Former Deutsche Bank Broker Sentenced In Manhattan Federal Court To 42 Months In Prison For Promoting Illegal Tax Shelters That Generated Billions Of Dollars In Fraudulent Tax Losses
Former CPA David Parse Also Took Part In The Fraudulent Back-dating Of Tax Shelter Transactions
Preet Bharara, the United States Attorney for the Southern District of New York, and Tamara Ashford, the Principal Deputy Assistant Attorney General for the Tax Division, Department of Justice (“DOJ”), announced that DAVID PARSE, a former broker at Deutsche Bank (“DB”), was sentenced in Manhattan federal court today to 42 months in prison on tax obstruction and mail fraud charges stemming from his work in assisting lawyers from the Jenkens & Gilchrist (“J&G”) law firm and BDO Seidman (“BDO”) accounting firm in the design, marketing, and implementation of fraudulent tax shelters that allowed his clients to claim billions of dollars in fraudulent tax losses. Parse was sentenced by U.S. District Judge William H. Pauley III.
Manhattan U.S. Attorney Preet Bharara said: “David Parse used his professional acumen to help his wealthy clients make an end-run around the IRS, depriving the treasury of billions in tax revenue. And for his role in this sprawling and massive fraud, he is now paying the price.”
Principal Deputy Assistant Attorney General for the DOJ’s Tax Division Tamara Ashford said: “Today’s sentencing reflects the Justice Department’s continuing commitment to the investigation and prosecution of accountants and other professionals who promote fraudulent tax shelters. The sentence imposed is a clear warning that those who commit such frauds risk significant jail time and other criminal sanctions.”
According to the Indictment previously filed in Manhattan federal court, the proof at Parse’s trial, and statements made during his sentencing proceeding:
PARSE, who was also a certified public accountant, was a broker and investment representative at DB’s Chicago offices between 1997 and 2003. During that period, he worked with attorneys at J&G and accountants from BDO, as well as other DB brokers, on the design, marketing and implementation of high-fee tax strategies for individual clients. Those strategies, or “tax shelters,” were designed to allow high-net-worth clients to eliminate, reduce, or defer taxes on significant income or gains.
Among the fraudulent tax shelters designed, marketed, and implemented by PARSE and his co-conspirators were “Short Sales,” “Short Options Strategy” (“SOS”), “Swaps,” and “HOMER.” The Short Sale tax shelter was marketed and sold from 1994 through 1999 to at least 290 wealthy individuals, and generated at least $2.6 billion in false and fraudulent tax losses. The SOS tax shelter was marketed and sold from 1998 through 2000 to at least 550 wealthy individuals, and generated at least $3.9 billion in false and fraudulent tax losses. The Swaps tax shelter was marketed and sold in 2001 and 2002 to at least 55 wealthy individuals, and generated more than $420 million in false and fraudulent tax losses.
In return for receiving a fee from tax shelter clients based on a percentage of their purported tax losses and the nature of the losses – usually 5% for ordinary losses and 4% for capital losses – PARSE and other DB brokers assisted the J&G attorneys in marketing and implementing the fraudulent tax shelters, including attending sales pitches for the shelters, setting up bank accounts for the entities employed in the fraudulent tax shelters, and effectuating transfers between the various bank and financial accounts used in the transactions. PARSE also helped to identify and select certain stocks that would be utilized in the tax shelters to disguise from the Internal Revenue Service (“IRS”) the fraudulent losses claimed by the clients. He also steered his own DB clients to the fraudulent shelters, and was given a free tax shelter opinion letter by the J&G attorneys, which he used to evade hundreds of thousands of dollars of his own income taxes. PARSE was paid over $3 million in commissions by DB attributable to the fraudulent tax shelters.
In addition to his involvement in the marketing and implementation of the fraudulent tax shelters, PARSE also took part in the illegal back-dating of certain tax shelter transactions. The backdating occurred when attorneys at J&G realized, after the close of certain tax years, that certain steps of the tax shelter transaction had been done improperly, and the correct amount or nature of the tax shelter losses could not be produced through the transactions. The J&G attorneys worked with PARSE to create documents and effectuate securities transactions at the bank after the close of the tax year and back-dated them using “as of” dates, which treated the documents as if they had been signed prior to the close of the tax year, in violation of tax accounting rules.
In addition to his prison term, PARSE, 51, of Hinsdale, Illinois, was also sentenced to three years of supervised release and ordered to pay $115,700,000 in restitution and to forfeit $1 million.
PARSE and co-defendants Paul Daugerdas, Denis Field, and Donna Guerin were convicted of various tax fraud charges in May 2011 after an 11-week jury trial. Daugerdas, Field, and Guerin were granted a new trial as a result of certain juror misconduct. Guerin pled guilty in December 2012 to conspiracy and tax evasion charges and was sentenced by Judge Pauley on March 1, 2013 to 96 months in prison. She was also ordered to pay $190 million in restitution and to forfeit $1.6 million.
The re-trial of Daugerdas and Field is scheduled to begin on September 9, 2013. The charges against these defendants are merely accusations, and they are presumed innocent unless and until proven guilty.
Former J&G partner Erwin Mayer pled guilty to related charges of conspiracy and personal tax evasion in October 2010. Former BDO Seidman Vice Chairman and board member Charles W. Bee, Jr., pled guilty in June 2009 to related charges of conspiracy to defraud the IRS, tax evasion, and perjury. Michael Kerekes, a principal of BDO Seidman and also a former member of BDO's TSG and Tax Opinion Committee, pled guilty in February 2009 to related conspiracy and tax evasion charges. Adrian Dicker, a former Vice Chairman of BDO Seidman and TSG member, pled guilty in March 2009 to related conspiracy and tax evasion charges. BDO partner Robert Greisman pled guilty in July 2009 to related conspiracy, tax evasion, and IRS obstruction charges. BDO partner Mark Bloom pled guilty in July 2009 to a related IRS obstruction charge.
Mr. Bharara thanked the IRS and the Tax Division of DOJ 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 Jason P. Hernandez, and DOJ Tax Division Assistant Chief Nanette L. Davis, are in charge of the prosecution.