It is alleged that Deutsche Bank set up the loan swap guarantee with the plaintiffs so that no legitimate risk was created by the guarantee. As a result, the plaintiff alleges (unbeknownst to him), the investments could never have yielded a profit net of fees, and the transaction could never have generated legitimate tax losses.

This case is presently on appeal to the Superior Court of California, County of Los Angeles. Jim Roberts, along with co-counsel, represents the plaintiff in this action.