A Mercer Island man is one of two men found guilty in implementing an offshore tax shelter scam involving more than $9.6 billion in phony stock sales. The two face prison time.

Islander resident Jeffery Greenstein, the former chief executive officer of Quellos Group L.L.C. (“Quellos”), and its tax attorney, Charles H. Wilk, of Seattle, pleaded guilty this afternoon to Conspiracy to Defraud the United States, and aiding and assisting with the filing of a false tax return, the Internal Revenue Service reported today. Greenstein’s address is listed as 9772 S.E. 35th Place, Mercer Island.

Under the terms of their plea agreements, Quellos founder Greenstein, 48, and Wilk, 51, of Seattle, face terms of imprisonment up to the statutory maximum of eight years. They will pay $7 million in penalties to the Internal Revenue Service, related to their personal gain realized from the design, promotion and implementation of the fraudulent tax shelter, which they called POINT. They will also pay all of the costs of their prosecution, estimated to be approximately $400,000. Additionally, the men will be required to speak at their respective college graduate schools about business and legal ethics. Prosecutors will recommend no more than six years in prison when the men are sentenced by U.S. District Judge Ricardo S. Martinez on Jan. 28, 2011.

“From the back room to the boardroom, we will hold people accountable,” said U.S. Attorney Jenny A. Durkan.

“These defendants defrauded the IRS by fashioning a fraudulent tax shelter which they promoted to the wealthiest taxpayers. They lied to the IRS, to the taxpayers and to the taxpayers’ financial advisors in an attempt to evade taxes on more than $1.3 billion in real capital gains,” said Robert Westinghouse, Criminal Chief of the U.S. Attorney’s Office. “The IRS saw through this scheme and collected all the back taxes, totaling more than $240 million. Now these defendants will face extended periods of incarceration, forfeit the profits they made on this scheme, and pay for the prosecution that held them accountable.”

In their plea agreement, Greenstein and Wilk admitted that their scheme was a fraud designed to assist taxpayers in avoiding payment of some $240 million in taxes. Specifically, the pair admits that in 2001, they provided one taxpayer with a false loss figure of $614 million as part of the scheme. All taxes owed have since been paid.