Jenkens & Gilchrist Attorney Found Guilty In Manhattan Federal Court Of Multibillion-Dollar Criminal Tax Fraud Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, Ronald A. Cimino, Deputy Assistant Attorney General for the Tax Division of the Department of Justice, and Richard Weber, the Chief of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today that PAUL M. DAUGERDAS was convicted in Manhattan federal court for his role in a tax shelter scheme in which he and his co-conspirators designed, marketed, and implemented fraudulent tax shelters used by wealthy individuals to avoid paying taxes to the IRS. The 10-year scheme generated over $7 billion of fraudulent tax losses and netted DAUGERDAS approximately $95 million in profits. DAUGERDAS was convicted following a seven-week jury trial, presided over by U.S. District Judge William H. Pauley III.
Manhattan U.S. Attorney Preet Bharara said: “Paul Daugerdas concocted an elaborate web of lies in orchestrating a fraudulent tax shelter scheme that spanned a decade, generated more than $7 billon in phony tax losses, and made the defendant $95 million in profits. With yesterday’s guilty verdict, the defendant will now be punished for his actions.”
DAAG Ronald Cimino said: “The jury's guilty verdict of Paul Daugerdas reaffirms the principle that an individual who utilizes his expertise, training and skills to create and market fraudulent tax schemes will be prosecuted to the full extent of the law and ultimately held accountable for the crimes that he committed.”
IRS-CI Chief Richard Weber said: “Mr. Daugerdas’s use of convoluted mechanisms to conceal income from the IRS is criminal activity. He designed and marketed tax shelters making him $95 million in illegal profits from the ten-year scheme. Taxpayers deserve our vigilance in making sure everyone pays their fair share of tax.”
According to the evidence admitted at trial and other documents filed in the case:
From 1994 through 2004, DAUGERDAS, a lawyer, certified public accountant, and the former head of the Chicago office of the Jenkens & Gilchrist law firm (“J&G”) and its tax practice, participated in a scheme to defraud the IRS by designing, marketing, implementing, and defending fraudulent tax shelters.
As part of the scheme, DAUGERDAS and others undertook to prevent the IRS from: (i) detecting their clients’ use of these shelters; (ii) understanding how the transactions operated to produce the tax results reported by the clients; (iii) learning that the shelters were marketed as cookie-cutter products designed to eliminate or reduce large tax liabilities; (iv) learning that the clients were not seeking profit-making investment opportunities, but were instead seeking huge tax benefits; and (v) learning that, from the outset, all the clients intended to complete a pre-planned series of steps that had been designed to lead to the specific tax benefits sought by the clients. DAUGERDAS and others created, and assisted in creating, transactional documents and other materials that falsely and fraudulently described their clients’ motivations for entering into the tax shelters and for taking various steps in order to yield the tax benefits.
As a result of the scheme, the defendant and his co-conspirators made millions of dollars in fees and bonuses. Specifically, DAUGERDAS made $95 million in profits but used tax shelters to reduce the taxes he paid to less than $8,000; without the shelters, he would have owed over $32 million in taxes.
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DAUGERDAS, 63, of Wilmette, Illinois, 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 of four counts of tax evasion relating to the use of various tax shelters for specified clients, and of mail fraud.
DAUGERDAS faces a maximum sentence of 58 years in prison. He is scheduled to be sentenced by Judge Pauley on March 21, 2014, at 2:15 pm.
DAUGERDAS’s co-defendant at trial, Denis M. Field, was acquitted of all charges.
In connection with this same scheme, David Parse, a former broker at Deutsche Bank was convicted of various tax fraud charges in May 2011 after an 11-week jury trial, and was sentenced in March 2013 to 46 months in prison. Donna Guerin, a former lawyer at J&G’s Chicago tax practice pled guilty for her role in the scheme to various tax fraud charges in September 2012. She was sentenced in March 2013 to eight years in prison.
Former J&G partner Erwin Mayer, former BDO Seidman Vice Chairman and board member Charles W. Bee, Jr., former BDO principal and former member of BDO Seidman’s TSG and Tax Opinion Committee Michael Kerekes, former BDO Seidman Vice Chairman and TSG member Adrian Dicker, BDO Seidman partner Robert Greisman, and BDO Seidman partner Mark Bloom have all previously been convicted in connection with the scheme.
Mr. Bharara thanked the IRS and the Tax Division of the Department of Justice for their work on this case.
This case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Stanley J. Okula, Jr. and Niketh Velamoor, and DOJ Tax Division Assistant Chief Nanette L. Davis, are in charge of the prosecution.