Record $8 Billion Tax Fraud Gets Ex-Lawyer 15 Years
A former lawyer who was convicted in what U.S. prosecutors called the biggest criminal tax fraud in history was given 15 years behind bars for helping wealthy clients dodge taxes for years.
Paul Daugerdas, who worked at the Dallas-based law firm Jenkens & Gilchrist, which closed over the scandal, was sentenced today by U.S. District Judge William Pauley in Manhattan. A jury last year found Daugerdas, 63, guilty on seven counts and acquitted him on nine.
“Mr. Daugerdas was a tax-shelter racketeer who tapped into the incredible greed of some of the super wealthy,” Pauley said. “Just about everyone he came in contact with, he managed to corrupt.”
The tax shelters at the center of the case were sold from 1994 to 2004 to almost 1,000 people, creating $7 billion in fraudulent tax deductions and more than $1 billion in phony losses for customers, the U.S. said. Pauley described the clients as “real estate tycoons, tire magnates and software developers” who refused to contribute to the country that “made their achievements possible.” He didn’t identify them.
Pauley declined to give Daugerdas the full 20-year term sought by the government, saying the U.S. didn’t take into account the ex-lawyer’s age and the nine counts the jury had rejected.
Daugerdas was found guilty of counts including tax evasion and conspiracy in what Pauley called a “broad tax shelter conspiracy.”
The prosecution revealed “the lengths some wealthy citizens are willing to go” to avoid taxes, Pauley said. The case also showed that each time Daugerdas switched jobs and earned more, “it was never enough,” the judge said.
Daugerdas was ordered to forfeit $164.7 million and help pay restitution, with other conspirators, of $371 million.
Before the sentence was handed down, Henry Mazurek, Daugerdas’s lawyer, argued for a lighter term, saying the prosecutors’ requested sentence ignored the counts they failed to prove and “impugns the integrity of the jury trial system.”
Stanley Okula, one of the prosecutors, said a stiff sentence was needed to deter other would-be criminals and to account for the defendant’s greed and manipulation.
“There is no one who has caused as much tax harm as Mr. Daugerdas. His conduct is unprecedented,” Okula said before the sentenced was handed down.
Denis Field, the former chief executive officer of New York-based auditor BDO Seidman, was acquitted at the same trial last year. Daugerdas and Field were both charged with running the 10-year scheme that cost the U.S. Treasury $92 million.
The verdicts stemmed from a retrial of the case on charges of conspiracy, tax evasion and attempting to obstruct the Internal Revenue Service.
Prosecutors said the defendants used shelters named “Short Sales,” “Short Options Strategy,” “Swaps” and “Homer” to generate fraudulent tax losses for clients.
Daugerdas and Field were among seven people indicted in the case in June 2009. Two of those charged, former BDO Seidman partner Robert Greisman and former Jenkens & Gilchrist attorney Erwin Mayer, pleaded guilty and agreed to cooperate with the government.
Donna Guerin, another former Jenkens & Gilchrist partner, was sentenced by Pauley in March 2013 to eight years in prison and ordered to pay $190 million for her role in the scheme. She had pleaded guilty the previous year, just as she was set to be tried for a second time with Daugerdas and Field.
A different jury in the earlier trial returned guilty verdicts on May 24, 2011, against Daugerdas, Field, Guerin and a fourth accused conspirator, David Parse, a former broker at Deutsche Bank AG. Craig Brubaker, a former accountant at a Deutsche Bank unit, was found not guilty.
Pauley dismissed the 2011 convictions of Guerin, Daugerdas and Field after finding that a juror lied repeatedly about her background, hiding the fact that she was a suspended attorney and an alcoholic in an effort to make herself “more marketable” as a juror.
Pauley let Parse’s conviction stand after ruling that his lawyers failed to disclose information they had about the juror. He sentenced Parse to 3 1/2 years in prison. Today, the judge said he wondered why the government hadn’t taken legal action against the juror.
Jenkens & Gilchrist avoided prosecution in March 2007 by admitting it developed and marketed tax shelters that generated more than $1 billion in phony losses. The firm shut after reaching the non-prosecution agreement. About 600 lawyers lost their jobs or moved to other firms.
The case is U.S. v. Daugerdas, 09-cr-00581, U.S. District Court, Southern District of New York (Manhattan).
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