Friday, May 21, 2010

The Lawyers For the Parties in the Egan Trial (5/21/10)

I have previously discussed here Judge Saylor's epic opinion in Egan knocking down two tax shelters as fraudulent and offered here here excerpts from the opinion knocking the lawyers roles in the underlying fraudulent tax shelter transactions. I now provide the list of attorneys from LEXIS-NEXIS who appeared before Judge Saylor to represent the parties and certain nonparties (a movant, a third party witness, and 2 interested parties). It appears that all involved were well-represented.  The lawyers are:

For Fidelity International Currency Advisor A Fund, L.L.C., by the Tax Matters Partner, Plaintiff: David J. Curtin, James D. Bridgeman, Kiara Rankin, Sheri A. Dillon, William F. Nelson, LEAD ATTORNEYS, Bingham McCutchen LLP - DC, Washington, DC; John O. Mirick, LEAD ATTORNEY, Mirick, O'Connell, DeMallie & Lougee, Worcester, MA; Michelle Levin, LEAD ATTORNEY, PRO HAC VICE, Bingham McCutchen LLP - DC, Washington, DC; Ronald L. Buch, LEAD ATTORNEY, PRO HAC VICE, Bingham McCutchen LLP, Washington, DC; David K. McCay, Mirick, O'Connell, DeMallie & Louggee, LLP, Worcester, MA.

For United States of America, Defendant: Dennis M. Donohue, LEAD ATTORNEY, Washington, DC; Barry E. Reiferson, U.S. Department of Justice, Trial Attorney, Tax Division, Washington, DC; Heather L. Vann, U.S. Department of Justice, Washington, DC; John Lindquist, U.S. Department of Justice, Tax Division, Washington, DC.

For BDO Seidman LLP, Movant: Diana L. Erbsen, Ellis L. Reemer, LEAD ATTORNEYS, Frank J. Jackson, DLA Piper US LLP, New York, NY; Lisa S. Core, DLA Piper Rudnick Gray Cary US LLP, Boston, MA.

For Proskauer Rose LLP, Third Party Witness: Christopher L. DeMayo, LEAD ATTORNEY, Dewey & LeBoeuf LLP, Boston, MA; David M. Lederkramer, LEAD ATTORNEY, Proskauer Rose LLP, New York, NY; Lawrence M. Hill, Mark D. Allison, LEAD ATTORNEYS, Dewey & LeBoeuf LLP, New York, NY.

For KPMG LLP, Interested Party: Armando Gomez, LEAD ATTORNEY, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC.

For RSM McGladrey, Inc., Interested Party: David E. Walters, Matthew M. Neumeier, LEAD ATTORNEYS, Howrey LLP, Chicago, IL; Peter J. Karol, Robert L. Kann, Sunstein Kann Murphy & Timbers LLP, Boston, MA.


  1. Unlike Mr. Ruble, none of these seems to have been indicted. But you have to wonder why they spent 45 days wasting a Federal Court's time? Or perhaps, it the old story, in a town one lawyer does fine, but two or more do great! Judge Saylor was profoundly and deeply unimpressed. The more you read this opinion, the more you see Judge Saylor indicating harsh treatment for the Egans and their posse, IMHO. Good work Jack

  2. Dwight NYC,

    I was initially unsure whether your comment related to this post (identifying the lawyers involved in litigating the Egan case as to whom Judge Saylor said nothing) or the earlier post (identifying lawyers involved in developing and marketing the tax shelters as to whom Judge Saylor had harsh comments). If the former, your reference to Mr. Ruble appears misplaced. Setting aside that misplaced reference, I think it is a fair question to raise about the role of lawyers involved in civil litigation of fraudulent tax shelters. Certainly, in criminal cases, defendants and their lawyers may put the Government to its proof of fraud, although even in criminal litigation there are boundaries as to what the defendant's lawyer may do. But, in civil litigation, aren't the boundaries on what the lawyer even more circumscribed than in criminal litigation?

    For example, take the litigation of a typical Son-of-Boss tax shelter case (but not focusing specifically on Egan), where the taxpayer must show that he or she had a nontax business or profit motive. Assume that all of the objective facts show that, despite the taxpayer's representation of profit motive to the promoters as the basis for the tax shelter opinion, the taxpayer really did not have such a profit motive. Can the taxpayer and the taxpayer's lawyers affirmatively contend in the civil litigation that the taxpayer did have the required nontax business or profit motive? That question as postulated is a set up, for the facts are usually not that crisp and come in shades of gray. But, if the trial judge then finds, presumably by clear and convincing evidence, that the taxpayer did not have the required profit motive and therefore his or her claims of tax benefits on the return were fraudulent, do the lawyers need to be concerned about their claims to the contrary in the litigation?

    I have no way of knowing or even responsibly speculating whether any such line was crossed in Egan; indeed, extrapolating from knowing the lead attorney for the taxpayer in Egan, I would doubt that any line was crossed. But I do think that this issue must be one of concern to lawyers in civil litigation of aggressive / abusive shelters, particularly one such as to the Son-of-Boss transactions that created cost-free deductions out of thin air. And the profit motive issue is not the only point in such multi-layered abusive shelters that this concern is raised.

    What do the readers think on this issue?

    Jack Townsend

  3. Good post Jack. My comment to Mr. Ruble was intended to refer to the earlier post. However, the point I was attempting to articulate is precisely that which you have outlined. The lawyers were different in the defense of the action. However, it seems to me that the lawyer's first duty is to the court (or at least that is how I have practiced). Making unfounded arguments, whether you are the original purveyor of these fine Rube Goldberg machines, or the lawyer defending the action, would seem to put you a difficult ethical situation. And based on what I have read of J. Saylor magnus opus, he was clearly ticked at the lawyers who made the machine and the lawyers who were trying to bamboozle him in Boston District Court. Neither set has distinguished themselves here. Surely also, Mr. Egan, as a high level public official, should have been ashamed of himself, or is this an indication of how low this country has dived? FYI, our firm has declined defense of similar situations for precisely the ethical and reputational risk they present.

  4. Mr. Townsend, I find the analysis provided in this case to be misleading and to suggest civil fraud exists (and lawyers representing the taxpayers could somehow be culpable) is not based on any foundation in tax law at the time (absent some type of Klein conspiracy which leaves the Government with incredible discretion to define the indefinable).

    The Judge in this case essentially used an expected profit analysis to determine if a reasonable possibility of profit existed. The judge assigned a 25% chance of any of the trades hitting in such analysis to determine reasonable possibility of profit and then added the fees to the costs to effectively derive negative returns not withstanding if all the trades hit profit after fees of approximately $10 million was possible (not including the “lottery” option). This of course was not the law at the time and likely not the law now. In fact if it is the law, anyone who buys an option has a reasonably expected profit of zero (which happens by definition) and thus, anyone deducting losses on options is a criminal.

    As far as the 25% probability goes, I am unsure how it was computed but normally such probabilities are based on stochastic movements of the affected prices of the subject options under Black/Scholes not to mention that generally options can trade at 20% to 40% premiums to the derived Black/Scholes price, check it out a bunch of economists have engaged in such studies attempting to profit off this anomaly. Of course the explanation is simple, 50% of the traders out there trade based on Charts which effectively rely on prior stochastic movements based on Japanese Candlesticks, Fibonacci levels, the Elliot Wave or other statistically relevant levels and of course some traders merely trade based on News. All of these, types of traders effectively skew the price of options or any other market instrument essentially yielding the Black/Scholes imputed probability to be meaningless other than it is a function of price.

    My point of course, is it seems many are now deriding the lawyers representing the taxpayers when we got brand new law here (unless someone knows of any other nonsensical case like this), why would any lawyer be reluctant to represent a taxpayer with these facts?

  5. After posting my earlier comment, I ran across the attached outline written by Chad Muller, a premier tax crimes attorney in San Antonio, who gave me permission to provide it to readers of this blog. The article is titled The Presentation of Questionable Testimony and deals with a facet of the discussion in the comments to this blog.

    The link is:

    I suppose readers will have to copy the URL and post it into their web browser.

    Jack Townsend

  6. Anonymous, I think your posting missed the discussion in the comments. The discussion in the comments are addressed to a situation where the lawyer knows or should know that he or she has an unwinnable case if truth known or reasonably knowable to him or her is known to the court. Is it appropriate to bring and/or continue a case that is based on the hope that the court will not grasp the fatal facts known or reasonably knowable by the lawyer? I am not suggesting that that circumstance was at play in Egan, but only suggesting that the strength of the Judge's findings and conclusions raised the issue in my mind, if not in that case, but in an academic sense for shelters such Son-of-Boss that create deductions out of thin air.

  7. Responding to Jack's previous (very interesting) comment, Judge Saylor found the opinions and legal analysis provided to be fraudulent. Therefore, isn't there a case that the lawyers who defended the tax case, who reitterated the same points and analysis w,ere equally so specifically in the Egan case. On a more general level, it seems that this is a minefield for defence attorneys as it is only a matter of time before the client turns around and successfully sues the defense attorney, if it has not already happened. The ethical issue would loom pretty large: why did you rack up enormous fees defending the indefensible. Of course, if you take the case and defend it to the utmost, you run a substantial risk of fouling up one's duties and responsibilities to the court. Any views?

  8. Anyone have a view on why the Egans chose to pay the tax and litigate a refund action in Federal Court rather than the more usual course of Tax Court?

  9. This just gets more interesting the more one digs! See
    Google "IRA Akselrad and Tax Haven Enablers". Seem Mr. A now works for Mr. Johnson. The significance is will be obvious once you read the referenced material. A little off topic perhaps, but why did he now go down with the others?

  10. Mr. Townsend, I think I understood your comments but what is an un winnable case? Were OJ’s or Jackson’s cases un winnable? How about Sala, $60 million of tax deductions from a transaction after fees that could not have been profitable, was that an un winnable case? How does one even apply such an analysis to the “typical” son of boss case? In Gitlitz the SCT basically said the economic substance law was irrelevant to the tax issue at hand (not withstanding the Governments current mantra that economic substance applies before one even begins to interpret the tax law or issues). In BLIPs profit was objectively possible even after fees and further, the case law at the time did not address how fees are used to determine potential profits (unless someone has a cite otherwise) and in fact, the Compaq case clearly states any costs related to tax benefits are not included in the profit analysis. Remember the purveyors claimed there merely was a 50.1% chance of winning in court if pursued all the way to the SCT or stated conversely it was 49.99% the taxpayer would lose. You raise an interesting point about taxpayers suing the lawyers defending them since most of the taxpayers have lied about their understanding of the transactions not withstanding the written word in the opinions and engagement letters. In fact, most of the extremely wealthy taxpayers had counsel with adverse interests advising them but chose to engage in the strategies anyways. Orwell said it best, “in a time of universal deceit, truth telling becomes a revolutionary act”.


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