A Commerzbank AG (CBK) executive who worked at the U.S. Internal Revenue Service was charged with a criminal conflict-of-interest by seeking a job with the bank as he negotiated a $210 million settlement on behalf of the IRS.
David Lerner, 59, was an IRS international examiner from June 2010 until August 2011. While at the IRS, he conducted an audit of whether the bank had $1 billion in unreported income, U.S. prosecutors charged yesterday. Lerner negotiated a settlement with the bank as he secured a job there as tax director, never notifying the IRS of his new job, prosecutors charged.
After starting work at the bank, he improperly contacted IRS officials to seek information about the audit and encourage them to approve the settlement, U.S. Attorney Preet Bharara charged in New York. Lerner also improperly revealed the name of a bank whistle-blower who triggered the audit, prosecutors said.
“Lerner’s violations of basic conflict-of-interest laws were brazen,” Bharara said in a statement. “Not only did he flout those laws in order to curry favor with a prospective employer, but he also illegally disclosed the identity of a whistle-blower.”
Bharara and the criminal charges referred to Lerner’s employer only as “an international bank.” A Commerzbank spokeswoman, Simone Fuchs, said he was an employee there. The Frankfurt-based bank is fully cooperating with the authorities, Fuchs said by e-mail, declining to comment further.
Neither the IRS nor the bank announced the $210 million accord referred to in the criminal complaint. On Aug. 10, 2011, the bank wired the funds to the IRS, “in contemplation of the still-pending settlement,” according to the complaint.
A day later, Lerner secured his job there as tax director, prosecutors said. Commerzbank, Germany’s second-largest lender, wasn’t charged with any crime.
Lerner, of Edgewater, New Jersey, was accused of four criminal counts and faces as long as 20 years in prison if convicted. He appeared yesterday before U.S. Magistrate Judge Gabriel Gorenstein, who freed him on a $300,000 bond secured by two co-signers.
Lerner and his lawyer, Jonathan Marvinny, declined to comment after the hearing.
The whistle-blower claimed the bank received “in excess of $1 billion in untaxed income” related to transactions not specified in the complaint by Erik Wood, an agent with the Treasury Inspector General for Tax Administration.
The tentative settlement was “approximately 62 percent of the total theoretical tax liability related to the transactions at issue,” according to the complaint. Bank officials believed that “any settlement valued between $200 million and $300 million would have been considered a favorable disposition.”
Lerner “actively negotiated the settlement without the presence of any other IRS employees,” prosecutors alleged.
After telling the IRS he was leaving, Lerner’s supervisors told him of a “lifetime prohibition” against communicating information about his work at the agency. They also said he could not try to influence former colleagues while working in the private sector, the U.S. said. He began working for the bank on Sept. 1, 2011, the U.S. said.
In his new position, Lerner made repeated inquiries to former IRS colleagues about the status of the pending settlement, prosecutors charged.
In October 2011, Lerner revealed the whistle-blower’s identity to a bank employee, according to the complaint.
“We will not tolerate breaches of public trust by IRS employees, as alleged in today’s complaint,” the IRS said in a statement yesterday.
Lerner repeatedly expressed his boredom and dissatisfaction with the IRS in e-mails sent on a personal account to a former co-worker at a bank where he previously worked, Wood wrote. Lerner, who “appears to have been in a romantic relationship” with the recipient, detailed his search for another job in the private sector, where he had made more money.
“My day is empty and without any purpose,” Lerner wrote. “No prospects, no job, no pay, nothing. I can’t even get one interview. This just sucks so bad you have no idea.”
The former co-worker e-mailed Lerner’s resume to a bank employee. Lerner, the bank employee and the bank’s chief financial officer met on July 8, 2011, according to Wood’s complaint. Lerner said he was fired from his last bank job and took the IRS post to “maintain contacts within the industry.”
He said he “couldn’t leave” the IRS to join the bank “without a settlement.”
After joining the bank, Lerner made many calls to the IRS to check on the status of the audit. One IRS worker told him he needed to recuse himself, yet Lerner continued to call, according to the complaint.
That IRS worker then contacted the inspector general’s office, which recorded Lerner’s words in several calls and meetings. Lerner complained to the IRS about the agency’s request for additional documents, saying an agreement was already in place. At one meeting, an IRS official told Lerner he shouldn’t represent the bank. He continued to complain.
“The bank has already paid a substantial amount of money,” Lerner said in December 2011, according to the complaint. “There’s going to be no other payment, in terms of, you know, the rest of the audit, so.”
In revealing the name of the whistle-blower to a bank employee, Lerner said: “Doesn’t it suck that someone you trust would turn their back on you?”
The case is U.S. v. Lerner, 12-mag-2520, U.S. District Court, Southern District of New York (Manhattan).
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