Three investors have filed a complaint in an Illinois state court accusing Bank One Corp., now part of JP Morgan Chase & Co, of selling them illegal tax shelter schemes, according to Reuters.
The lawsuit was initially filed in May, but last month moved to a federal court in Chicago. It seeks punitive damages for alleged fraud and malpractice relating to tax shelter schemes dubbed 'Homer' and 'Bart' after the the cartoon characters in the television show 'The Simpsons'.
The complaint also includes Deutsche Bank, which provided the loans and related transactions to help carry out the tax sheltering activity, and law firm White & Case, which allegedly helped to design the 'Homer' part of the scheme.
The report also mentioned that American Express prepared the 2001 tax returns for two of the plaintiffs, Donald and Laurie Wilson, while Andersen prepared the return for the other plaintiff, Kenneth Brody.
According to the complaint, Bank One approached Texas-based law firm Jenkens & Gilchrist in January 2001, seeking a legal opinion legitimizing the Bart shelter (basis adjusted remainder trust). Subsequently, the shelter was transformed into Homer (hedge option monetization of economic remainder), a shelter which, according to the report, involved options trading that might hide losses and appeal more to taxpayers.
The plaintiffs alleged that they were told at the time of the tax shelter purchase in November 2001 that the scheme took advantage of a legitimate loophole. However, the complaint stated that Bart and Homer were similar to another tax shelter known as Cobra, which was outlawed by the Internal Revenue Service in 2000.
A spokesman for White & Case has stated that the accusations against the law firm lack merit because they are based on a misunderstanding of its relationship with Deutsche Bank.
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