Firm urged Caymans transfers, cost Yung millions, judge rules
By Jim Hannah From nky.com
FORT MITCHELL — William Yung hasn’t started counting his riches just yet.
He knows it could take years of additional legal wrangling before he could collect on a legal judgment awarding him $100 million in damages, he said in a telephone interview from Naples, Fla. “These guys did bad and they are paying for it,” Yung said.
“These guys” is one of the nation’s largest accounting firms, which a Kenton County judge said played a “game of audit roulette” with its tax advice to Yung, founder and president of the Crestview Hills-based Columbia Sussex Corp.
Accounting giant Grant Thornton LLP’s actions were “reprehensible,” Circuit Judge Patricia Summe wrote in a 210-page judgment issued Nov. 8.
Yung, a Northern Kentucky hotelier, says the firm’s bad tax advice hindered his company’s attempt to break into the expanding casino business and cost him millions of dollars.
His troubles started in the late 1990s and early 2000s, he said, when Grant Thornton, his longtime accountant, approached him about a plan to transfer money from the Cayman Islands to the United States legally without paying taxes.
Yung said the money made from his offshore hotels had been deposited in Cayman Islands accounts – accounts Grant Thornton found out about when it hired a former Columbia Sussex accountant. Yung said he was content with the money’s staying in the Cayman Islands and agreed to transfer it only after Grant Thornton sold him on the idea.
“It never occurred to me they did something wrong,” Yung said.
At the time, numerous accounting firms were selling similar tax strategies to clients, according to court records. Summe found that Grant Thornton was selling those strategies knowing they were not legal and would not survive scrutiny by the Internal Revenue Service.
“The infliction of economic injury is clear as to the taxes, penalties and interest and as to the reputational damage to Yung individually as a business person and as a shareholder,” Summe wrote in her ruling. Grant Thornton committed fraud, professional negligence and breached its contract, she wrote.
Summe wrote “there were so many acts of gross professional negligence committed by Grant Thornton … that it was proven by clear and convincing evidence” that the accounting firm was negligent. She wrote that the possibility of serious harm was increased by the fact that Yung’s primary business at the time consisted of hotels and casinos which are subject to higher financial and personal scrutiny.
Columbia Sussex is one of the largest privately held companies in the region, with 4,700 employees nationwide and revenue of $542 million in 2012.
Yung said the ordeal cost him a casino license in Missouri.
Prior to Summe’s judgment, the largest verdict out of Kenton County was $40.6 million against Raymond James & Associates in 1998 for breaching a contract with Corporex Realty of Covington, said Shannon Ragland of the Kentucky Trial Court Review in Louisville.
The judgment is still well below the $270.1 million verdict issued in a utility negligence case from several years ago in Knott County, the largest verdict handed down in Kentucky from 1998 through 2012, Ragland said.
The Yung award consists of $19.3 million in compensatory damages and $80 million in punitive damages, with interest set at 12 percent.
Summe must also rule on several outstanding issues before any appeal can be filed, which Grant Thornton said in a statement it plans to do. Yung’s attorney, Kevin Murphy of Graydon, Head & Ritchey, has asked Summe to sanction the accounting firm further for withholding documents until just days before the trial.
“Grant Thornton’s misconduct was not isolated to one incident but was varied and repeated beginning in July 2000 through 2007, and arguably through the date of trial,” Summe wrote in the judgment.
Grant Thornton is a Chicago-based firm which operates 56 offices across the United States, including Cincinnati, with more than 500 partners and 6,000 employees, according to its website. It reports annual revenues in excess of $1.2 billion. The firm referred all requests for comment to its previous statement.
Short of the IRS dismantling Grant Thornton, Summe wrote, many of the partners involved could have had their law and accounting licenses suspended for the fraudulent acts against their client.
“The likely consequences of misleading a casino owner who is a ‘key person’ in that industry into a possibly abusive tax shelter, a situation Grant Thornton was well aware of, are substantial collateral damages possibly in the hundreds of millions of dollars and potentially crippling,” Summe wrote. “The reputational loss to Yung personally caused substantial difficulties within the gaming industry with the continuation of his growing casino business.”
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