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A federal grand jury on Tuesday indicted attorney Robert Jacobs, a partner at Philadelphia-based Wolf, Block, Schorr & Solis-Cohen, and one of his clients, James Delaney, on charges of conspiring to create a bogus tax shelter that was used to deduct more than $15 million in partnership losses. According to the indictment, Jacobs was hired by Delaney and his fellow partners in J.G. Wentworth. J.G. Wentworth is a company that purchases “obligations to pay” claims — such as structured settlements from plaintiffs in personal injury suits and winnings from state lotteries — paying the claimant a reduced sum immediately in exchange for the right to receive a larger sum of future payments over an extended period of time. The indictment says Jacobs devised an illegal scheme in which some of the partners claimed huge losses on their personal income taxes by falsely claiming that their own assets were at stake. In reality, the indictment says, the company was funded by $130 million in loans from a Dutch bank known as ING or Internationale Nederlanden Capital Corp. The indictment says the loans were “secured and collateralized exclusively by the value of the structured settlements themselves and not by any guarantee of the personal assets of the individual partners of J.G. Wentworth.” As a result, the indictment says, all of the debts of J.G. Wentworth “were solely the debts of the partnership itself, and the limited partners had no obligation to repay or guarantee any partnership debt, including the ING loan.” Jacobs was indicted on one count of conspiracy to defraud the IRS. In a separate count, Delaney and Jacobs are both charged with attempting to obstruct a 1988 IRS audit of Delaney’s 1996 tax return. The grand jury charged that Delaney and Jacobs caused the IRS auditor to receive documents that falsely supported Delaney’s deduction of approximately $2.3 million in losses in 1996, reducing Delaney’s 1996 taxes owed from $830,569 to $15,938. Assistant U.S. Attorney Timothy Rice said the Wolf Block firm received about $2.7 million in legal fees from J.G. Wentworth and its related entities between 1996 and January 2002. During that same period, according to Rice, Jacobs’ share of the law firm’s overall proceeds was about $2.6 million. In a statement released late Tuesday, Wolf Block spokesman Bob Gero said, “Mr. Jacobs has taken a leave of absence from the firm, effective immediately.” Gero added that the indictment “does not implicate Wolf, Block, Schorr & Solis-Cohen or any one else [other than Jacobs] at the firm.” Jacobs’ lawyer, Creed Black, criticized the government for filing criminal charges against a lawyer for doing nothing more than providing legal services to a client. “This is not your typical white-collar crime case,” Black said. “There is no allegation here of any personal gain.” Black said the case “ought to have been handled as a civil matter” because it centers on “highly technical civil audit issues involving the timing of partnership deductions.” Jacobs, he said, “was indicted for making legal judgments for clients” and “got caught in the middle.” According to the indictment, in the years 1996 to 1998, J.G. Wentworth incurred losses of about $25 million, mostly from the initial expense of purchasing the structured settlements. The indictment says Jacobs “caused some J.G. Wentworth partners to falsely claim they were lawfully entitled to protect or ‘shelter’ substantial income from taxation by falsely deducting approximately $15 million in partnership losses on their 1996, 1997, and 1998 tax returns, even though the … partnership documents with ING did not support such deductions.” To hide his use of a “fake tax shelter,” the indictment says, Jacobs created “fake legal documents” in 1998 that he dated “as of Jan. 1, 1996″ and “as of Aug. 25, 1995″ in order to make it appear that the partners were personally liable for the debts. The indictment says Jacobs “falsely advised” the accountants who were preparing individual tax returns for some of the partners that losses from the partnership were deductible. Jacobs is also accused in the indictment of providing false documents to another Wolf Block partner, Jay Goldberg, who was handling Delaney’s IRS audit, in order to help Delaney justify more than $2.3 million in losses on his 1996 return. Goldberg is not charged with any crime. Prosecutor Rice said Tuesday that Goldberg’s only role in the case will be as a witness. The centerpiece of the government’s case against Jacobs is likely to be a document known as the “Nickelberry amendment.” According to the indictment, Jacobs persuaded the partners in 1998 to amend their 1995 agreement to falsely make it appear that they had agreed “as of Jan. 1, 1996″ to be liable for the debts of the partnership “through an obligation to restore any deficit in their partnership capital account, when defendant Robert Jacobs knew no such agreement had ever been reached in 1996.” The 1998 amendment is referred to here as the “Nickelberry amendment” because it was originally intended by the partners to memorialize only partner Alpha Nickelberry’s role in the partnership. But the indictment says the document was used by Jacobs to falsely make it appear that all of the partners had agreed to be personally liable for the partnership’s debts. The indictment says Jacobs provided Delaney with fake documents to resolve his IRS audit and to answer concerns that were raised by auditors at PricewaterhouseCoopers. In an interview Tuesday, defense attorney Black said that “the use of ‘as of’ documentation is a common and well accepted practice in the law.” Black also said the deductions taken by the partners were perfectly valid and the government’s only dispute relates to which year the deductions were taken. “It’s a timing issue only,” Black said. Black said Jacobs decided on his own to take a leave of absence from the firm in order to devote his attention to defending the charges. Although Jacobs and the firm were paid sizeable fees, Black noted that the work stretched over several years and involved numerous matters. And in the indictment, Black said, there is no allegation that Jacobs benefited in any way other than being paid for his legal work.

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