Of all of the stories that I’ve ever covered over the years, by far the one I’ve received the most questions about after the fact was this one: Whatever happened to Paul Daugerdas?
I’ve been following the story since 2006 after allegations surfaced that Jenkens Gilchrist might have been involved in offering up some not-so-questionable tax shelter advice that the Internal Revenue Service finally declared improper. One of the attorneys involved in that scandal was Paul Daugerdas (the other notable Jenkens attorney was Donna M. Guerin). Jenkens eventually folded and a number of defendants, Daugerdas and Guerin included, were charged criminally.
It wasn’t the first time Daugerdas had been linked to a tax shelter: Janet Novack of Forbes first reported on Daugerdas’ alleged involvement with questionable shelters in 2002. It would take years for criminal charges to follow.
Daugerdas was said to have hatched the scheme which consisted of tax shelters marketed to some of the wealthiest individuals in America as a way of evading tax by creating fake losses. Under Daugerdas’ direction, the tax shelters generated over $7 billion in fraudulent tax losses, resulting in $1.6 billion in lost tax revenue.
After a criminal trial that took three months and included 9,200 pages of testimony from forty-one witnesses, Daugerdas and three of his co-defendants (including Guerin) were found guilty.
Only it didn’t stick.
One of the jurors, Catherine M. Conrad, lied about nearly everything – from her residence to her educational background to her criminal history – to make it onto the jury. She clearly had it out for the defendants, saying, “[Defendants are] fricken crooks and they should be in jail and you know that.” And just like that, the “biggest tax prosecution ever” ended in a mistrial for three of the defendants (Paul M. Daugerdas, Donna M. Guerin and Denis M. Field). Defendant Raymond Craig Brubaker was acquitted and Parse’s guilty verdict stuck.
Three months later, Guerin pleaded guilty to conspiracy to defraud the United States and tax evasion. Daugerdas continued to maintain his innocence.
In October of 2013, after a seven-week long trial, Daugerdas was convicted of conspiring to defraud the IRS, to evade taxes, and to commit mail and wire fraud, and of corruptly endeavoring to obstruct and impede the internal revenue laws. He was also convicted on four counts of tax evasion relating to the use of various tax shelters for specified clients, and of mail fraud.
Today, Deputy Assistant Attorney General Ronald A. Cimino for the Tax Division of the Department of Justice and U.S. Attorney Preet Bharara for the Southern District of New York announced that Daugerdas, now age 63, was sentenced to 15 years in prison.
A tax attorney and an accountant, Daugerdas was in a position to know better. Instead, according to U.S. Attorney Bharara, “Daugerdas used his legal and accounting expertise to cheat the system and unlawfully deprive the government of over $1.6 billion of tax revenue. With today’s sentence, Daugerdas’s giant tax fraud scheme has reached its just conclusion under the law, with a sentence of 15 years in prison.”
Only it doesn’t quite stop there. In addition to prison, Daugerdas will forfeit $164,737,500, including a lakefront home on Lake Geneva in Wisconsin, and over $20 million in various securities and financial accounts. He must also pay $371,006,397 in restitution to the IRS.
As a result of the scheme, Daugerdas was said to have profited by $95 million. He used the tax shelters he marketed to reduce his own taxes to less than $8,000; without the shelters, he would have owed over $32 million in taxes.
His co-defendants fared better. In 2013, Guerin was sentenced to eight years in prison; she was also ordered to pay $190 million in restitution and to forfeit $1.6 million. That same year, Parse was sentenced to serve 46 months in prison and ordered to pay $115,700,000 in restitution and to forfeit $1 million. Field was acquitted of all charges last fall.
