Criminal investigators became interested in Kepke again after receiving tips about Smith beginning around 2013. The Justice Department launched a program that year for Swiss banks to avoid US prosecution by sharing information.
Bank Bonhote soon informed the agency that Smith and his wife held two accounts there and that Smith was the beneficial owner of eight more, Merz’s affidavit says. The bank said by email that it complies with applicable laws in the US and Switzerland.
Suzanne McFayden-Smith filed for divorce the same month the program launched. Weeks later, a private investigator working for her divorce attorney applied for an IRS whistle-blower award, according to the affidavit.
Around the same time, Denise Davis was working as Vista’s director of finance. Her duties included setting up wire transfers from the bank account of Vista’s first fund to Flash Holdings, a corporation Smith had created and secretly controlled with bank accounts in the British Virgin Islands.
No Taxpayer ID
Davis noticed that Flash had no taxpayer identification number, according to the affidavit. Her boss, Vista Chief Financial Officer John Warnken-Brill, told Davis that Flash was Smith’s “offshore entity” but that she should never associate one with the other. He gave Davis similar instructions regarding Brockman and Point Investments. Davis filed two applications for IRS whistle-blower awards, according to the affidavit.
Davis, who left the firm in 2015, couldn’t be reached for comment. Merz did not respond to requests for comment.
In 2016, a grand jury began investigating Smith in a probe that led back to Kepke, the affidavit says. Warnken-Brill testified before the panel, according to the filing. The longtime finance chief, who retired from Vista in March and has not been accused of wrongdoing, didn’t respond to requests for comment.
By 2017, the IRS had expanded its probe to include Brockman and launched its second undercover operation targeting Kepke. Two agents were involved, including one who posed as a Pennsylvania auto broker who said his grandmother intended to leave him a farm. He wanted to protect it from creditors and his future wife.
Kepke replied that some of his clients’ wives had no idea how much money they had offshore, the affidavit says. The lawyer also indicated that he’d once favored setting up entities in Bermuda but no longer did so because it had “become a sieve to the US Internal Revenue Service.” He recommended Belize.
The second undercover agent posed as the bar owner and friend of the auto broker. During a meeting at his home office, Kepke introduced Emil Arguelles, a Belizean attorney who said he’d worked with Kepke for 15 years and also did business with attorneys in New York, Florida and Los Angeles. Arguelles didn’t respond to requests for comment.
When the agent pressed Kepke about his largest clients, he described a pair of billionaires he advised as having made their fortunes in private equity and at a computer company that serviced auto dealers.
“Bob has made so much money, he’s made … I mean, he’s a, a multi-billionaire,” the affidavit quotes Kepke as saying in an apparent reference to Brockman.
Kepke advised the agent to fund a Belize trust through a relative in a way that was “nearly identical to the entities and structures Kepke created and organized for Smith and Brockman,” the affidavit says. Smith enlisted an uncle of his first wife. A UK resident with a grade-school education, the uncle told prosecutors he believed Smith wanted him to be a “sleeping partner.”
In a 2013 deposition, the uncle testified that he’d lacked the means to put up the $7,500 used to set up Smith’s trust, despite the existence of an affidavit purportedly bearing his signature and indicating he was the source of the funds.
Amended Affidavit
McFayden-Smith later acknowledged creating an amended affidavit on her computer. She altered it to identify her husband as the source of the $7,500 “in case she ever needed it for leverage against Smith,” the IRS agent’s affidavit says. In his 2020 non-prosecution agreement, Smith acknowledged putting up a portion of the money.
An attorney for McFayden-Smith declined to comment.
Among Kepke’s more than 100 clients, the 2018 affidavit identified only three, other than Smith and Brockman. They included a pair of steel industry executives. Both acknowledged working with Kepke to set up offshore entities to avoid taxes and entered the IRS’s Offshore Voluntary Disclosure Program in 2009, according to the affidavit.
When IRS agents arrived at Kepke’s door in August 2018 with their search warrant, he was no more reserved than he’d been during the undercover meetings and no more nervous, according to a memo one of the agents filed in court. Kepke asked his visitors why they hadn’t just requested documents from him and provided handwritten consent for them to seize a broad range of files. Then he left to walk his dog.
This article was provided by Bloomberg News.