Friday, August 5, 2011

Prominent Lawyer Pleads to Mainstream Tax Crimes (8/5/11)

I have spent a disproportionate number of blogs on the foreign account / asset issue (principally the offshore voluntary disclosure initiatives). But mainstream criminal tax issues proceed apace. I do not normally pay much attention to general failures to file, tax or pay evasion, tax perjury, Klein defraud conspiracies, except in those cases where there is something unusual.

So, today, I bring something that is mainstream but unusual. A lawyer has pled guilty to two counts of failure to file income tax returns and two counts of failure to pay income tax. The USAO SDNY press release is here.  The maximum sentence when these 1 year counts are stacked is 4 years. (The Sentencing Guidelines range will sure indicate a fulsome sentence.) The lawyer is not just any lawyer -- he was a partner during most of the years that he failed to file tax returns with a very prominent law firm, Sullivan & Cromwell LLP (website here). He is John J. O'Brien, formerly a partner specializing in mergers and acquisitions at Sullivan & Cromwell LLP. 

The guts of the press release (cut and paste) is :
From 2000 through 2009, O’BRIEN was a partner at a major Wall Street law firm with offices in New York City, where he handled corporate mergers and acquisitions. The Law Firm provided O’BRIEN and other partners an IRS Schedule K-1, which reported each partner’s share of the Law Firm’s income, deductions, and credits. Accompanying the Schedule K-1, the Law Firm’s accountants annually sent a cover letter explaining that the information reported on that form should be used to file individual tax returns. The Law Firm also requested that all partners complete a certification form indicating that he or she was in compliance with all income tax requirements. O’BRIEN was aware of that policy but never completed the certification form during this period.

For the tax years from 2001 to 2008, O’BRIEN willfully failed to file returns, notwithstanding the Law Firm’s effort to ensure partners were in compliance with the law. He received over $10.8 million in partnership income during that period, and owed over $2.5 million in taxes. Instead, O’BRIEN used the funds for various personal expenses, including the purchase of a weekend home, international travel, and the funding of a rare books business.
Chad Bray, Ex-Sullivan & Cromwell Lawyer Charged With Failing To Pay Taxes (WSJ Law Blog 8/4/11).


  1. What was this guy thinking ? Schedule K-1's are matched with tax returns. Did he really think we could get away with not reporting several million$ worth of income ?

  2. What was he thinking?

    It seems there may have been an issue if the firm insists on certifications, but, if so, why did it take 9 years to catch up with Mr. O'Brien. Seems their internal controls might be wanting?

    Secondly, what happens to his law license?

  3. Unless a law firm acts pursuant the actual or constructive control or direction of a federal, state, local or tribal government actor/servant/official with actual or apparent authority, then the firm's request for certifications does not constitute official/governmental action.

    Even if it is arguable, or for that matter, conceivable, that the firm's actions are imputable to a government actor/servant/official, an attorney or other employee of the firm may object to such certification (on a blanket, or preferably, a particularized basis) on any appropriate ground including but not limited to the Fifth Amendment.

    Moreover, a general duty to appear and testify is not, in and of itself, a particularized compulsion to answer questions or engage in an act of production of documents or records over one's invocation of one's rights and privileges including but not limited to one's Fifth Amendment right. Therefore, if one does not assert his/her rights and privileges, there could be a deemed waiver, whereupon, the evidence resulting from such waiver could be admissible against the declarant.

    Finally, forcing an employee to choose between his/her job and his/her Fifth Amendment right could be civilly actionable as well as a potential violation of the employee's Fifth Amendment right as clearly established in such seminal US Supreme Court cases as Garrity, Spivak and Lefkowitz.

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