Jay Gordon, the former chair of the tax practice at Greenberg Traurig, has pleaded guilty to two counts of obstructing the due administration of the internal revenue laws, and conspiracy to defraud the IRS and to violate the tax laws. Gordon revealed his “misconduct” to Greenberg in 2004 and resigned from the bar two years later.
Gordon participated in a series of transactions meant to shelter wealthy clients from paying taxes. He referred various clients to a tax shelter boutique firm that paid him over a million dollars in referral fees. Initially, those fees were not disclosed to the clients (bad), his law firm (very bad), or to the IRS (very, very bad).
Over the next several years, Gordon continued to refer additional clients to the tax shelter boutique firm, as well as to “a bank” which was participating in the transaction (hmm… Could it be Chase?). At some point, Gordon got wise (sort of) and reported some of the fees paid to a company created by Gordon called “Albert Edward LLC,” to the IRS. However, Gordon offset those fees in some years by claiming fraudulent losses attributable to tax shelter transactions. In other years, he claimed thousands of dollars of false deductions on his individual tax returns.
As to those tax shelters? It’s the same tired story that we’re seeing with respect to KPMG and other indictments and allegations. Gordon issued opinion letters about these shelters to “protect” his clients even thought he knew that they would not survive scrutiny under the circumstances. To bolster those opinion letters, Gordon and his co-conspirator basically made up facts (the US Attorney General says he “developed a series of false representations”) in an effort to assist clients in the event of an audit.
Gordon will be sentenced on June 19, 2009. He faces a maximum sentence of three years in prison on the tax obstruction charge and five years in prison on the conspiracy charge; and a maximum fine on each count of the greatest of $250,000 or twice the gross gain or gross loss from the offense. He may also be required to make restitution.
Greenberg, for its part, has said: We asked Gordon to leave the firm more than four years ago and reported him to the appropriate disciplinary committee. We cooperated fully with the federal investigation of Gordon.
Their statement kind of has that “I can’t believe I dated that guy in high school” feel, doesn’t it.
So, why a plea from Gordon? Why now? It’s all about timing. Last month, the federal government made public its investigation of John Ohle, another tax lawyer accused of marketing and selling illegal tax shelters. Ohle is thought to have worked with Bank One (now Chase), Jenkens Gilchrist, and Deutsche Bank to assist wealthy clients in evading hundreds of millions of dollars in tax. Gordon is now cooperating with the authorities in the prosecution of Ohle. The hope is clearly that his participation will lead to a lighter sentence come June.
