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.
Apparently their mothers aren’t the only ones who still love Jenkens & Gilchrist lawyers… The Virginia-based law firm of Hunton & Williams does. A lot.
As previously reported, Jenkens found itself under fire amid questions linked to its tax-shelter practice. The firm eventually agreed that it would be subject to a substantial penalty (though as many of you pointed out, they are probably going to declare bankruptcy and not pay), offered up its key partners to the IRS (although nobody’s naming names, most folks’ money is on the trio of Paul M. Daugerdas, leader of the firm’s tax shelter practice, and Erwin Mayer and Donna Guerin) and eventually agreed to shutter its offices worldwide. The latter was almost a certainty anyway since the firm had been so crippled by the initial investigation.
But like the Phoenix, Jenkens is going to rise again, it seems, this time with a different name. Hunton & William has gobbled up nearly 100 lawyers from the now defunct Jenkens. The push has, according to Hunton’s press release, resulted in the firm’s expansion to nearly 1000 lawyers worldwide and now allows them to tout that they are one of the "largest non-Texas based law firms in Dallas."
And while it appears that Hunton just went lawyer pickin’, the "new" firm in Texas really looks more like the result of a merger than an acquisition. Jenkens partner Chet Fenimore has been named the new managing partner of Hunton’s Austin office and Patrick Mitchell, who had been the chairman of Dallas-based Jenkens, is the new managing partner of the Dallas office of Hunton. In fact, the former Hunton managing partner in Dallas, William Stephen Boyd, has announced that he will return to his litigation practice full time. Hmm. In the legal world, not really viewed as a step up.
Even more mind-boggling is the new make-up of the Dallas office. Hunton’s Dallas office now has 157 lawyers – after adding 87 from Jenkens (that’s right, more than doubling their office). In fact, only 20 of the remaining Jenkens lawyers at the Dallas office did not jump to Hunton. The fledging Houston Hunton office gained one attorney and the Austin office picked up five.
So far, no one is saying which clients are following the masses from Jenkens to Hunton but I have to think not many – unless there are one or two partners that have such excellent relationships with former clients that they’re coming with. It’s a little dicey and decidedly uncool to follow the trail of a now-defunct law firm. Having a law firm with partners being investigated by the federal government is just soooo ten years ago.
I had already reported that Jenkens Gilchrist was suffering as a result of its involvement in several tax scandals out of the Chicago area. Attorneys were leaving, offices were closing, but somehow, you still got the feeling that Jenkens was going to pull it out and be the Cinderella story of our legal March Madness season. That isn’t going to happen.
Instead, like many of my picks for the March basketball season, Jenkens is done, out of the game. Only for them, there is no next season.
Despite the fact that Jenkens’ web site looks like business as usual, federal prosecutors have entered into a nonprosecution agreement with the firm over its past involvement in illegal tax shelters. The ultimate result is the closing of the last office in the firm by the end of the month. The agreement to shutter its doors was a factor in the government’s offer.
The firm also released a statement admitting that its lawyers "developed and marketed fraudulent tax shelters, with fraudulent tax opinions" and said it "deeply regret[s] our involvement in this tax practice, and the serious harm it caused to the United States Treasury."
As a result Jenkens has agreed to pay the IRS $76 million as a civil penalty for peddling those illegal tax shelters to an estimated 1,400 taxpayers. Perhaps most damaging, the firm also has agreed to cooperate
with an investigation of the firm or individual lawyers involved in the tax shelter practice. Gulp. If I were one of those lawyers, I’d be squirming in my seat about now.
Oh yeah, it looks like things are going to get worse before they get better. In fact, the firm claims that it had "misplaced its trust in certain partners, failing to exercise proper oversight of their practice."
Who are these partners? No one is saying for sure just yet. What is certain is that Paul M. Daugerdas led the firm’s tax shelter practice, along with partners Erwin Mayer and Donna Guerin. Maybe not so coincidentally, Mr. Daugerdas was a former partner at Arthur Andersen, the formerly esteemed accounting firm which was found
to be involved in fraudulent accounting practices for several big named clients including Enron.
Martindale Hubbell reports Mr. Daugerdas and Ms. Guerin as "private practice" lawyers in Chicago, with no further information provided. There is no listing for Mr. Mayer. After the investigation was announced in 2005, Jenkens did not renew the contracts for Mr. Daugerdas and Mr. Mayer. Ms. Guerin initially continued to work at the firm in 2006, but was not an equity partner.
It is estimated that Mr. Daugerdas earned nearly $19 million in fees per year (for a total of $93 million) for his work at Jenkens in creating these shelters and writing opinions about their validity, which proved to be false. Mayer reportedly earned $28 million for his involvement while Guerin earned $4 million.
You, I and Mr. Daugerdas understand that the IRS is not just going to walk away from that kind of direct involvement in this matter, with those kind of numbers.
It will be interesting to see what happens to the individual partners for their roles in this matter. One thing that you can safely say about Jenkens? Game over.
