10 Notorious Tax Cheats: Billionaire Olenicoff Still Battling UBS Over $200 Million Offshore Stash

His softball sentence of two years probation ended five years ago. But billionaire real estate developer Igor Olenicoff still can’t put behind him his December 2007 guilty plea to lying on his federal tax return about some $200 million he kept offshore. For that, he can blame his own litigiousness and, arguably, his creative relationship with the truth.

In July, an Orange County, Cal. Superior Court jury is scheduled to hear claims by Swiss bank UBS AG and UBS whistleblower Bradley Birkenfeld that Olenicoff engaged in “malicious prosecution” when he sued them and others for fraud in 2008, claiming they had duped him into breaking the tax law and then secretly ratted him out to U.S. authorities, while also mismanaging his offshore fortune. Indeed, in February 2009 UBS did enter into a deferred prosecution deal with the U.S. government in which it agreed to pay $780 million in fines, penalties and forfeited profits and turn over the names of some Americans with undisclosed accounts. And Birkenfeld, who had been Olenicoff’s personal banker at UBS, did earn a $104 million Internal Revenue Service informant’s reward for turning over evidence against UBS.

But U.S. District Court Judge Andrew J. Guilford dismissed Olenicoff’s suit on summary judgment in 2012, finding his tax claims were contradicted and barred by the admissions he made in his plea deal and that there was no basis for his money mismanagement claims. “Olenicoff may not avoid the consequences of his own plea by getting UBS to indemnify him for his criminal acts,” wrote Guilford, who sits in the Central District of California.

Moreover, the back story shows Olenicoff hid assets offshore and was under IRS scrutiny well before transferring assets from Barclays Bank (Bahamas) to UBS in 2001. In his plea deal, he paid $52 million in back taxes, interest and civil fraud penalties covering 1998 to 2004, with the largest tax deficiency being for 1998— before Olenicoff was a UBS client. As for Birkenfield, prosecutors said he was indicted and hit with a 40 month jail term, because, while fingering top UBS brass, he didn’t come clean about mega-client Olenicoff. (Birkenfeld says he told a Senate subcommittee about Olenicoff after it subpoenaed him, and would have been happy to squeal on Olenicoff to prosecutors too, if they had only subpoenaed him, giving him protection from being charged with violating Swiss banking secrecy laws.)

Despite his conviction, as the judge at his sentencing observed, Olenicoff’s rags to riches story is an extraordinary one. Born in Russian controlled territory in 1942 (while there are conflicting reports about his birth date, that’s the year he gave in a recent under-oath deposition), he moved to the U.S. at 15, earned undergraduate and masters degrees at the University of Southern California and worked as a consultant and corporate executive before launching his own real estate development business in 1973. Today, his Olen Properties owns 8 million square feet of office space and 11,000 residential units across California, Florida, Nevada and Arizona and Forbes estimates he is worth $3.7 billion.

But when Olenicoff started moving some of his assets (including shares of Olen) offshore in 1990, real estate values were declining. In 1992, he put some of his properties into bankruptcy and Prudential, which had lent those properties $143 million, unsuccessfully pursued claims against Olenicoff for bankruptcy fraud, Forbes reported in a 2006 story about Olenicoff, The Billionaire With The Empty Pockets.

During his April 2008 sentencing hearing, Olenicoff claimed he had transferred the shares of Olen offshore to get financing from a foreign lender and had gotten “bad advice” from a CPA that he could avoid taxes by keeping ownership of his company in an offshore trust. But he also acknowledged that two or three years into his offshore dealings, he realized that income should be reported in the U.S. and didn’t do so—this was crucial since his plea deal required that he admit responsibility.

Regardless of his initial motives for his offshore transfers, by 1998 Olenicoff had 15 unreported offshore accounts and the attention of IRS auditors. They eventually sent him bills for a total of $44 million in back taxes and $33 million in civil fraud penalties for 1996 and 1997 and referred his case for criminal investigation. A crucial IRS contention: that the interest payments to Sovereign Bancorp Ltd., a Bahamian company, that were deducted by Olen, were taxable interest income to Olenicoff, because he was the ultimate owner of Sovereign. Olenicoff fought that assertion, telling the IRS that Sovereign was owned by a Russian agency created by Boris Yeltsin to make offshore investments.

Olenicoff explained to Forbes for the 2006 story that the matter was dragging on only because of the difficulty the IRS had verifying the Russian connection. As he colorfully recounted it, Russian tax authorities had at first told the IRS to go “pound sand”; then needed Russian bank records were put in a truck that went off a bridge into a river; then when Olenicoff produced for IRS agents a self-described Russian general to attest to Sovereign’s formation at Yeltsin’s behest, the general got ticked off and told them (in Russian): “Just several years ago I was in charge of pushing the button that would have wiped your agency off the Washington map!” As part of his plea deal, Olenicoff acknowledged he owned and controlled Sovereign and brought his money home to the U.S.

During his litigation with UBS, Olenicoff has been caught in other inconsistencies. In his suit against UBS, for example, he claimed he had suffered more than a billion in damages because he could no longer get financing for his projects. He testified during an October 2011 deposition that “we’ve not been able to get any loan.” But as Guilford pointed out in his decision granting UBS summary judgment, it later emerged that Olen got a $70 million loan from U.S. Bancorp in 2010 and $250 million from Fannie Mae in May 2011.

While Guilford dispensed with that case, he is now presiding over two other unusual lawsuits involving Olenicoff— claims by sculptors Donald Wakefield and John Raimondi that Olenicoff infringed on their copyrights by placing knock-offs of their work outside his buildings. Juries found for the artists in both cases. Last month, ruling on post-trial motions in the Wakefield case, Guildford upheld the infringement verdict and ordered Olen to remove seven copies of Wakefield’s work from outside his buildings and to destroy them or deliver them to the artist. He set aside $450,000 in damages Wakefield had won from the jury, however, ruling that the artist hadn’t properly established, under copyright law, his economic loss. Raimondi, in contrast to Wakefield, has made and sold limited edition copies of his work, so he may be in a stronger position when it comes to having the $640,000 in damages he won upheld.