Pa. Lawyer Gets 6 1/2 Years for Fraud

Shannon P. Duffy

The Legal Intelligencer

A federal judge on Thursday imposed a 78-month prison term on John P. Karoly Jr., an Allentown, Pa., lawyer who confessed to filing false tax returns that hid more than $4.2 million in income and who stood trial and was convicted on money laundering charges for defrauding a charity.

"A lawyer who is not honest is a threat to the social order," U.S. District Judge Lawrence F. Stengel said at the close of a two-day sentencing hearing. Prosecutors wanted Karoly to be taken into custody immediately, but Stengel ordered that Karoly be given until July 6 to surrender himself and said he would recommend that he serve his term in the federal prison in Scranton, Pa.

Karoly, 60, was initially indicted on charges of faking his own brother's will. Prosecutors said the brothers had long been estranged, but that Karoly had conspired with his son, J.P. Karoly III, and Dr. John Shane, to submit fake wills for Peter Karoly and his wife, Lauren Angstadt, a dentist who died in a plane crash in February 2007.

According to the original indictment, John Karoly Jr. and Peter Karoly had practiced law together until March 1986, when they dissolved their firm, Karoly & Karoly, because of "unhappy differences." But when Karoly agreed to plead guilty to tax charges, the government agreed to drop all charges against Shane and Karoly's son, so that the issue over the alleged faking of the will is to be decided by the Northampton County Orphans' Court.

The court battle over Peter Karoly's will has divided the family, with three of John Karoly's sisters joining forces to write a letter that directly accused their brother of cheating them. In the packed courtroom, the sisters and their spouses and families sat behind the prosecutors while John Karoly's family and friends sat behind the defense table.

At the close of Thursday's court proceedings, federal marshals kept the two groups apart, allowing the sisters and their group to leave first while ordering the others to wait in the courtroom.

Defense attorney Robert Goldman, in an hour-long speech, urged Stengel to be lenient, arguing that the case was being "pushed too hard" by the prosecutors, and pleading with the judge to look not only at Karoly's crimes but also at his lifetime of working hard for "the poor, the downtrodden, and the abused." Goldman also said Karoly faced a death sentence if significant prison time were imposed because of his serious medical conditions including a heart condition that led to a valve replacement and now requires blood thinning drugs.

But Assistant U.S. Attorney Kevin R. Brenner told Stengel that none of the reasons Goldman had cited were valid justifications for leniency.

Instead, Brenner urged the judge to impose a sentence even stiffer than the range of 78 to 97 months suggested by the guidelines in order to account for Karoly's perjury at trial and his fabrication of a document that he tried to use to trick the judge into acquitting him on the money laundering charges.

Such conduct is "reprehensible" when committed by a lawyer, Brenner said.

Brenner also argued that Karoly's status as a lawyer for especially needy clients shouldn't save him from a punishment for defrauding a charity.

"You can't be the guy who fights for the little guy and at the same time defrauds his own church," Brenner said.

Stengel, at the close of the hearing, spoke for more than 20 minutes and methodically addressed all of the lawyers' arguments.

One by one, Stengel rejected Goldman's arguments for downward departures and explained that the guidelines, while merely advisory, should be "the starting point." Stengel said he found that Karoly had committed tax fraud and "did so with criminal intent." In a tax system that depends on voluntary filing and honesty, Stengel said, there would be "chaos" if even a small percentage of taxpayers behaved as Karoly did.

Lawyers, Stengel said, "are held to a special standard." Stengel said he believed Karoly was very bright and extremely talented, but that he "seems to have an honesty problem -- and that has been his downfall in this case." Over the course of the proceedings, Stengel said he came to see that Karoly "has a tremendous capacity for deception and self-dealing in his business affairs and in his practice of law."

Imposing too light a sentence, Stengel said, would "diminish the seriousness" of Karoly's crimes, and would send the wrong message because the community is watching the case closely "to see if the powerful are ever made to pay." Karoly, directly addressing Stengel, said he wanted to apologize to the court and to his wife, family and friends who "have all been deeply hurt by my wrongdoings."

He said he also recognized that "the profession I hold dear has gotten another black eye." But he urged the judge to be lenient if only so that Karoly can continue to care for his wife and sons. "They don't deserve that punishment even if Ido," he said.