2nd assignment / 2 pages long

EOUSA 445

& -·- ..

. .

;;-I[!� IN THE UNITED STATES DISTRICT COURT 4PJ? l. I) FOR THE SOUTHERN DIST.RICT OF ll..LINOIS � �1'\�- :< �

�o"!JJt�t;f!{flf UNITED STATES OF AMERICA, ) �� �.:t;.I:J�8J'_e:. .

) �� Plaintiff,

vs.

)

� CRIMINAL NO. O'J.-.8(J()t./0-6fH )

BDO SEIDMAN, LLP, a New York Limited .Liability Partnership,

) ) )

Defendant. )

PRETRIAL DIVERSION AGREEMENT

It appearing that you are reported to have committed an offense agrunst the United States beginning

in or about October 1995 and continuing to and including January 8, 1998, in violation of Title 18, U�ted States Code, Secti�n 4, in that you are r�ported to have engaged in a misprision of a felony as set forth in

the subject Information attached hereto and incorporated by reference as EXhibit A.

UJ:lon accepting responsibility for your behavior as set .forth in the "Stipulation ofF acts" and by your

authorized signature on this Agreement. it appearing, after an investigation ofthe offense. that the interest

of the United States and your own interest and the interests of justice will be served by the following

procedure, therefore:

On the authorlly �fthe United States Attorney �or the Southern District ofiDinois and the Criminal

Division, U.S. Departme�t ofJustice, prosecution in the Southern District ofDlinoisforthis offense shall be

deferred for a period of 18 months or the last payment, whichever is later, from this date, provided you abide

by the following conditions and the requirements oftbe program set out below.

Should you violate the. conditions of this supervision. the �overnment may revoke or modify any

conditions of this pretrial diversion program or change the period of supervision which shall in no case exceed

EOUSA 446

18 months or the last payment date, �hichever is later. The government may release you from supervision

at any time. The government may at any time within the period of your supel"'/ision inmate proseCI.rtion for

this offense against BDO should you vi�late the terms of this Agreement as set forth hereinbelow. In this

case, the government will :furnish you with notice specifying the conditions of the Agreement which you have

violated. The government may extend your tenn of supeivision if you fail to comply with all conditions.

If. upon completion of your period of supervision. a pretrial diversion report is received to the effect

that you have complied with all the rules, regulations and conditions above-mentioned. no criminal

prosecution for the offense set out above will be instituted in the Southern District ofDllnois or in the Ell.Stern

District of Missouri, and the Information will be discharged. The undersigned Assistant United States

Attorneys repres�nt that they have been authorized by the United States Attorney, s Office for the Eastern

District of:Missouri to make such representation on its behalf.

This agreement and all related documents may be released by the United States Attorney's Office.

:SDO hereby waives all compliance requirements of the Privacy Act of 1974 (TitJe 5, U.S.C., Section 552a)

"With regard to the above-described offense.

BDO is aware that Rule 48(b) of the Federal Rules ofCriminal Procedure provides that the Court may

dismiss an indictment, infonnation, or complaint for-unnecessary delay in presenting a charge to the Grand

Jury, filing an information or in bringing a defendant to trial. BDO hereby requests that the United States

Attorney's Office for the Southern District oflllinois defer any prosecution of it �or violation of Title 1 s.

United States Code, Section 4, for a period of 18 months, or the date of final payment, whichever is later.

and to .induce the government to defer such prosecution BDO agrees · and con$ents that any delay from the

date of this Agreement to the date ofthe initiation of the prosecution, as provided for in the t enns expressed

herein, shall be deemed to be a necessary delay at BDO'.s. request and BDO waives any defense to such

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EOUSA 447

. ·.

prosecution on the ground that such delay operated to deny BDO'.s rights under Rule 48(b) of the Federal

Rules of Criminal :Prociedure or to bar the prosecution by rea,so11 ofthe running of the statute oflimitations

for a period of 18 months, or the date of :final payment, whichever is later, which is the period of iliis

Agreement.

CONDTinONSOFPRETRMLD�R�O�

N9 Dlegal Cpndoet

1. BDO shall not violate any law (federal, state or local).

�ooperation

.2. Disclosure QfD'ocuments To Which TheAttomev-Client Privilege Attaches: In order to aid the

Government in·any continuing aspects ofits investigation against other third parties and in the event that the

.Government deems it necessary to its investigation and issues a subpoena, BbO asreesto produce additional-

documents in its possession created between January l, 1990, and October 6, 1999. relating to its provision

of professional services to James R Gibson and Gibson-related companies, that have been withheld from tbe

Government on the ground of attorney-client privilege. In making any such production of additional

documents to assist the Government's enforcement efforts, BDO neither expressly nor implicitly waives it3

right to assert any privilege with respect to the produced documents or the subject matters thereof that is

availiible under law against non-parties to this Agreement. The privileged materials and information provided

pursuant to this Agreement are for the Iiinited purpose of cooperation in the criminal investigations ofthird-

parties, which investigations the. Government acknowledges are confident� and for purposes of any trial.

3. Encouraging Cooperation OfEmplovees: BDO will use its best efforts to make available for

interviews, or for testimony. present or fonner BDO partners and employees as requested by the gov�ent.

EDO' s Chainnan agrees to instruct these partners and employees to . cooperate fully and completely with the

EOUSA 448

, ·

·.

. . government. BDO will provide qualified custodians of records to introduce into evidence documents

produced by BDO.

4. General Cooperation: BDO agrees to respond truthfully and completely, through its counsel or

other qualified representative, to any questions or inquiries directed to BDO relating to this investigation.

BDO will assemble and organize· all documents, records, or other tangible· evidence in BDO's possession,

custody, or control, as requested by the government.

:Payment To The Unit�d States

5. BDO agrees to pay a total of Sixteen Million Dollars ($16,000,000.00) into a fund established by

the Government for the victim restitution ·of former clients ofSBU. The payment ofthis money into the fund ...

shall.not constitute an adjudication of any individual claim asserted or to be asserted by any victim. The

payment shall be ·made according to the following schedule: BDO will pay Four Million Dollars

($4,000,000.00) within 30 days ofacceptance.ofthis·agreement by the U.S. District Court. BDO wUI make

a second payment to the Government ofFourMillion Dollars ($4,000,000.00) by April 30 , 2002. BDO will

make a final payment to the Government ofEight Million _Dollars ($8,000,000.00) by J�ne 30,2002. BDO

may pre-pay the monetary payments as called for in this paragraph.

Any victims who receive money from the government's restitution fund that was directly funded �y BDO must sign a release that would prohibit them from :filing or pursuing a previously filed claim against

BDO for any ofBDO' s activities in relation to Gibson or Gibson� related companies. The release shall be .in

a form agreed to by the Government and BDO. To the extent that any money is not claimed by victims

within four ( 4) years, the remaining money shall be distnouted to the United States :Postal Inspection Service

Consumer Fraud Awareness Fund Account, said monies to be used 10 support activities which facilitate and

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EOUSA 449

. . e·

support the prevention and investigation of frauds against the public.

Retention OfRecords

6. EDO, its partners, representatives, agents and employees, shall maintain written and electronicrult

maintained records for a period of three (3) years from the date of this Agreement that relate in any manner

whatsoever to BDO's provision of professional services to James R. Gibson and any Gibson-related

company.

PROMISES BY THE UNITED STATES OF AMERICA

7. Non-Prosecution ofBDO: In consideration ofthe foregoing undertakings by BDO, the United

States Attorney's Offices for the Southern District cifTI!inois and the Eastern District ofMissouri will not file .

any charges, other than that provided herein, against BOO, .any of its current partners, principals or ·

employees, or affiliates for any actions relating in any way to the provision of professional services to James

R. Gibson and Glbson-related companies. The undersigned Assistant United States Attorneys Tepresent that

they have been authorized by the United States Attorney's Office for the Eastern District of .Missouri to make

suCh representation on its behalf:

VIOLA TJON OF CONDITIONS OF PRETRIAL DIVERSION

8. It shall be a v!olation ofth� conditions of pretrial diversion for BDO to fail to abide by or fully

perfonn any of the promises set_forth in paragraphs I to 6 above, during the eighteen (18) months following

the signing ofthis Agreement or the date of the last payment, whichever date is later, and the Agreement shall

expire on that date, with the exception that BDO's undertakings With respect to paragraph 5 of this

Agreement will be binding for the time period set forth in that paragraph.

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EOUSA 450

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9. In the event that the government believes that BDO has violated the conditions of pre-trial

diversion, the government shall provide BDO with written notice of such breach. and BDO shall have thirty

{30) days therefrom in which to respond and cure the breach.

10. In the event that the government believes that BDO has violated the conditions of pre-trial

diversion, and that BDO has not adequately cured the breach, the govment shall initiate proceedings in

the District Court 10 determine whether a violation has occurred.

WAIVER OF STATUTE OF LIMITATIONS

11. Upon a finding by the Court ofa violation ofany tenn in.trus Agreement, BDO agrees to �oU

the statute oflimitations for eighteen (18) months, from the date the violation is determined to have occurred,· .

for any federal criminal offense tha� relates to the provision of professional services to James :R. Gibson and

Gibson-related companies. BDO expressly acknowledges that this waiver of statute oflimitations is knowing·

and voluntary and in express reliance on the advice of counsel. BDO agrees that in the event that the criminal

prosecution is reinstated pursuant to the terms of this agreement, that it shall not raise as an affinnative

defense or other legal argument, the statute oflimitations as a bar.to prosecution. BDO agrees that the

statute of limitations is not a jurisdictional bar to prosecution and may be waived pursuant to Jaw.

REINSTATEMENT OF PROSECUTION

12. Should the government and district court d�lare this Agreement violated.

a. The government will no longer be bound by its promises concerning non-prosecution and

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EOUSA 451

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will be free to bring a prosecution against BDO, or any entity or person,_ for any federal offense.

b. The government will be free to use any 1nfonne.tion provided by BDO. under the ter:ns ·

of this Agreement in any criminal prosecution the government may bring against it, and BDO wiU.be unable

to assert any constitutional or statutory right of privilege, or claim that the iriformation is inadmissible becwse

ofR�le 11(eX6) ofthe Federal Rules of Criminal Procedure, Rule 410 of the Federal Rules ofEvidence. or ·

any other statute or ru]e with the exception stated hereinbelow.

:MlSCELLANEOUS PBOV1SJONS

13. Preservation Of Rights Under Federal Rule Of Evidence 408: Nothing stated in this

Agreement is intended to or shall operate as an admission or a waiver of any rights BDO may have pursuant

to Fed.R.Evid. 408.

14. Authority: Each ofthe individuals and attorneys exec1.1ting thls Agreement on beliaJfofBDO.

and the Government warrants and represents that he or she has been duly authorized and empowered to

execute this Agreement on behalf of each such ·respective party. Jack A Weisbaum, Vice Chairman of

defendantBDO Seidman, LLP, warrants and represents that he has been authorized by the Chairman ofBDO

Seidman, LLP to execute this Agreement on behalf of defendant.

'15. Effective Date: Thls pre-trial diversion agreement becomes effective upon acceptance by the

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EOUSA 452

U.S. Office of:Probation imd upon written notice to BDO.

BDO hereby states that the above has been read and explained to BDO. BDO understands the

ronditions of its pretrial eli version and agrees that it will fully comply.

� Assistant United States Attorney

· Assistant Unit.ecl States Attorney

./hA l,[�flbMVL Unitd" Sfates'P.robation Officer

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EOUSA 453

: Paul Pellet i er- BDOSei dm.wpd

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ILLINOIS

UNITED STATES OF AMERICA, ) )

Plaintiff, ) )

vs. ) )

BDO SEIDMAN, LLP, ) )

Defendant. )

C�AL NO. ______________ _

INFORMATION

THE UNITED STATES ATTORNEY CHARGES:

At all .times relevant to this Information:

1. BDO Seidman, LLP (hereinafter "BDO") is a limited liability partriership formed

under the laws of the State of New York. BDO is an accounting firm providing services to

businesses and individuals.

2. BDO maintained an office in St. Louis, Missouri ("the former St. Louis office")

.. and was doing business in St. Louis, Missouri. BDO closed the former St. Louis office on

September 30, 2001.

3. The former St. Louis office performed tax accounting services for SBU, Inc. ,

(Missouri), SBU, Inc. (Illinois), SBU, Inc. (Florida) (hereinafter jointly referred to as "SBU",

unless otherwise noted), Flag Finance Corporation, and James R. Gibson (hereinafter referred to

as "Gibson") who resided in the Southern District of Illinois. SBU did business in the Southern

District of Illinois. The former St. Louis office also performed tax accounting services and

assurance services, including certain auditing work, for Gibson's company, Family Company of

America.

4. BDO, through the former St. Louis office, kne , w and understood that SBU was a

third party structured settlement company owned and operated by Gibson and engaged in the

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EOUSA 454

' Paul Pe11e t i er- BDOSe i dm.wpd

business of structuring personal injury plaintiffs' settlements and judgments through the

establishment of irrevocable trusts funded with United States Treasury obligations intended to

qualify as tax exempt transactions under Internal Revenue Code Section 130.

5. BOO, through the former St. Louis office, knew and understood that Flag Finance

Corporation was a Missouri corporation owned and operated by Gibson for the ostensible

purpose of making consumer loans. BOO, through the former St. Louis office, knew and

understood that during 1995 Gibson represented that Flag Finance Corporation acted as a trustee

for SBU clients' trusts.

6. BOO, through the former St. Louis office, knew as early as October, 1995, that

SBU and Gibson had failed to purchase the promised United States Treasury obligations to fund

approximately twenty-two of SBU's clients' trusts between November, 1994 and October, 1995.

BOO, through its St. Louis office, knew and understood that Gibson inquired about using United

States Treasury obligations purchased with other SBU's clients' settlement moneys and held in

Flag Finance Corporation brokerage accounts for the benefit of SBU to collateralize loans in

order to purchase and operate a chain of grocery stores.

7. On or about October 17, 1995, BOO, through the former St. Louis office, advised

Gibson that the actual sale of the United States Treasury obligations to satisfy the loans would

result in reportable income to Gibson and/or SBU and would require Gibson to purchase

additional United States Treasury obligations in order to replace the liquidated United States

Treasury obligations in SBU's clients' trusts to satisfy the stream of income contracted with the

injured party.

8. BOO, through the former St. Louis office, knew and understood that Gibson

formed Family Company of America in order to purchase and operate the chain of twenty-three

grocery stores. Gibson's Family Company of America purchased these grocery stores from

Schnucks Markets, Inc. during March, 1996.

9. Between in or about April and June 1996, BOO, through the former St. Louis

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EOUSA 455

�P _a�u�I_ P _e_ !l_e_ti_e_r-__ B�D�O_ S�e�i_d _m _.w�pd __________________________________________________________________ �Page3

office, prepared the SBU, Inc. (Florida) tax return for tax year 1995. In connection with the

preparation of that return, BDO, through the fanner St. Louis office, was aware that Gibson and

SBU had failed to purchase United States Treasury obligations for certain of SBU's clients'

structured settlement trusts as he promised to do and that SBU was making periodic payments to

certain of those structured settlement clients. At Gibson's direction, BDO, through the fanner St.

Louis office, listed those settlement funds received as "liabilities" on the SBU, Inc. (Florida)

return for tax year 1995 when, in truth and in fact, they were not liabilities. No federal tax was

paid on those "liabilities." BDO, through the fanner St. Louis office, forwarded the prepared tax

return to Gibson for filing on June 24, 1996.

10. During in or about October, 1996, BDO, through the fanner St. Louis office,

knew and understood that, ih order to finance the purchase and operation of the grocery store

chain, Gibson and SBU sold United States Treasury obligations which had been held in certain of

SBU's clients' trusts. BDO, through the fanner St. Louis office, also knew and understood that

Gibson and SBU used SBU's clients' settlement funds to purchase and operate the grocery store

chain instead of to purchase United States Treasury obligations to fund SBU's clients' trusts as

Gibson promised.·

11. BDO, through the fanner St. Louis office, knew and understood that Gibson and

SBU received approximately sixteen million dollars ($16,000,000.00) in settlement funds

between October, 1994 and September, 1996, but had not purchased United States Treasury

obligations with these funds. The sixteen million dollars ($16,000,000.00) was income to

Gibson and/or SBU which income was not reported on any income tax return and no income tax

was paid.

12. On or about July 7, 1997, the Internal Revenue Service (IRS) sent to SBU, Inc.

(Florida), a Notice of Tax Examination for the tax year ending October 31, 1993 (hereinafter

referred to as the "tax examination"). During the course of that tax examination, the IRS

fonnally inquired about documents relating to tax years 1994 and 1995.

13. During July or August, 1997, BDO, through the former St. Louis office, had

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EOUSA 456

_P_a_u_I_P_e_!le_t_i e_r_-_B_D_O_S_e_i_d_m_.w_p�d ______ _______________________________ ___ _________________________ P�age4

internal discussions concerning Gibson's and SBU's failure to purchase United States Treasury

obligations for certain structured settlement clients' trusts and the use of SBU's clients'

settlement funds and bonds to purcHase and operate the grocery store chain.

14. On or about September 9, 1997, Gibson executed a power of attorney on behalf of

SBU, Inc. (Florida) authorizing a BDO partner in the former St. Louis office to act as the

taxpayer representative in connection with the tax examination. The power of attorney was

subsequently transmitted to the IRS.

15. On December 18, 1997, BDO, through the former St. Louis office, and Gibson

discussed the failure by Gibson and SBU to purchase United States Treasury obligations with

settlement funds received during 1995 and 1996. BDO, through the former St. Louis office,

informed Gibson that the receipt of those funds was 100% taxable as income. At that time, BDO,

through the former St. Louis office, knew that Gibson's receipt and use of the funds to purchase

and operate the grocery store chain resulted in taxable income to SBU and that SBU and Gibson

had failed to report that income to the IRS.

16. On January 8, 1998, in response to the IRS' December 17, 1997 formal request

for documents, BDO, through the former St. Louis office, as taxpayer representative for SBU,

Inc. (Florida), submitted documents in connection with the ongoing tax examination (the

"Submission"). At that time, BDO, through the former St. Louis office, knew that Gibson had

committed a felony in connection with the tax year 1995 return, to wit, attempted tax evasion, in

violation of Title 26, United States Code, Section 7201. In the Submission, BDO, through the

former St. Louis office, �

failed to inform the IRS of information that was material to the

determination of income for tax year 1995, i.e. that Gibson had not purchased United States

Treasury obligations with settlement funds received and that Gibson had, instead, used those

funds to purchase and operate the grocery stores which were not qualified assets under Internal

Revenue Code Section 130, and BDO, through the former St. Louis office, failed to inform the

IRS that Gibson had committed attempted tax evasion in violation of Title 26, United States

Code, Section 7201.

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EOUSA 457

Paul P el!e t i er- BDOSe i dm.wpd

All in violation of Title 18, United States Code, Section 4.

ROBERT J. CLEARY United States Attorney

MIRIAM F. MIQUELON Assistant United States Attorney

HAL GOLDSMITH Assistant United States Attorney

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EOUSA 458

Paul P e lle t i er- BDOSe i-1.wpd

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ILLINOIS

UNITED STATES OF AMERICA, ) )

Plaintiff, ) )

vs. ) )

BDO SEIDMAN, LLP, ) )

Defendant. )

CRIMINAL NO.--------

STIPULATION OF FACTS

The United States of America, by and through its attorneys, Robert J. Cleary, United

States Attorney for the Southern District of Illinois, Miriam F. Miquelon, and Hal Goldsmith,

Assistant U. S. Attorneys, along with the defendant, BDO Seidman, LLP, and its attorneys

William Gardner and Stephen Hill, enter into the following factual stipulations:

I. BDO Seidman, LLP (hereinafter "BDO") is a limited liability partnership formed

under the laws of the State of New York. BDO is an accounting firm providing services to

businesses and individuals.

2. At all times relevant to the Information, BDO maintained an office in St. Louis,

Missouri ("the former St. Louis office") and was doing business in St. Louis, Missouri. BDO

closed the former St. Louis office on September 30, 200 I. 3. The former St. Louis office performed tax accounting services for SBU, Inc.

(Missouri), SBU, Inc. (Illinois), SBU, Inc. (Florida) (hereinafter jointly referred to as "SBU'', �

unless otherwise noted), Flag Finance Corporation, and James R. Gibson (hereinafter referred to

as "Gibson") who resided in the Southern District of Illinois. SBU did business in the Southern

District of Illinois. The former St. Louis office also performed tax accounting services and

assurance services, including certain auditing work, for Family Company of America. '

4. At all times relevant to the Information, Stephen R. Krause was one of several

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EOUSA 459

Paul P e ll9t i e r- BDOSe i-1.wpd

partners in the former St. Louis office and was the engagement partner for the SBU, Flag Finance

Corporation, and the Gibson family accounts. At all times relevant to the Information, Douglas

Beckmeyer was one of several pa.rtllers in the former St. Louis office and was the engagement

partner for Family Company of America.

5. Partners in the former St. Louis office, including Stephen R. Krause and Douglas

Beckmeyer, knew and understood that SBU was a third party structured settlement company

owned and operated by Gibson and engaged in the business of structuring personal injury

plaintiffs' settlements and judgments through the establishment of irrevocable trusts funded with

United States Treasury obligations intended to qualifY as tax exempt transactions under Internal

Revenue Code Section 130.

6. ·Partners in the former St. Louis office, including Stephen R. Krause and Douglas

Beckmeyer, knew and understood that Flag Finance Corporation was a Missouri corporation

owned and operated by Gibson for the ostensible purpose of making consumer loans. Partners in

the former St. Louis office, including Stephen R. Krause and Douglas Beckmeyer, knew and

understood that during 1995 Gibson represented that Flag Finance Corporation acted as a trustee

for SBU clients' trusts.

7. Partners in the former St. Louis office, including Stephen R. Krause and Douglas

Beckmeyer, knew that as of October, 1995, SBU and Gibson had failed to purchase United States

Treasury obligations to fund approximately twenty-two trusts between November, 1994 and

October, 1995. Partners in the former St. Louis office, including Stephen R. Krause and Douglas � Beckmeyer, knew and understood that Gibson had inquired about using United States Treasury

obligations purchased with SBU's clients' settlement moneys and held in Flag Finance

Corporation brokerage accounts for the benefit of SBU to collateralize loans in order to purchase

and operate a chain of grocery stores.

8. On or about October 17, 1995, Stephen R. Krause advised Gibson that the actual

sale of the United States Treasury obligations to satisfY the loans would result in reportable

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EOUSA 460

Paul P e lleti er- BD0Sei-1.wpd

income and would require Gibson to purchase additional United States Treasury obligations in

order to replace the liquidated United States Treasury obligations in SBU's clients' trusts to

satisfy the stream of income contracted with the injured party.

9. Partners in the former St. Louis office, including Stephen R. Krause and Douglas

Beckmeyer, knew and understood that Gibson formed Family Company of America in order to

purchase and operate the chain of twenty-three grocery stores. Gibson's Family Company of

America purchased these grocery stores from Schnucks Markets, Inc. during March, 1996.

10. Between in or about Apnl and June 1996, partners and employees of the former

St. Louis office prepared the SBU, Inc. (Florida) tax return for tax year 1995. In connection with

the preparation of that return, partners of the former St. Louis office, including Stephen R.

Krause and Douglas Beckmeyer, were aware that Gibson and SBU had failed to purchase United

States Treasury obligations for certain structured settlement trusts and that SBU was making

periodic payments to certain of those structured settlement clients. At Gibson's direction,

Stephen R. Krause thereafter listed those settlement funds received as "liabilities" on the SBU,

Inc. (Florida) return for tax year 1995. No federal tax was paid on those "liabilities." Stephen R.

Krause forwarded the prepared tax return to Gibson for filing on June 24, 1996.

11. During in or about October, 1996, partners of the former St. Louis office,

including Stephen R. Krause and Douglas Beckmeyer, knew and understood that, in order to

finance the

purchase and operation of the grocery store chain, Gibson and SBU sold United States Treasury � obligations which had been held in certain of SBU's clients' trusts. Partners in the former St.

Louis office, including Stephen R. Krause and Douglas Beckmeyer, also knew and understood

that Gibson and SBU used SBU's clients' settlement funds to purchase and operate the grocery

store chain instead of to purchase United States Treasury obligations to fund SBU's clients'

trusts.

12. Partners in the former St. Louis office, including Stephen R. Krause and Douglas

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EOUSA 461

Paul P elletier- BDOSei-1.wpd

Beckmeyer, knew and understood that Gibson and SBU received approximately sixteen million

dollars ($16,000,000.00) in settlement funds between October, 1994 and September, 1996, but

had not purchased United States Treasury obligations with these funds.

13. On or about July 7, 1997, the Internal Revenue Service (IRS) sent to SBU, Inc.

(Florida), a Notice of Tax Examination for the tax year ending October 31, 1993 (hereinafter

referred to as the "tax examination"). During the course of that tax examination, the IRS

inquired about documents relating to tax years 1994 and 1995.

14. During July or August, 1997, partners of the former St. Louis office, including

Stephen R. Krause, Douglas Beckmeyer, and the managing partner of the former St. Louis office,

Walter Knepper, had internal discussions concerning Gibson's and SBU's failure to purchase

United States Treasury obligations for certain structured settlement clients' trusts and the use of

SBU's clients' settlement funds and bonds to purchase and operate the grocery store chain.

15. On or about September 9, 1997, Gibson executed a power of attorney on behalf of

SBU, Inc. (Florida) authorizing Stephen R. Krause of BDO to act as the taxpayer representative

in connection with the tax examination described in paragraph 13, above. The power of attorney

was subsequently transmitted to the IRS.

16. On December 18, 1997, Stephen R. Krause and Gibson discussed the failure by

Gibson and SBU to purchase United States Treasury obligations with settlement funds received � during 1995 and 1996. Stephen R. Krause informed Gibson that the receipt of those funds would

be I 00% taxable as income. At that time, Stephen R. Krause knew that Gibson's receipt and use

of the funds to purchase and operate the grocery store chain resulted in taxable income to SBU

and that SBU and Gibson had failed to report that income to the IRS.

17. On January 8, 1998, in response to the IRS' December 17, 1997 request for

documents, Stephen R. Krause submitted documents in connection with the ongoing tax

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EOUSA 462

Paul Pe llet i er- BDOSe i-1.wpd

examination (the "Submission"). At that time, Krause knew that Gibson had committed a felony

in connection with the tax year 1995 return, to wit, attempted tax evasion, in violation of Title

26, United States

Code, Section 720 I. In that Submission, Krause failed to inform the IRS of information that was

material to the determination of income for tax year 1995, i.e. that Gibson had not purchased

United States Treasury obligations with settlement funds received and that Gibson had, instead,

used those

funds to purchase and operate the grocery stores which were not qualified assets under Internal

Revenue Code Section 130.

18. BDO acknowledges that venue is proper in the Southern District of Illinois and waives

any objection to venue in the Southern District of Illinois as well as any objection to this Court

exercising jurisdiction in these matters.

SO STIPULATED:

JACK A. WEISBAUM, Vice Chairman BDO SEIDMAN, LLP Defendant

WILLIAM L. GARDNER Attorney for Defendant

5

ROBERT J. CLEARY United States Attorney

MIRIAM F. MIQUELON Assistant United States Attorney

HAL GOLDSMITH Assistant United States Attorney

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EOUSA 463

�P=a�ui�P_e�l�le�t i�e �r-�B�D�O�S�e�i -_1�·�w�p�d __ ________________ ____________________________________________ �Page6

STEPHEN L. HILL, JR. Attorney for Defendant

Date:. _____________________ _ Date:. _______________ __________ _

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