A New York federal jury has convicted two former KPMG executives and a lawyer while acquitting a fourth man who was jailed for four months, on federal charges bought against them for selling illegal tax shelters that helped their clients dodge hundreds of dollars in tax payments.

The trial which took just two months to conclude, was once billed as the biggest tax-shelter case in the US, and went awfully wrong for the prosecutors, who had initially brought charges against 17 ex-KPMG executives including the company's deputy chairman and two others for helping wealthy Americans evade taxes to the tune of $2 billion.

The jury of nine women and three men found former KPMG executives, Robert Pfaff and John Larson and former Brown & Wood lawyer, Raymond Ruble guilty on multiple counts of tax evasion but acquitted David Greenberg, who had been jailed for three months and monitored electronically by having electronic bracelets tied to his ankles.

Last year, the prosecution messed up the case and the District Attorney had to dismiss charges against 13 ex KPMG executives when they violated the defendant's right to seek counsel by forcing the company to withhold attorney fees.

This ruling was also upheld when the state filed an appeal. Earlier in January 2007 KPMG was not named a defendant when it agreed to pay $456 million to settle the federal probe.

Prosecutors said that in 1996, KPMG executives extended their business by selling tax shelters that would reduce the tax liability of a customer with no risk, as it just created paper losses to reduce taxes and went on to help more than 600 clients evade taxes.

Prosecutors had laid out a case where the ex employees of KPMG organized tax shelters between 1996 and 2005, known as FLIP, OPIS, BLIPS and SOS, wherein fake tax losses were generated for their clients although lawyers had argued that clients were not aware of these fake adjustments and the shelters were genuine transactions and the clients trusted the company in its dealings as they paid 7 per cent of the losses adjusted, as fees to KPMG.

The case has caught the eagle eye of legal experts as the US government is coming down heavily on tax evaders using tax havens as a means of evading billion of dollars in taxes.

In July, the US authorities had secured a court order to seek information from UBS, Switzerland's largest bank, on US taxpayers suspected to be avoiding income taxes. (See: US wins court order for UBS bank records; steps up probe)

The order, issued by a US district judge in Miami, allows the US Internal Revenue Service to serve a summons on UBS to obtain information on possible fraud by people with unestablished identities.

The order by Judge Joan Lenard, issued on a justice department request for bank records, puts further pressure on Switzerland's secretive banks to open up. The court ordered that UBS hand over the names of as many as 20,000 of its US customers.

Based on the court order and the US senate subcommittee saying tax evasion through offshore accounts robs the US Treasury of $100 billion annually, UBS decided to exit its offshore banking business for US clients.(See: UBS exits offshore business in US)

Last month, UBS disclosed information on 70 American clients to the US tax authorities investigating tax evasion. The reveling of the 70 American account holders in UBS came when the US authorities requested the Swiss to reveal names of Americans holding 'undeclared' accounts in UBS as it was required by the US Justice Department to investigate accounts which was not declared to the Internal Revenue Service. (See: UBS reveals US client details to Federal authorities)

President-elect, Barack Obama, who had called UBS "tax cheats", plans to crack-down on international tax havens and has signalled he will introduce a law within weeks of taking power, as part of a wide ranging revenue raising and tax reform package where the crackdown that could raise at least $50 billion a year in lost US tax revenues.