UBS escapes tax evader’s $1.7 billion lawsuit

Judge says the billionaire former client’s track record doesn’t give him the right to sue

Lying to the Internal Revenue Service (IRS) typically isn’t the best way to ingratiate oneself with the federal government and its employees. Therefore, it should come as little shock that Judge Andrew Guilford of the U.S. District Court in Santa Ana, Calif., yesterday ruled in favor of Swiss bank UBS AG in a lawsuit brought by billionaire former client Igor Olenicoff.

In 2008, Russian-born property developer Olenicoff accused UBS of fraud and conspiracy, among other charges, in regard to handling about $200 million that he kept in offshore accounts. He claimed the bank wrongfully advised him that he didn’t have to report the accounts to the IRS. Because of this, he sought $1.7 billion in damages and wanted to investigate whether Swiss banks’ clients could legally rely on their bankers’ advice on clients’ need to disclose their accounts on tax returns.

But one year prior to filing the lawsuit, Olenicoff pleaded guilty to tax evasion and falsifying his tax returns by failing to disclose those offshore accounts. He eventually paid $52 million in back taxes.

Judge Guilford, however, was unmoved by Olenicoff’s plight. In his ruling, he wrote that the case was built on the premise that UBS gave Olenicoff bad advice, which was wrong, but because Olenicoff had previously pleaded guilty to tax evasion, he had shaky legal standing with which to cast blame.

“UBS's admission of guilt does not give Olenicoff the right to sue UBS for fraudulent tax advice,” Judge Guilford wrote.

UBS agreed with the judge’s ruling.

“We are pleased with the Court's decision,” a UBS spokeswoman said in a statement. “It corresponds with our view that Olenicoff's claims for damages have been without merit. The judge confirmed that Olenicoff cannot turn to UBS to blame it for his own omissions/failures to disclose his offshore accounts and to pay taxes.”

The case was scheduled to go to trial about a month from now.

UBS, however, has been making headlines for quite some time thanks to numerous shady dealings. The U.S. Department of Justice (DOJ) placed UBS, along with seven other offshore banks, on watch last September for potentially facilitating tax evasion by U.S. citizens.

In 2009, federal prosecutors charged UBS with helping American clients to evade their taxes. UBS admitted it fostered tax evasion, and entered into a deferred prosecution agreement with the DOJ. Under the terms of the agreement, UBS paid $780 million in fines, penalties, interest and restitution and turned over data on nearly 5,000 accounts to the IRS.

And in November 2011, the Securities and Exchange Commission charged the bank with faulty record keeping related to short sale orders. UBS agreed to an $8 million fine.

For more on the Olenicoff case, read Reuters.

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