I know, I know. This doesn’t even feel like news. We’ve seen it coming for awhile now, ever since this little gem appeared on the Jenkens & Gilchrist web site in 2007:
At the time of the closing, Jenkens agreed to pay a civil penalty of $76 million and cooperate with the IRS and the feds in exchange for the firm not being prosecuted. The firm. We all knew what that meant: individual members of the firm were going down. We just weren’t sure who, though we had a pretty good idea.
Now, we have the official word. Seven tax professionals were charged yesterday in a massive tax evasion scheme. The Jenkens attorneys who were indicted are Paul Daugerdas, Erwin Mayer and Donna Guerin. Also indicted were Denis Field and Robert Greisman, originally from BDO Seidman and Raymond Craig Brubaker and David Parse, formerly of “Bank A.” Though no one is naming “Bank A” in the indictment, where it is identified only as a “foreign bank with U.S. headquarters in New York”, most believe the bank to be Deutsche Bank.
The indictment charges all defendants with conspiracy to defraud the IRS and to evade taxes. Additionally, each of the defendants but Parse is charged with multiple counts of tax evasion in connection with tax shelters. Daugerdas and Mayer are also accused of using these tax shelters to illegal reduce their personal income taxes.
Why these tax professionals? Why now? Lev L. Dassin, the acting U.S. Attorney for the Southern District of New York, has written:
We are dedicated to holding accountable tax and financial professionals whose deceit and fraud cost this country millions in tax revenues. The allegations contained in the indictment reflect a brazen disregard for the law.
In other words, the feds want to use these guys as an example. And considering the amount of money thought to be at stake, they’re pretty high profile examples.
My guess is that the timing of the indictment stems from mistakes made in the KPMG case. I am sure that the feds are determined not to let that happen again.
If you’re curious (admit it, you are), you can read the entire indictment here. It downloads as a pdf – and it’s 78 pages long. You’ve been warned.
It’s time for our annual review! Here are my picks for the top stories on taxgirl.com for the year:
10, Dancing With The Stars champ and race car driver Helio Castroneves is indicted on federal tax evasion charges. In a related story, my mother is stricken with grief and may never samba again (okay, I’m not sure that she sambaed before but I’m pretty sure that this will end any chance).
9, Prop 8 in California passes and prompts the promise of tax boycotts by the gay and lesbian community.
8, taxgirl endorsed Obama for President. I was both roundly cheered and jeered for my picks but stand behind my choice. One of my most controversial and commented posts of the year.
7, Tax evaders hit the slopes. A massive tax fraud investigation in Germany, the UK, the US and other countries points the finger at the tiny Alpine principality of Liechtenstein. I am elated to finally have a reason to prove that I can spell Liechtenstein.
6, After Congress says no, President Bush says yes and earmarks taxpayer dollars to save the Big 3 automakers. As a result, Fiat misses its chance to hit it big in the US.
5, Wesley Snipes is acquitted of tax fraud. Remarkably, the world did not end, though we will now be subjected to more of his movies.
4, Congress commits US taxpayers to a remarkable bailout package. Treasury Secretary Paulson is now more powerful than Oprah.
3, The “biggest tax fraud ever” tax trial finally reaches an end. Out of the original 19 defendants involved in the spectacle that was the KPMG trial, only 3 were eventually convicted.
2, Rebates, rebates and rebates. I probably posted the most – and received the most comments – about this year’s rebate checks. Taxpayers were confused about the amount of the check, set-offs, when checks might arrive and more. An overwhelming majority of Americans admitting to being as cynical about the chances of the checks stimulating the economy as they are about Paula Abdul “just being tired.”
1, taxgirl gets a nod by the editors of the American Bar Association in the ABA Journal Blawg 100 for 2008. In case you missed it before, voting by readers for the best of the blawgs runs through January 2 – just click to vote. And no, this tidbit never gets old (not for me, anyway)!
So those are my picks for the year. What did you like? What did you hate? And what did I miss?
It had been billed as the “largest tax fraud ever” by the feds and the trial was set to teach those that set up illegal tax shelters a lesson. And then it all went very, very badly.
Defendants in the case asked the judge to throw out the charges against them when it was revealed that prosecutors had engaged in misconduct. The alleged constitutional violations by prosecutors resulted in the dismissal of charges against thirteen of the defendants; an appeal to the 2nd Circuit was unsuccessful. Two of the remaining defendants took a plea. And with just four of the original nineteen defendants remaining, the prosecution moved ahead with their case.
During the trial, a juror skipped out, annoying the judge, and defendants again moved for dismissal, claiming that they were blindsided by the prosecution’s change of strategy. The judge did not grant the motion and the trial proceeded. Prosecutors then suffered another serious blow when one of their star witnesses, Steven Acosta, was called out on the witness stand as a liar.
Nonetheless, three and a half years after I originally blogged this story, it has an end:
One defendant, David Greenberg, was acquitted on all charges. It was likely a relative consolation as Greenberg had served five months in jail before trial. Greenberg’s acquittal was thought to have been tied to the flawed Acosta testimony, testimony which embarrassed the prosecution on cross-examination and which the judge referred to as “an injustice.”
Greenberg’s three co-defendants were not so lucky (if you want to call what happened to him lucky). Raymond Ruble was convicted on 10 counts of tax evasion and investment consultants Robert Pfaff and John Larson were each convicted on 12 counts of tax evasion.
Sentencing for Ruble, Pfaff and Larson will be in March of this year. Each count could bring up to five years of jail time.
With that, the “largest tax fraud ever” is over. What was planned as a spectacular prosecution turned instead into a spectacular failure.
Check in later today for my thoughts on what it all means (did you expect any different?).
I’m not a trial lawyer. In fact, there are many, many things that I’d prefer to do than be lead counsel at a trial: sleep on a bed of nails, summer in the swamps of Louisiana, have dinner with Scarlett Johansson (I have a hate/hate thing for her)…
Get the picture?
With that, I try not to be too critical of trial lawyers’ strategies because I figure this is something that they do and, well, they know better.
But this KPMG trial? What is going on with those guys?
Last year, Judge Lewis Kaplan dismissed charges against thirteen defendants (Randy Bickham, Larry DeLap, Jeffrey Eischeid, Steven Gremminger, Carl Hasting, John Lanning, Gregg Ritchie, Richard Rosenthal, Richard Smith, Carol Warley, Mark Watson, Philip Wiesner and Jeffrey Stein), because of alleged constitutional violations by prosecutors. And now, two executives have asked Judge Kaplan to declare a mistrial, alleging that the prosecution has changed its theory midway through the trial, making it impossible to defend. The judge has not yet ruled on that motion.
Are they right? I don’t know. C’mon, though. Have you ever seen such a circus? This trial started out with 19 defendants in what was said to be a “sure thing” for the feds. It is now down to 4 defendants, half of which are clamoring for a mistrial. I know there’s a lot at stake here but I cannot wrap my head around how the prosecution could let this much go awry. The race to convict those responsible for the “largest tax fraud ever” is now just a pathetic muddle.
