Wednesday, May 11, 2011

Tax-Shelter Lawyers Acted in Bad Faith, Prosecutor Argues

The former head of the Chicago office of the defunct law firm Jenkens & Gilchrist and others accused of marketing phony tax shelters acted in “bad faith” by providing letters saying the investments would probably survive tax authorities’ challenges, a prosecutor told jurors.

Paul Daugerdas and four co-defendants “cannot possibly claim that they were acting in good faith” with the letters, which were a “total farce,” Nanette Davis, a Justice Department attorney, told jurors today in closing arguments at their trial in federal court in Manhattan.

“These were not lawyers acting in good faith,” Davis said. “These were lawyers with a product they were selling which could get them huge fees. These were lawyers acting in bad faith.”

Charles Sklarsky, a lawyer for Daugerdas, attacked the credibility of the government’s cooperating witnesses during his closing argument by saying they have a “motive to fabricate.” Sklarsky said his client is a “good man” who is being punished for using aggressive strategies.

“He’s a lawyer who pushed the law, who took aggressive positions that the IRS didn’t like,” Sklarsky said, referring to the U.S. Internal Revenue Service. “There’s no question about that. But just because the IRS doesn’t like the positions you take doesn’t make you a criminal.”

Daugerdas is one of seven people indicted in June 2009 on charges of conspiracy and tax evasion for selling phony tax shelters from 1994 to 2004. Prosecutors said the defendants used the shelters to generate more than $7.32 billion in fraudulent tax losses for at least 931 wealthy individuals.

Possible Sentences

The five defendants face as much as five years in prison if convicted of conspiracy. Closing arguments in the trial, which began in March, are scheduled to continue tomorrow.

Two of the seven people indicted in June 2009, Erwin Mayer and Robert Greisman, pleaded guilty and are cooperating with the government. Three others connected to the case are cooperating, including two who pleaded guilty.

Jenkens & Gilchrist avoided prosecution in March 2007 by admitting it developed and marketed tax shelters that generated more than $1 billion in phony losses, and agreed to pay $81.6 million to clients who sued over its tax-shelter advice.

Jenkens shut down after reaching the agreement, which didn’t apply to lawyers at the Dallas-based firm, and blamed its demise on attorneys in its office in Chicago, which was run by Daugerdas.

By Chris Dolmetsch

Source: Businessweek

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