A former top executive of accounting firm BDO Seidman and three others were convicted in Manhattan federal court for their roles in a tax shelter scheme in which they designed, marketed, and implemented fraudulent tax shelters used by wealthy individuals to avoid paying taxes to the IRS.
Denis Field, the former Chief Executive Officer and Chairman of the Board of BDO Seidman, former head of its national tax practice, and one of three heads of BDO's "Tax Solutions Group;" Paul Daugerdas, a lawyer and the former head of the Chicago Office of the Jenkens & Gilchrist law firm and its tax practice, and Donna Guerin, a tax lawyer and shareholder at J&G's Chicago Office, were each convicted of conspiring to defraud the IRS and to evade taxes, and of corruptly endeavoring to obstruct and impede the internal revenue laws. The defendants were also convicted on multiple counts of tax evasion relating to the use of various tax shelters for specified clients, and of mail fraud. Daugerdas also was convicted of tax evasion based on his use of fraudulent tax shelters to eliminate or reduce his personal income tax liabilities between 1999 and 2001.
David Parse, a former Deutsche Bank broker, was found guilty of mail fraud and obstructing internal revenue laws in the 10-week trial.
Together, Daugerdas, Guerin and Field made $130 million in profits from the 10-year scheme, according to the government,
Raymond Brubaker, a banker at Deutsche Bank who was also charged, was acquitted by the jury on all counts.
On the conspiracy charge, each individual faces a maximum penalty of five years in prison; three years' supervised release; a fine of the greatest of $250,000 or twice the gross gain to the defendant or twice the gross loss to the IRS; and restitution.
On the mail fraud charge, each individual faces a maximum penalty of 20 years in prison. Each count of tax evasion carries a maximum penalty of five years in prison; three years' supervised release; a fine of the greatest of $250,000 or twice the gross gain to the defendant or twice the gross loss to the IRS; and costs of prosecution.
Each defendant also faces a maximum penalty of three years in prison; one year supervised release; and a fine of the greatest of $250,000 or twice the gross gain to the defendant or twice the gross loss to the IRS on the charge of corruptly endeavoring to obstruct and impede internal revenue laws.
The four individuals are scheduled to be sentenced on October 14.
According to the trial evidence and other documents filed in the case, the individuals and others undertook to prevent the IRS from detecting their clients' use of these shelters; understanding how the transactions operated to produce the tax results reported by the clients; learning that the shelters were marketed as cookie-cutter products designed to eliminate or reduce large tax liabilities; learning that the clients were not seeking profit-making investment opportunities, but were instead seeking huge tax benefits; and learning that, from the outset, all the clients intended to complete a pre-planned series of steps that had been designed by the defendants to lead to the specific tax benefits sought by the clients.
According to the government, the defendants 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 individuals made millions of dollars in fees, commissions and bonuses. For example, Daugerdas made $95 million and Guerin made $17 million from the sale of the shelters. Field received $18 million in distributions and bonuses.
Daugerdas, Field and Parse also utilized the tax shelters for themselves in order to evade personal tax liabilities on the substantial income they were receiving from these fraudulent tax shelters, according to the government.
For example, Daugerdas used the shelters to reduce the income taxes he owed on the $95 million he made in fees on the illegal shelters to less than $8,000; without the shelters, he would have owed over $32 million in taxes, according to the government.
Several other individuals involved in the case have previously pled guilty. They include:
Erwin Mayer, a lawyer and former shareholder at J&G's Chicago Office in its tax practice.
Robert Greisman, a tax partner in BDO's Chicago Office and a member of BDO's tax solutions group.
Charles Bee, Jr., a former BDO Seidman Vice Chairman and board member.
Michael Kerekes, a principal of BDO Seidman and a former member of BDO's TSG and Tax Opinion Committee.
Adrian Dicker, a former Vice Chairman of BDO Seidman and TSG member.
In December 2010, as part of a non-prosecution agreement with the US Attorney's Office, Deutsche Bank AG agreed to pay $5536 million and also admitted criminal wrongdoing, in connection with its participation in financial transactions which furthered the fraudulent tax shelters engineered by the defendants.