Indicted Lawyer Slaps Haim Saban With Sensational Civil Suit

A civil suit filed in Los Angeles Superior Court on Tuesday reads like a script for a big screen Hollywood legal thriller. It's a case of the truth being stranger -- and far more complicated -- than fiction.

Hollywood tax lawyer Matthew Krane is suing his former client, entertainment industry billionaire Haim Saban, over a $36 million fee Krane was paid for referring Saban to an investment fund run by the Quellos Group. The suit charges Saban with attempting to get his hands on the $36 million, and in the process makes several provocative allegations.

According to the nine-page complaint, Krane states that Saban "spent decades trying to avoid paying taxes on the many billions of dollars in income he has received" and that the well-known Democratic fundraiser used political donations to "demand special treatment and favors."

Saban was the creator of hit TV franchises like the Teenage Mutant Ninja Turtles and the Mighty Morphin Power Rangers. Krane was once a partner at former Los Angeles firm Pollack, Bloom & Dekom -- now the Beverly Hills-based firm of entertainment industry player Jacob Bloom. While there he served as Saban's longtime tax adviser. (The L.A. Business Journal has an excellent story on the complicated relationship between Saban and Krane.)

For the past year, Krane has been sitting in a cell at the Metropolitan Detention Center, a federal holding facility in downtown Los Angeles. He faces federal charges over money laundering, conspiracy, as well as related charges of passport fraud and identity theft in what federal prosecutors have called one of the largest tax evasion schemes in U.S. history. It's from there that he's taken up his fight against Saban.

THE SALE

Scene One in this drama is set in 2001, when Saban realized $1.5 billion in capital gains from the sale of his stake in the Fox Family Channel to Walt Disney. Saban tapped Krane -- a Harvard-educated lawyer with an exclusive Hollywood clientele, according to the Business Journal story -- to help the media mogul avoid hefty capital gains taxes. Krane had relied on a tax shelter to do this; that shelter is at the heart of the case filed against Saban.

In surprising testimony in 2006, Saban told the U.S. Senate that his limited formal education prevented him from understanding the shelter was illegal. He ended up paying $250 million in back taxes and penalties.

That would appear to end it for Saban. But several insiders, most of whom did not want to be identified by name, pointed out that since a trial is in Krane's future, it is possible that Saban or others could be touched by Krane's ongoing legal troubles.

Michael Holtz, a partner with L.A. firm Lavely & Singer representing Krane in the civil suit against Saban, tells The Am Law Daily that Krane created a legitimate tax plan to protect at least half of Saban's capital gain from taxes. Krane then sought a partner to protect the remaining 50 percent of Saban's windfall, eventually settling on the Quellos Group, the $18 billion Seattle-based hedge fund. After referring Saban's business to the group, Quellos paid Krane a $36 million finders fee. (Quellos sold its investment management unit to BlackRock for $1.7 billion in June 2007.)

"My client was paid a fee from Quellos for providing input, assistance, guidance, and advice helping create part of this tax plan that Saban used for his sale of the Fox Family stock," Holtz says. "This is not a situation where a client paid legal fees to a lawyer and then afterward wants their money back because they think they're the victim of malpractice."

For its services, Holtz says, Quellos negotiated separately with Saban for a percentage of the $1.5 billion. Quellos then struck another agreement with Krane, paying him a fee that Holtz describes as "commensurate with the advice, service, and consulting that he provided to them."

THE FRAUD

In 2006 a report by a Senate subcommittee suspected Quellos of engaging in tax evasion. Last month federal prosecutors charged Krane and two former Quellos executives -- CEO Jeffrey Greenstein and in-house lawyer Charles Wilk -- with 18 counts of tax fraud for signing off on tax shelters designed to save the firm's clients millions by crafting phony securities transactions to pass off as capital losses.

The government maintains that Krane, Greenstein, and Wilk netted $86 million in fees and allowed six clients to avoid paying $400 million in federal taxes. Krane was charged with money laundering for the $36 million fee -- prosecutors call it a kickback -- that he received from Quellos.

Holtz reiterates that Quellos paid Krane for bringing Saban's business to the firm and for constructing other tax structures used by the hedge fund with other high-profile clients. Holtz also argues that several Am Law 100 firms signed off on the tax shelters in question.

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