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Tax Trouble In recent months the government’s tax shelter team has been working overtime. First, the firms that were the most active in helping to push abusive tax products — Sidley Austin and the now-defunct Jenkens & Gilchrist — settled with the government. They agreed to pay big fines but avoided criminal charges. Soon after, four current and former Ernst & Young tax professionals were indicted for allegedly promoting fraudulent tax shelters. But the nail-biting isn’t over for law firms that dabbled in the shady world of tax shelters. The E&Y indictment, filed in May by the U.S. attorney for the Southern District of New York, shows how other law firms succumbed to the lure of easy profits. The indictment repeatedly mentions five law firms that allegedly gave fraudulent opinion letters to E&Y clients. In some cases, they even helped design tax shelters. The indictment specifically names Jenkens and refers to the others as Law Firms A, B, C, and D. According to lawyers familiar with the case and information from civil cases brought by disgruntled customers who bought the tax products at issue, the unnamed firms are Locke, Liddell & Sapp (Law Firm A), Sidley (B), Arnold & Porter (C), and Proskauer Rose (D). At Proskauer, the fallout from tax shelter work might already have taken a toll within the firm’s management. Ira Akselrad, an executive committee member who worked on tax shelters, left the firm last year. According to the indictment, Proskauer and Arnold & Porter charged $50,000-$100,000 for an opinion letter for a shelter. Between the two firms, opinions were sold to 150 people in 96 transactions. Total fees for the two firms could be $7.5 million to $15 million. Locke Liddell charged $50,000-$75,000 per opinion, and Sidley, up to $150,000 per letter. In addition to those transactions, the E&Y defendants face charges relating to E&Y’s sale of its consulting business to Capgemini in 2000. According to the indictment, Firm D (i.e., Proskauer) created a vehicle called Tradehill to help 11 Ernst & Young partners reduce their tax liability from the sale. As part of that transaction, Proskauer allegedly issued a backdated opinion letter that included false statements. The government claims that Proskauer’s opinion was intended to deceive the Internal Revenue Service into believing that the E&Y partners executed the Tradehill transaction for investment reasons, rather than tax reasons. The indictment also alleges that the opinion purported to include all pertinent facts but did not. This shelter eliminated approximately $3.7 million of the partners’ taxes. When the IRS audited the E&Y partners’ returns, Proskauer represented them and gave the IRS false and misleading statements, the government claims. (The indictment doesn’t say how much Proskauer was paid for the Tradehill work.) The indictment does not describe Akselrad’s role in these shelters. The former Proskauer executive committee member was one of the partners who handled tax work for Ernst & Young, and he was experienced in shelter transactions. One person familiar with the E&Y case says Akselrad worked on the Tradehill deal. Akselrad worked with former Sidley partner R.J. Ruble to develop and market tax shelters for Diversified Group Inc., one of the most notorious shelter promoters, according to government filings in unrelated tax litigation in Massachusetts federal court. (DGI also used the services of Paul Daugerdas of Jenkens.) Ruble was expelled from Sidley in 2003 and indicted in 2005. To date he is the only major law firm partner indicted for tax shelter work. In addition to scrutiny from prosecutors, these firms have been dealing with civil suits brought by hundreds of taxpayers who got into trouble with the IRS for participating in these shelters. Many of these have settled, but others are still active. When asked to comment, Arnold & Porter offered a statement: “While the investigation is ongoing, we are unable to answer any questions. It is the firm’s policy to cooperate fully and voluntarily with any government investigation.” Proskauer and Sidley declined to comment; Locke Liddell and Akselrad did not return calls.
Lane Violation Allen Iverson found himself in the wrong court last week. Appearing in the U.S. District Court for the District of Columbia, the NBA superstar and former Georgetown basketball player denied being involved in a brawl at a Washington nightclub. He testified that the two men suing him for $20 million are exploiting his fame. The two plaintiffs, Marlin Godfrey and David Kittrell, say Iverson’s bodyguard, Jason Kane, and others beat them during a melee that included an assault with a bottle. Kittrell testified that Iverson watched the fight for a few minutes while grinning and jumping onto a couch to avoid getting hurt. The two men say Iverson’s bodyguard and other members of his entourage attacked them when they wouldn’t immediately make room for the NBA star in the VIP section of the Eyebar, a nightclub in downtown Washington. Iverson said in Judge Ellen Segal Huvelle’s courtroom that he didn’t see his bodyguard fight with the two men. The Denver Nuggets guard said he stayed for about 20 minutes, saw a fight brewing, and left immediately for his Bentley coupe parked out front. The 32-year-old player is accused of failing to properly supervise his bodyguard and others who were with him at the club on July 20, 2005. The case involves a litany of Washington lawyers. Iverson is being represented by David Rosenberg, a partner at Ford & Harrison, and Sutherland Asbill & Brennan partner William Martin and associate Thomas Bundy. Blank Rome partner Alan Freeman and associate Jennifer Gershberg are representing Kane. Kittrell hired local solo practitioner Gregory Lattimer. In other legal sporting news, two of the regulars on ESPN’s morning sports talk show “Cold Pizza” were allegedly half-baked when on the set. Rita Ragone, a former makeup artist, sued ESPN; Jay Crawford, one of the show’s anchors; and panelist Woody Paige for sexual harassment. (D.C.-based Atlantic Video was also named as a defendant.) Ragone says in a suit filed in the U.S. District Court in Manhattan that she was fired in April 2006 after ESPN execs ignored her complaints and warned her that the on-air talent was “untouchable.” According to the suit, Ragone was anything but. She says both Paige and Crawford harassed her sexually, including daily verbal come-ons, dirty jokes, and physical gestures such as grabbing her buttocks. ESPN retooled and renamed “Cold Pizza” in May, replacing it with “First Take,” a very similar program still co-hosted by Crawford. Paige and Crawford did not return calls about whether they have hired lawyers.
Hire Power A few noteworthy moves were made during the holiday week: Gibson, Dunn & Crutcher’s accounting books will certainly be in order now that the firm has picked up Lewis Ferguson as a partner. Ferguson was the first general counsel for the Public Company Accounting Oversight Board, a corporation created by Congress to keep an eye on auditors after the passage of the Sarbanes-Oxley Act. While general counsel, he oversaw the drafting of the rules that now govern registered accounting firms, including registration, inspection, and investigations, and defended the board in litigation arising from Sarbanes-Oxley. Previously, Ferguson was a partner at Williams & Connolly. And Akron, Ohio-based Roetzel & Andress, which has about 200 attorneys firmwide, brought in five lawyers to its Washington office. New partners to the firm are Gary Adler, Steven Cundra, Donald Dinan, and John Stackhouse. Amy Gluck joins as an associate.
Keeping Score is Legal Times ‘ weekly column devoted to the legal business scene. Got a tip? Contact Business Editor Anna Palmer at [email protected]. Susan Beck, a senior writer for The American Lawyer , contributed to this report.

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