In June 2009, a federal grand jury in New York indicted 51-year-old Denis Field, the former Chief Executive Officer of BDO Seidman, a financial consulting firm, and six others on charges of marketing illegal tax shelters.
Also indicted were Paul Daugerdas, former head of the Chicago office of Jenkens & Gilchrist—a law firm based in Dallas that ultimately collapsed over the tax shelter scandal—and two other Jenkens & Gilchrist attorneys, Erwin Mayer and Donna Guerin. Robert Greisman, a former BDO tax partner, was also charged, as were Raymond Craig Brubaker and David Parse, former investment representatives in the Chicago office of Deutsche Bank.
The indictment charged that the group conspired to defraud the Internal Revenue Service from 1994 through 2004 by creating financial documents that maximized the appearance that tax shelters they devised were used to generate profits and minimized the chances the IRS would discover that the shelters were actually designed to generate unwarranted tax losses and deductions.
The prosecution said the shelters generated more than $130 million in fees, commissions and bonuses for the defendants while causing more than $7 billion in fraudulent tax deductions and more than $1 billion in false tax losses.
Greisman and Mayer pled guilty and agreed to testify for the prosecution. Field and the remaining four defendants went on trial in the spring of 2011 in U.S. District Court in Manhattan. After a 12 week trial, Field, Daugerdas, Guerin and Parse were convicted. Brubaker was acquitted.
Before sentences were imposed, the defense filed a motion for a new trial claiming that one of the jurors had repeatedly lied about her background during jury selection. Her lies included concealing that she was a suspended attorney and an alcoholic. In June 2012, Field, Daugerdas and Guerin were granted new trials. Judge William Pauley denied a new trial for Parse because his attorneys knew about the juror’s deception and failed to do anything about it at trial.
In the fall of 2013, Daugerdas and Field went on trial for a second time. Guerin pled guilty prior to the retrial.
Daugerdas was facing 16 charges of conspiracy and tax fraud relating to devising the tax shelters that were later marketed through BDO, Bank One and American Express Tax and Consulting. The prosecution claimed that the shelters were contrived to make it appear to the IRS that the owners were making slight profits, when in fact the owners were able to claim millions of dollars in tax deductions, thereby reducing the owners’ tax liabilities.
The prosecution portrayed Daugerdas as the mastermind who designed the tax shelters. The prosecution claimed that Daugerdas earned $95 million in fees on the shelters. Daugerdas himself repeatedly used the tax shelters and, according to the prosecution, fraudulently reduced his tax liability from $32 million to a mere $8,000.
Although Field was one of three managers of the BDO tax shelter group, in January 1999, about a year after the firm began marketing the shelters, he was promoted to BDO’s CEO, overseeing the entire firm. Field faced seven counts, including tax fraud and conspiracy.
Along with the testimony of three cooperating witnesses, the prosecution’s primary evidence against Field was his involvement in the editing of a report written by the law firm Skadden, Arps, Slate, Meagher & Flom about BDO’s tax shelter practices. Skadden had been hired by BDO to review practices and procedures and provide best practices advice. Former IRS Commissioner Fred Goldberg was the primary Skadden attorney who worked on the BDO project.
According to the prosecution, Skadden provided “best practices advice,” but went beyond that and included a section entitled “Possible IRS Reactions.” That section pointed out that the IRS was likely to look unfavorably upon some of BDO’s tax shelter practices.
Field, along with Scott Univer, BDO’s then-general counsel, suggested to Skadden Arps that the portion of the report relating to the possible IRS reactions to the tax shelter practices be deleted. Skadden deleted the segment. The prosecution argued that if that portion of the report had remained, BDO would have been forced to shut down the lucrative tax shelter business and that Field’s involvement in the deletion showed a criminal intent to defraud the IRS.
Prior to the retrial, Field’s lawyers obtained depositions of Univer and Goldberg, who had become prosecution witnesses. Univer had been interviewed under oath in a separate civil action brought by BDO against another outside law firm. Although the depositions occurred two years before the retrial, the prosecution had failed to disclose their existence to the defense. The defense claimed that the depositions supported Field’s claim that he acted in good faith throughout and had no intention to defraud, or to conspire to defraud, the government.
Univer, a practicing in-house attorney who provided legal advice to the BDO tax shelter group, testified in the deposition that he never intended to show the written report to anyone outside of the tax shelter group and that it was his practice not to provide the written work-product of outside counsel such as Skadden to BDO’s board of directors. Univer further testified that he had no problem with any of the edits and that Field, as CEO, had never asked him to do anything that was against the best interests of BDO.
Goldberg’s deposition disclosed that he was comfortable with the edits and that the IRS section was beyond the scope of the work for which Skadden had been hired.
Field’s defense attorneys used the deposition testimony of Univer and Goldberg to negate the prosecution’s argument that Field intentionally acted and conspired to defraud the government. They argued that the depositions showed that Field followed his lawyers’ advice and acted in good faith.
On October 31, after eight weeks of trial, the jury convicted Daugerdas of conspiracy, tax fraud and mail fraud. Field, who had been free on bond since he was indicted, was acquitted on all counts.
– Maurice Possley