Former officers of Quellos investment firm expected to be indicted in tax-evasion case Thursday

Federal prosecutors are expected to unseal indictments today in a massive tax-evasion investigation involving former officers of the Seattle investment firm Quellos, accusing them of operating offshore tax shelters used to hide hundreds of millions of dollars from the government, according to lawyers familiar with the case.

Quellos has been under investigation for at least two years and in 2006 earned its own chapter in a report titled "Tax Haven Abuses: The Enablers, the Tools and the Secrecy" published by the U.S. Senate Permanent Subcommittee on Investigations.

The company was founded in 1994 by Jeffrey Greenstein, a University of Washington graduate in business administration. It dealt mostly in exotic securities and hedge-fund investments for clients who could afford to invest millions. In recent years, it was managing a portfolio valued at nearly $18 billion and was among the world's top dozen hedge-fund investors, according to regulators and the Senate report.

Details of the indictment were not immediately known. First Assistant U.S. Attorney Mark Bartlett would confirm only that his office plans a news conference Thursday afternoon.

However, Seattle defense attorney Jeffrey Robinson, who represents Greenstein, confirmed Wednesday his client is named in the indictment. At least two other men with ties to the company also are named, according to an attorney familiar with the case who agreed to speak only if promised anonymity.

Federal prosecutors have already taken at least one plea connected with the case, according to court records.

Robinson said the transactions in question occurred nine years ago and were "vetted by world-class professionals, including numerous tax experts upon whom Mr. Greenstein — who is not a tax professional — relied in his role as CEO of Quellos."

Robinson accused the government of coordinating a "press attack" involving charges that are "untested, unchallenged and unproven." Greenstein, he said, is a victim of the economic times.

"In this climate, it is all too easy for the government to attack a businessman," he said.

The Senate report focused on a portfolio offered by Quellos to a handful of very wealthy clients, including Robert Wood Johnson IV, an heir to the Johnson & Johnson fortune, and Hollywood animation magnate Haim Saban, producer of "The Mighty Morphin Power Rangers."

Both men have said they were convinced the transactions were legitimate and were portrayed in the Senate report as victims who relied on the bad advice of their advisers and attorneys.

A Treasury Department source familiar with the criminal investigation, speaking on condition of anonymity, said the IRS will use civil laws to recover the owed taxes from the investors.

Quellos's tax strategy was called POINT — Personally Optimized Investment Transaction — and was, according to Senate investigators, based on "billions of dollars worth of fake securities transactions that were used to generate billions of dollars in fake capital losses to offset real taxable capital gains" earned by a wealthy few "so they could avoid paying taxes to the U.S. Treasury."

Quellos sold the plan to individuals who anticipated large capital gains, which are heavily taxed. Six joined the shelter, according to the Senate report, and paid Quellos fees of about $65 million.

Mike Carter: 206-464-3706 or mcarter@seattletimes.com