Prosecutors are investigating Brockman’s role in a potentially “major and very large tax fraud on the United States” that could “set a record for offshore tax fraud,” a lawyer representing the Justice Department told a Bermudian judge on Feb. 20. The lawyer said prosecutors believe $1.5 billion in revenue was concealed from the U.S. Investigators also are examining possible money-laundering violations, court records show.

Several lawyers in Brockman’s offshore financial empire sprang into action after the government won over the cooperating witness. In closed proceedings in a Bermudian court without the adviser present, they effectively stripped him of any remaining control over more than $1 billion in trust assets and shifted them to entities controlled by people whose appointment Brockman had supported.

U.S. authorities were livid, according to the people familiar with the matter. The prosecutor leading the Brockman investigation accused the lawyers of misleading the court to replace a trustee. That change in control could impede the investigation and complicate any U.S. efforts to seize the assets, the people said.

Neither Brockman nor his counsel had any role in Bermuda proceedings that the U.S. government has taken issue with, and can’t comment about them, said Keneally.

Offshore Focus
Brockman, a onetime IBM salesman who goes by Bob, founded his own software company, Universal Computer Services Inc., 50 years ago. It merged with a larger rival, Reynolds & Reynolds, and is now a $1 billion concern based in Dayton, Ohio. Although he’s the chief executive officer of Reynolds & Reynolds, it’s his offshore investments that are the primary focus of tax authorities, according to the people familiar with the matter.

Investigators are examining Brockman’s business ties going back two decades to Robert Smith, the private equity billionaire and philanthropist who Bloomberg News reported on Aug. 21 is under investigation by U.S. tax authorities in a related probe. A spokesman for Smith declined to comment.

Two years ago, Brockman took a page from Smith’s successful playbook, setting up a private equity firm called Falcata Capital. Much like Smith’s Vista Equity Partners, Falcata was started with a $1 billion commitment from outside the U.S. and with a mission to buy and fix up enterprise technology companies. Although little information about Falcata is publicly available, its funding came from an entity that court documents tie to the Brockman trust structure, according to people familiar with the matter.

Pursuing Brockman and his trust structures is a daunting task for prosecutors. They must navigate trust agreements and local laws in Caribbean tax havens such as Bermuda, Belize and the British Virgin Islands. In each jurisdiction, bankers, trustees and lawyers stand ready to help rich Americans avoid -- and in some cases illegally evade -- taxes.

“What makes these offshore centers really insidious is they’re designed to help people dodge the law generally, not just in terms of tax,” said Brooke Harrington, a Dartmouth College professor who has written extensively about tax havens. “These offshore centers should be understood as a system that all works together. That system is like the Wild West for rich people.”

Brockman’s Adviser
The Bermuda adviser who began cooperating with prosecutors two years ago is Evatt Tamine. An Australian lawyer who lives in the U.K., he has said he helped Brockman manage offshore entities for 14 years, according to the documents reviewed by Bloomberg. After Bermudian police and IRS agents searched his home and storage locker, Tamine testified to a grand jury in exchange for immunity from prosecution, court records show.