Court dismisses massive tax-shelter fraud case.

A Texas district court dismissed claims against Pannell Kerr Forster (PKF) and Alexander Grant & Co. in a suit alleging one of the largest tax-shelter frauds ever perpetrated.

Investors in Hillcrest Securities Corp. and Hillcrest Equities, Inc. filed suit against the accounting firms for $800 million in actual damages and $100 million in punitive damages. The suit was based on the investors' discovery that Hillcrest had traded with Edward Markowitz, who allegedly created millions of dollars in fraudulent income tax deductions through sham and nonexistent securities and futures contract transactions.

PKF and Grant had prepared tax returns and tax opinions for Hillcrest. The investors claimed PKF and Grant had prepared documents purporting the existence of transactions that never occurred and had continued to misrepresent Hillerest's investments to investors even after becoming aware of Markowitz's alleged fraud.

The accounting firms argued the investors' claims were barred by the statute of limitations. They cited a May 10, 1984, Wall Street Journal article reporting the tax fraud allegations against Markowitz, which Hillcrest mailed to all of its investors.

The court found this sufficient notice to investors of Markowitz's alleged fraud, ruling the statute of limitations began to run on May 11, 1984. Consequently, investors' actions brought four years later were barred by the statute of limitations. (Richard Dodson, et. al. v. Hillcrest Securities Corp. et. al., U.S. District Court for the Southern District of Texas, Houston Division, Cause no. H-88-1693)