On Retrial, Daugerdas Convicted and Field Acquitted (11/1/13)

On retrial, Paul Daugerdas has been convicted of tax crimes related to his tax shelter activities.  In the same triial, Denis Field, former CEO of Seidman was acquitted.  See Nate Raymond, CORRECTED-Lawyer guilty, accounting firm CEO cleared in tax shelter case (Reuters 10/31/13), here.  Excerpts:

A federal jury in Manhattan convicted Paul Daugerdas, the lawyer, on seven of 16 counts including conspiracy, tax evasion and mail fraud following an eight week re-trial in his criminal case. 

But the jury acquitted Denis Field, the one-time accounting firm head, on all seven counts against him including conspiracy and tax evasion.

The USAO SDNY press release, titiled Jenkens & Gilchrist Attorney Found Guilty In Manhattan Federal Court Of Multibillion-Dollar Criminal Tax Fraud Scheme, is here.  Key excerpts from the press release are:

Preet Bharara, the United States Attorney for the Southern District of New York, Ronald A. Cimino, Deputy Assistant Attorney General for the Tax Division of the Department of Justice, and Richard Weber, the Chief of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today that PAUL M. DAUGERDAS was convicted in Manhattan federal court for his role in a tax shelter scheme in which he and his co-conspirators designed, marketed, and implemented fraudulent tax shelters used by wealthy individuals to avoid paying taxes to the IRS. The 10-year scheme generated over $7 billion of fraudulent tax losses and netted DAUGERDAS approximately $95 million in profits. DAUGERDAS was convicted following a seven-week jury trial, presided over by U.S. District Judge William H. Pauley III. 

* * * * 

From 1994 through 2004, DAUGERDAS, a lawyer, certified public accountant, and the former head of the Chicago office of the Jenkens & Gilchrist law firm (“J&G”) and its tax practice, participated in a scheme to defraud the IRS by designing, marketing, implementing, and defending fraudulent tax shelters. 

As part of the scheme, DAUGERDAS and others undertook to prevent the IRS from: (i) detecting their clients’ use of these shelters; (ii) understanding how the transactions operated to produce the tax results reported by the clients; (iii) learning that the shelters were marketed as cookie-cutter products designed to eliminate or reduce large tax liabilities; (iv) learning that the clients were not seeking profit-making investment opportunities, but were instead seeking huge tax benefits; and (v) learning that, from the outset, all the clients intended to complete a pre-planned series of steps that had been designed to lead to the specific tax benefits sought by the clients. DAUGERDAS and others created, and assisted in creating, transactional documents and other materials that falsely and fraudulently described their clients’ motivations for entering into the tax shelters and for taking various steps in order to yield the tax benefits. 

As a result of the scheme, the defendant and his co-conspirators made millions of dollars in fees and bonuses. Specifically, DAUGERDAS made $95 million in profits but used tax shelters to reduce the taxes he paid to less than $8,000; without the shelters, he would have owed over $32 million in taxes.

Guerin, Daugerdas Sidekick, Pleads Guilty (9/14/12)

Yesterday, Donna Guerin,  Paul Daugerdas' sidekick and fellow defendant, pled guilty to a conspiracy (18 USC §371), here, and tax evasion (26 USC §7201), here,.  The plea agreement is here;  excerpt key parts of the plea agreement below.  Each count has a maximum incarceration of 5 years; so the maximum sentence is 10 years.  She also agreed to forfeit $1.6 million.

She and Daugerdas were convicted of conspiracy and evasion in a much publicised trial last year.  The conviction was reversed for juror misconduct.  Which put them back in the queue for another trial.

I think it is important the good Judge Pauley asked her in the plea hearing whether she "she knew she was acting illegally when she helped draft opinion letters justifying tax shelters," to which Guerin responded "I came to that understanding over time.”  That's a standard line of inquiry at plea hearings as the judge assures himself that the client is really admitting the crime to which she is pleading.  But, because the crimes involved require specific intent to violate the law, it is important to know when she came to that understanding.  If for example, she had come to that understanding before the conspiracy was completed and before the conduct to which she pled in the evasion count, then she is guilty of the crimes to which she pled.  If she came to the understanding that the conduct could be a crime later, then she is not guilty of the crimes pled.  Until and unless the intent is present and coupled with conduct driven by that intent, there is no crime; conduct only coupled with subsequent intent is not a crime (I know that is an oxymoron, but I hope you get the point).  If  she only came to that knowledge of illegality, for example, after she was indicted, it would seem that there is no crime.  Maybe this issue was fleshed out after she gave that response or is addressed in the plea agreement.

Bizarre Plea in Quellos - Plea Not Surprising but Facts Are Bizarre

Matthew Krane, a tax attorney, who took a large, very large kickback on a large, very large client investment in an allegedly abusive / criminal Quellos tax shelter has pled guilty. The announcement from USAO EDWA is here and a Law.com article with more of the background than in the USAO announcement is here. I do not have a copy of the plea agreement so some information provided in this blog is incomplete and may be updated when and if I get the plea agreement.

I previously blogged the larger indictment of Krane and two others involved with Quellos here.

The gravamen of the claim against Krane, a tax attorney is that he received a kickback, perhaps shared with the two other defendants, of some 35 million + on the sale of the shelter designed to shield over $1 billion in gain realized by one of his clients. Quellos and its principals designed the shelter. Krane did not advise his client of the kickback.

The guts of this news is as follows:

1. As to Krane, the plea is to "Tax Evasion and False Statement in a Passport Application." The announcement says: "KRANE will serve up to five years in prison for his two convictions." (As an aside, it is unclear why Krane will serve only up to 5 years; given the amounts the tax evasion plea generates a Guideline sentence of; I have not seen the calculation that would make the Passport conviction moot in terms of sentencing.)

2. As to the remaining defendants (Wilk and Greenstein), Krane will assist the Government in making its case. May not be a pretty picture for them. The trial is tentatively scheduled for September 2010.