In the last couple of decades, Haim Saban went from an obscure producer of cartoon soundtracks to a media mogul worth billions. And right beside him was his trusted financial and legal adviser, Matthew Krane, who himself made millions working for Saban.

But Krane’s good life of yesterday is a stress-filled one today.

Krane now wears an ankle bracelet under house arrest at his Hollywood Hills home for his role in one of L.A.’s most salacious cases of recent years. He was released last month from a federal holding facility after being held 16 months, during which time his mansion was burglarized several times. He’s awaiting sentencing after pleading guilty for failing to report $36 million in income linked to a tax shelter he steered Saban into, which has been called one of the largest tax fraud cases in American history.

His personal life is no better. Krane is estranged from his ex-wife, and his 11-year-old daughter did not visit him in the federal holding center in downtown Los Angeles.

“There is no question stress takes its toll,” Krane told the Business Journal on a morning last week at his home, wearing monogrammed slippers, faded black Diesel designer jeans and a tattered navy blue shirt – in addition to his electronic bracelet. “But I think, all in all, I’m OK.”

Krane, 55, a Harvard-educated tax attorney, is confined to his four-bedroom, 5,000-square-foot home that he’s owned for 14 years. The house is unkempt outside with overgrown shrubs and water stains, and inside is scattered with banker’s boxes filled with old client files.

Although Krane labored in Saban’s shadow for years, he was thrust into the news when his house was raided 22 months ago and investigators claimed they found false passport documents, crystal meth, a date rape drug and horse tranquilizers. Krane would not discuss the drugs or passport issues, but as part of his plea deal, he must get drug tested in the Mid-City area. He does so at 5 a.m. to “get it over with.”

Needless to say, his relationship with Saban is in shambles. Saban, whose $2.8 billion in estimated net worth ranked him No. 8 on the Business Journal’s Wealthiest Angelenos list in May, told the U.S. Senate he had only followed Krane’s advice in using a tax shelter for his capital gains. He portrays himself as a victim and dismisses anything Krane says because his former adviser’s crimes involved “flagrant lies and deceit.”

At the heart of Krane’s legal troubles is a shelter that Krane used to allow his star client to sidestep taxes on capital gains on some of the $1.5 billion Saban made after selling his interest in the Fox Family Channel in 2001.

Meeting Saban

The roots of the case can be traced back to 1980, when Krane began working in entertainment law. He represented Gene Hackman and Marlon Brando on tax issues related to the filming of “Superman: The Movie” in England.

Krane developed a “father-son relationship” with Brando business manager Norton Brown. In 1984, Brown introduced Krane to Saban, who had just moved to Los Angeles a year earlier and was a struggling producer of cartoon soundtracks.

Krane, who had just joined the Beverly Hills entertainment law firm of Pollock Bloom & Dekom, said he and Saban quickly developed a good working relationship.

Saban always challenged him, finding weaknesses in every proposal. Krane valued him because he loved intellectual challenges, and said Saban appreciated his honesty.

“We hit it off because he found a lawyer who didn’t try to bullshit his way through,” he said.

Saban began acquiring the rights to broadcast television programs internationally, and in 1985 he paid about $500,000 for the rights to broadcast the popular Japanese children’s show “The Mighty Morphin Power Rangers” outside of Asia. Krane was behind the scenes, structuring Saban’s international television distribution business in such a way that Krane claims saved Saban hundreds of millions of dollars in taxes.

As Saban built an empire that would make him a billionaire, Krane became his most trusted adviser.

“Before he sold his first cartoon, we met and he said, ‘I’m going into the international distribution business in television. Can we set up this up in a way that is tax efficient?’ ” Krane said. “And I said, ‘Yeah, we can.’ And we did.”

Crazy hours

Krane left Pollock Bloom in 1992, and took some of his clients with him – including Saban. He conducted a part-time private practice while he tried his hand at an acting career.

“I preferred working from home so I could keep my weird, crazy hours and do my work in the middle of the night,” Krane said.

He studied acting with the late Roy London, a prominent coach whose students have included Sharon Stone, Patrick Swayze, Geena Davis and Gary Shandling.

Krane directed the play “Strange Snow,” which appeared for three weeks at the Tamarind Theatre on Franklin Avenue in Hollywood. But his acting career never took off so he went back to law full time. That’s when Saban became his main client, accounting for about half his working hours.

Saban eventually persuaded News Corp. to broadcast “Power Rangers” on the then-fledgling Fox network. The show became a sensation, and Saban formed a joint venture with Fox in 1996 that led to the creation of the cable venture Fox Family Channel.

In 2001, Saban and Fox sold Fox Family to Walt Disney Co. for $5.2 billion, and Saban netted nearly $1.5 billion in capital gains from the deal. Saban called on Krane.

Krane said he distinctly remembers a conversation around Christmas 2000 when Saban called to ask what they were going to do about the taxes on the sale of Fox Family.

“I said, ‘Pay the capital gains tax. I thought that’s what we always discussed,’ ” Krane recalled. “He said, ‘What? Are you f——— crazy, how much is the tax?’ I said, ‘I don’t know; something like 27 percent when you mix up the state and the federal.’ And he said, ‘I’m not going to pay that.’ ”

Krane said he felt pressure. He hadn’t adequately prepared a tax plan for the sale, and there was little time because Saban had committed to the sale. So he suggested finding a shelter quickly.

Krane turned to Robert Jason, another Harvard Law alum, whom Krane had met after he started practicing in Los Angeles. Jason referred Krane to the Seattle hedge fund Quellos Group. (Jason pleaded guilty in June to one count of tax fraud in Seattle federal court in relation to the case.)

“I did several other interviews with promoters and did some telephone conference calls,” Krane said. “Everyone was trying to peddle their tax shelters, and I looked at everyone.”

Point plan

Krane advised Saban to enter into a transaction structured by Quellos, with about $740 million going into the Quellos shelter, called Point, and the remaining $760 million going into a structure that Krane devised. The Krane-devised plan was later determined to be legal.

“I was able to construct an overall tax plan that used the Point plan as a part,” Krane said.

However, according to the U.S. Senate, which investigated tax shelter abuse, the Quellos tax shelter worked through a series of complex trades that used fake transactions to create fake losses “and offset real taxable capital gains of U.S. taxpayers so they could avoid paying taxes.”

Quellos carried out the transactions through an offshore “shell” company on the Isle of Man in an effort to keep them hidden, authorities allege.

Investigators also discovered that Saban was among those who had used Point. Saban was called to testify in 2006.

In surprising testimony, Saban told the Senate that his limited formal education prevented him from understanding the shelter was illegal. He paid $250 million in back taxes and penalties.

In a 400-page Senate report on Quellos, Saban is portrayed as a victim of Krane. According to the report, Saban even said that he was not concerned about the details of the highly complex transaction because it had the “Matt Krane stamp on it.”

But Krane paints a different picture.

“For him to say ‘My informal education limited my ability to understand complex transactions’ is not the guy that I knew,” Krane said. “We are talking about a mind that grasps the details, grasps the nuance and grasps every element of extraordinary complex transactions.”

A Saban spokesperson last week responded: “Mr. Krane is a convicted felon who is awaiting sentencing for crimes involving flagrant lies and deceit.

“A federal grand jury has determined that Mr. Saban was a victim of Krane’s fraud.”

Plea deal

Details of Krane’s role in the Quellos case weren’t revealed until June, when federal prosecutors in Seattle unsealed an indictment charging Krane, along with former Quellos Chief Executive Jeffery Greenstein and his business partner Charles Wilk, with conspiring to operate one of the largest tax evasion schemes ever in the United States.

Prosecutors in Seattle alleged that Krane received $36 million as a kickback for steering Saban into the shelter. Krane claims that was merely his payment, not a kickback.

However, Krane pleaded guilty in December to tax evasion, but not to the kickback allegation. He also pleaded guilty to making false statements on a passport application. But under his plea deal, all other charges will be dismissed. He is cooperating with prosecutors pursuing the Quellos matter.

Krane is to be sentenced in March; he faces up to five years in prison. He already served 16 months because a judge had deemed him a flight risk; the current judge in the case has allowed him to be under house arrest.

Meanwhile, Krane has one more issue to stress over. He and Saban are fighting over the $36 million in Krane’s Austrian bank account, which the courts there have frozen. Krane claims the money was paid to him for his services; Saban alleges that since it was an illegal kickback, Saban should get it back.

Krane’s experience with the legal system has led him to contemplate plans for a foundation that provides grants to help those who have suffered injustices.

“I have seen the process from the inside and it doesn’t resemble at all, in any way, shape or form the process that I imagined when I was not on the inside,” Krane said.

And he’s also thinking about writing a book.

“I’ve got some good stories to tell,” he said.