Wednesday, January 15, 2020

Texas Lawyer and Client Convicted for Conspiracy (1/15/20)

DOJ Tax has announced this conviction:  Jury Finds Texas Attorney and Client Guilty of Conspiring to Defraud the Internal Revenue Service (1/15/20), here.  See CourtListener docket entries here.

Key excerpts.
A federal jury convicted a Texas attorney John O. Green and his client Thomas Selgas today for conspiring to defraud the United States, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. The jury also convicted Selgas of tax evasion. Selgas’s wife, Michelle Selgas, was acquitted of conspiring to defraud the United States and tax evasion. 
According to the evidence presented at trial, Selgas conspired with Green, an attorney licensed to practice in Texas, to defraud the United States by obstructing the Internal Revenue Service (IRS) from assessing and collecting Selgas’s taxes. Selgas and his wife owed approximately $1.1 million in outstanding taxes that Selgas refused to pay. When the IRS made efforts to collect the outstanding taxes, Selgas concealed funds by using Green’s Interest on Lawyers Trust Account (IOLTA) rather than using accounts in his own name. An IOLTA is a bank account used by a lawyer to hold money in trust for clients. From 2007 to 2017, Selgas deposited proceeds from the sale of gold coins and other income into Green’s IOLTA and Green would then pay the Selgases personal expenses, including their credit card bills, from that account. Selgas and Green also filed a false tax return on behalf of MyMail, Ltd., an intellectual property development and licensing partnership Selgas co-founded, omitting a substantial portion of the partnership’s income.
JAT Comments:

1.  Most people reading this blog probably be familiar with the lawyer’s trust account, in Texas called Interest on Lawyers’ Trust Accounts (“IOLTA”).  See generally, State Bar of Texas, A Lawyer’s Guide to Client Trust Accounts, here.  In IOLTA, unless otherwise provided, the interest on the account is swept monthly by the financial institution and remitted to the Texas State Bar.  The underlying trust funds are held in trust.  The Texas Disciplinary Rules of Professional Conduct provide in relevant part:
1.14 Safekeeping Property
(a) A lawyer shall hold funds and other property belonging in whole or in part to clients or third persons that are in a lawyer’s possession in connection with a representation separate from the lawyer’s own property. Such funds shall be kept in a separate account, designated as a trust or escrow account, maintained in the state where the lawyer’s office is situated, or elsewhere with the consent of the client or third person. Other client property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation
* * * *
Policy Behind the Rule
The policy behind Rule 1.14 is to protect funds that do not belong to the lawyer. When a lawyer holds funds that belong to a client or third party, these funds must be protected from the lawyer’s creditors or personal financial problems. Acting as a fiduciary, lawyers are required to treat the property of others with the highest standards of accountability.  Accordingly, Rule 1.14 details a lawyer’s duties to clients and third persons when acting in this fiduciary capacity. Although Rule 1.14 also mentions the duty to safeguard “other property”, the purpose here is to discuss safeguarding funds, and not personal property, such as jewelry or stock certificates. The obligation to keep the property of others in a separate trust account in accordance with Rule 1.14 is absolute and not waivable.
2.  There are detailed rules about the handling of Lawyer’s Trust Accounts.  See the publication above.

3.  Lawyer’s Trust Accounts can be tempting vehicles to hide assets.  As exemplified by the Selgas/Green prosecution, lawyers can assist others (clients, family, friends, co-conspirators, etc.) in hiding assets as was the case in the Selgas/Green prosecution.  Some lawyers have even moved their own assets into their trust accounts to thwart their own creditors (including the IRS).

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