Saturday, March 2, 2013

Daugerdas Related Defendant Is Sentenced for Bullshit Tax Shelter Work (3/2/13)

Donna Guerin, a member of the Daugerdas team of bullshit tax shelter purveyors, has been sentenced "to eight years in prison on conspiracy and tax evasion charges stemming from her work on the design, marketing, and implementation of fraudulent tax shelters that allowed her clients to claim billions of dollars in fraudulent tax losses." USAO SDNY press release, here.  (For the earlier blog on Ms. Guerin's guilty plea, see Guerin, Daugerdas Sidekick, Pleads Guilty (Federal Tax Crimes Blog 9/14/12), here.)

The press release on her sentencing describes her conduct:
GUERIN was a partner at Altheimer & Gray (“A&G”), a Chicago law firm, between 1994 and 1998, and later moved with a small group of A&G attorneys to the newly-formed Chicago office of Jenkens & Gilchrist (“J&G”), a Texas-based law firm with offices throughout the United States. At different times between 1999 and 2005, GUERIN was a shareholder or partner at J&G. 
Between 1996 and 2004, GUERIN and other attorneys at J&G worked on the design, marketing and implementation of high-fee tax strategies for individual clients. Those strategies, or “tax shelters,” were designed to allow high-net-worth clients to eliminate, reduce, or defer taxes on significant income or gains. GUERIN and other J&G attorneys worked together with brokers from a financial institution, partners and employees of the accounting firm BDO Seidman, and other entities, in marketing and implementing the tax shelters. 
Among the fraudulent tax shelters designed, marketed, and implemented by GUERIN and her co-conspirators were “Short Sales,” “Short Options Strategy” (“SOS”), “Swaps,” and “HOMER.” The Short Sale tax shelter was marketed and sold from 1994 through 1999 to at least 290 wealthy individuals, and generated at least $2.6 billion in false and fraudulent tax losses. The SOS tax shelter was marketed and sold from 1998 through 2000 to at least 550 wealthy individuals, and generated at least $3.9 billion in false and fraudulent tax losses. The Swaps tax shelter was marketed and sold in 2001 and 2002 to at least 55 wealthy individuals, and generated more than $420 million in false and fraudulent tax losses. 
In return for receiving a fee from tax shelter clients based on a percentage of their purported tax losses – usually 5% for ordinary losses and 4% for capital losses – GUERIN and others at J&G assisted clients in implementing all of the stages of the fraudulent tax shelters, including setting up bank accounts and entities such as corporations and partnerships. GUERIN and others at J&G also provided the tax shelter clients a “more likely than not” legal opinion from J&G.
In addition to her involvement in the marketing and implementation of the fraudulent tax shelters, GUERIN also took part in the illegal back-dating of certain tax shelter transactions when attorneys at Jenkens & Gilchrist realized, after the close of certain tax years, that certain steps of the tax shelter transaction had been done improperly. GUERIN and others helped create documents after the close of the tax year and back-dated them using “as of” dates --- effectively treating the documents as if they had been signed prior to the close of the tax year, in violation of tax accounting rules. 
GUERIN was paid in excess of $17 million from 1998 to 2002 as a result of her involvement in the tax shelter conspiracy.
A Bloomberg reporter provides an excellent news report of the sentencing hearing:  Partricia Hurtado, Ex-Jenkens & Gilchrist Lawyer Gets 8 Years in Tax Case (Bloomberg 5/1/13), here.  Some excerpts from the article:

U.S. District Judge William Pauley in New York, who presided over the case, said that as both a lawyer and a certified public accountant, Guerin had violated her oaths to uphold the law by helping her clients avoid paying their taxes through shelters. 
“It’s the modern-day equivalent of Hawthorne’s story of Midas,” Pauley said yesterday. “Everything she touched turned to gold with tragic consequences. Her fall has been Faustian.” Guerin was “the embodiment of the American dream, but then her lust for money turned her dream into a nightmare,” he said. 
* * * * 
“When an attorney violates her oath to uphold the law, she undermines our entire system of justice,” Pauley said. “This tax shelter fraud conspiracy was breathtaking in its scope and in the damage it caused our nation.” 
* * * * 
Pauley rejected his argument, saying Guerin hadn’t been satisfied earning hundreds of thousands of dollars as a partner and instead had earned millions that were generated through the tax-shelter scheme. Pauley said Guerin had been a “leader” and had even instructed young associates at her now-defunct law firm how to conduct a “hide the ball tax strategy.” 
‘Willing Tools’ 
“Lawyers and accountants became willing tools for their ultra-wealthy clients to avoid their fair share of taxes. These professionals violated their oaths to line their pockets. Ms. Guerin played a central role, she was not a mindless automaton,” the judge said. “She became a criminal for two reasons: the lure of the money and because she believed that she was never going to be brought to justice.” 
* * * * 
Assistant U.S. Attorneys Stanley Okula and Nanette Davis said in court papers that Guerin deserved a “significant” prison term of at least 10 years. 
“This was a species or a subset of activity that was so flagrant and knowingly wrong, any first-year law student would know was wrong,” Okula told Pauley yesterday. He argued that Guerin had given tutorials to young associates at the firm, teaching them how to evade taxes.
Judge Pauley did not show her much lenience, although he could have gone to the full ten years without departing upward from the sentencing guidelines.  However, and this is speculating, I am confident that, if the Government offered Daugerdas a plea deal at all, it would be for more than two counts and probably would require 4 5-year felony counts, perhaps more.  Now, with even 4 or more 5-year felony counts of conviction (whether by plea or jury verdict), the judge is not likely to sentence for more than 20 years, so in a sense it may be academic.  But one can fairly predict that his sentence is likely to be materially more stringent than Guerin's because she was in a subsidiary role and, even given her willful conduct, probably would not have been involved at all without the influence and direction of Daugerdas.

Students should note that the tax loss for sentencing purposes was huge.  The tax loss is the principal driver of sentencing.  However, Ms. Guerin pled guilty to two 5-year felony counts (conspiracy and tax evasion), thus capping her maximum possible sentence at 10 years.  The sentencing guidelines produce a range far in excess of 10 years, so she perhaps did well by capping the sentence at 10 years.  It is true that Judge Pauley sentenced to 8 years, but she and her attorneys did not know in advance what sentence he might give.  Hence, it was wise to accept the two-count plea deal to cap the possible sentence.

1 comment:

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