Press Release, Manhattan U.S. Attorney Announces Agreement With Ernst & Young LLP to Pay $123 Million To Resolve Federal Tax Shelter Fraud Investigation:

Preet Bharara, the United States Attorney for the Southern District
of New York, Steven Miller, the Acting Commissioner of the Internal
Revenue Service (“IRS), and Tamara Ashford, the Deputy Assistant
Attorney General for the Tax Division of the Department of Justice,
announced today that Ernst & Young LLP (“E&Y”) has admitted
wrongful conduct by certain E&Y partners and employees in connection
with the firm’s participation, from 1999 to 2004, in four tax shelters
that were used by approximately 200 E&Y clients in an effort to
defer, reduce, or eliminate tax liabilities of more than $2 billion.

E&Y entered into a non-prosecution agreement (the “NPA”) with the
United States, in which the company agreed to pay $123 million to the
United States and acknowledged a detailed Statement of Facts in which it
admitted the wrongful conduct of certain partners and employees.
E&Y also agreed to certain permanent restrictions and controls on
its tax practice, including a prohibition against planning, promoting or
recommending any “listed transaction.” A "listed transaction" is a
transaction that is the same as, or substantially similar to, one that
the IRS has determined to be a tax avoidance transaction. The NPA also
requires E&Y’s continued cooperation with the Government’s
investigation. In exchange, the United States agreed not to criminally
prosecute E&Y for its participation in the tax shelter scheme. The
NPA applies only to E&Y and not to any individuals. E&Y has
cooperated with the Government’s investigation into these tax shelters
since approximately 2003. In the event that the firm violates the NPA,
the U.S. Attorney’s Office may prosecute E&Y.

According to the Statement of Facts to which E&Y has admitted,
and as proven at the criminal trial of certain former E&Y partners:

Beginning in 1999 and ending in 2002, E&Y, in conjunction with
various law firms, banks, and investment advisers, developed, marketed
and implemented four tax shelter products called COBRA, CDS, CDS Add-On,
and PICO. E&Y implemented these four tax shelter products for
approximately 200 high net worth clients in an effort to defer, reduce,
or eliminate $2 billion in aggregate tax liabilities. E&Y prepared
tax returns reflecting tax losses claimed to have been derived from
those tax shelter products and subsequently defended certain of its
clients in connection with audits of those transactions by the IRS.

• Bloomberg,
  Ernst & Young to Pay $123 Million to End Tax-Fraud Probe
• Forbes (Janet Novack), Ernst & Young Pays $123 Million, Avoids Tax Shelter Prosecution
• Forbes (Robert Wood), Ernst & Young's $123M Non-Prosecution Agreement over Tax Shelters: Priceless
• Going Concern, Ernst & Young Admits That Some of Its Partners Were Running a Tax Shelter Factory
• Reuters, Ernst & Young to Pay $123 Million to Resolve U.S. Tax Shelter Probe
• Wall Street Journal, Ernst & Young Pays $123 Million to Settle With U.S. Over Tax Shelters