NEW YORK, Dec 22 (Reuters) – Former clients have sued accounting firm Ernst & Young and two law firms for more than $1 billion for allegedly convincing them to enter into illegal tax shelters, the law firm representing the plaintiffs said in a statement.
The lawsuit alleged that the firms convinced over 50 clients to enter into currency option trades to create paper capital losses that offset real capital gains on which they would have had to pay taxes, law firm Fensterstock & Partners said in the statement.
The suit, seeking $1 billion in punitive damages, was filed by 10 former clients in federal court in Manhattan on Friday against Ernst & Young and the law firms Jenkens & Gilchrist and Sidley Austin Brown & Wood.
The suit also alleged that against the wishes of its clients, Ernst & Young disclosed their names to the Internal Revenue Service, which had served summonses on the accounting firm seeking information about the tax shelters.
Ernst & Young and Sidley Austin spokesmen were not immediately available to comment.
“While we have not had the opportunity to look at it thoroughly, even at this stage it is obvious that it is without merit and we will vigorously defend against it,” Jenkins & Gilchrist said in a statement.
“Also, at Jenkens & Gilchrist, we take the attorney-client privilege very seriously and would only comment on this lawsuit if we believe that by suing us, this particular client has waived that right.”