September 11, 2008. Yesterday, a record jury verdict was rendered by a Peoria County, Illinois jury. Gary K. Bielfeldt, a highly regarded, and successful commodities and securities trader was awarded $17.6 million dollars as a result of the failure of defendant KPMG, a big 4 accounting firm, to provide appropriate tax accounting advice during the 1980's.
Chicago lawyers, Todd A. Smith and Brian LaCien of Power Rogers & Smith, P.C., along with Peoria lawyers, Dean B. Rhoads, Robert H. Rhode of Sutkowski and Rhoads, Ltd., represented Bielfeldt during the three week trial in Peoria, Illinois.
Gary Bielfeldt, 72, began his career with small commodities and securities firms in Central Illinois during the 1960's before establishing his own company with his brother-in-law, John Lauritsen.
The firm which became known as Bielfeldt & Company began primarily as a Chicago Board of Trade member company dealing mostly in the commodities markets.
During the 1980's, Mr. Bielfeldt, a member of the Board of Directors of the Board of Trade during that time, changed his personal focus to the cash government securities markets trading in government bonds, notes and occasionally bills. "Mr. Bielfeldt developed a high level of expertise in the government securities markets earning a nationwide reputation, and worked closely with many of the major dealers in the country, such as Goldman Sachs, Solomon Brothers and Lehman Brothers", said Todd Smith, one of Bielfeldt's lawyers.
Bielfeldt did this from his office in Peoria, and although he had established a Chicago office, never wanted to leave his roots in Peoria. Bielfeldt's stature in the industry was chronicled in a chapter devoted to him in the 1989 National Bestseller, "Market Wizards: Interviews with Top Traders". Of note in the chapter is the apparent recognition, and to some extent, somewhat surprise, that someone in Central Illinois would be able to develop such a high level of success, and be shoulder to shoulder with the major investment banks in the U.S.
As Bielfeldt's government securities bond business increased, defendant KPMG, his personal tax accountants, failed to provide appropriate tax advice regarding his filing as a dealer in securities, rather than as a trader. The key difference for a person dealing in such high volume of securities is that when losses do occur, a dealer is allowed to write them off as ordinary losses against income, while a trader is not. The contention in the lawsuit was that Mr. Bielfeldt was sufficiently close to operating as a dealer.
The enormous difference in the economics of his activities should have been addressed by KPMG, but was not. The lawsuit went on to contend that had appropriate advice been given, Mr. Bielfeldt would have established dealer status, and instead of having losses that would have been virtually useless in a tax setting, he would have been able to deduct them as ordinary losses.
"The jury recognized that Mr. Bielfeldt likely would have been able to establish himself as a dealer, and would have certainly done so at a sufficient level to deduct substantial losses that did occur during the late 1980's. By KPMG's failure, he was unable to do that, and as a result unable to get tax refunds that he otherwise would have received".
Our tax system is set up to allow for those in business, individuals, or companies to deduct losses in the current year, as well as carry them back to prior years; recognizing that business activity is not isolated to a single year, but occurs in cycles over many years.
"The jury followed the case closely, and recognized the ability of Gary to do just what we contended in this case. They confirmed our belief that proper advice would likely have led to Gary becoming a dealer and having available tax deductible losses", Smith said.
This case was set to go to trial in October of 2007, with Jerome Mirza, a prominent Illinois trial lawyer representing Mr. Bielfeldt. Unfortunately, Mr. Mirza tragically suffered a heart attack at age 69, in August of 2007, and passed away on October of last year. As a matter of legal interest in Illinois, Mr. Mirza had obtained a verdict of $23,218,000.00, with a present value of $9,729,139.00, setting a record in Peoria County.
The case was entitled Gary K. Bielfeldt v. KPMG, LLP, a Delaware Limited Liability Partnership, No. 00 MR 44.
The plaintiff, Gary K. Bielfeldt, was represented by Todd A. Smith and Brian LaCien of Power Rogers & Smith, P.C. and Dean M. Rhoads and Robert H. Rhode of Sutkowski and Rhoads, Ltd.
KPMG was represented by Kevin B. Clark of Willkie, Farr & Gallagher, LLP of New York; David E. Jones, of Hinshaw & Culbertson, Peoria; Lucinda J. Bach and Charles B. Wayne of DLA Piper US LLP, Washington D.C., and Robert W. Bach, Peoria.
For more information, please call Todd A. Smith, or Kathy Beardsley at 312/236-9381.
