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Attorney Robert Jacobs, a former tax partner at Philadelphia-based Wolf, Block, Schorr and Solis-Cohen, pleaded guilty Monday to charges of conspiring with two former clients to create a fake tax shelter that was used to deduct more than $15 million in partnership losses. When Jacobs was indicted in March, it appeared that he intended to fight the case through trial. He took a “leave of absence” from the firm to focus on his own defense, and his lawyer, Creed Black, made public comments that outlined a defense strategy. But the tide turned against Jacobs just two weeks later when his co-defendant and former client, James Delaney, pleaded guilty and promised to testify against Jacobs. Now Jacobs has resigned from his partnership at Wolf Block and pleaded guilty to two federal felony charges that could land him in prison for up to 16 months. Unlike Delaney, Jacobs had no chance to win a more lenient sentence by cooperating with the government since he was the only defendant still facing charges. But in the plea agreement, the government has promised not to demand that Jacobs be sent to prison. Assistant U.S. Attorney Timothy Rice said that when Jacobs is sentenced on Aug. 19, he will limit his recommendation to the size of the fine that should be imposed. Jacobs also promised in the plea agreement that he will not ask for any “downward departure” from the sentencing guidelines. However, Jacobs could avoid ever spending a day in prison since the expected guideline range for his crime — 10 to 16 months — allows for a “split” sentence in which U.S. District Judge Berle M. Schiller of the Eastern District of Pennsylvania could recommend that the first half be served in a halfway house and the second half as home confinement. According to the indictment, Jacobs was hired by Delaney and his fellow partners in J.G. Wentworth, 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. The indictment said 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 said, the company was funded by $130 million in loans from a Dutch bank known as ING, or Internationale Nederlanden Capital Corp. The indictment said 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 alleged, 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 pleaded guilty Monday to one count of conspiracy to defraud the Internal Revenue Service and one count of corruptly endeavoring to obstruct or impede the due administration of the internal revenue laws. In the second count, Delaney and Jacobs were charged with attempting to obstruct an 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. Prosecutor 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, Rice said, Jacobs’ share of the law firm’s overall proceeds was about $2.6 million. According to the indictment, from 1996 to 1998, J.G. Wentworth incurred losses of about $25 million, mostly from the initial expense of purchasing the structured settlements. The indictment said 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 said, 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 said Jacobs also “falsely advised” the accountants who were preparing individual tax returns for some of the partners that losses from the partnership were deductible. Jacobs was also accused in the indictment of providing false documents to another Wolf Block lawyer, 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 was not charged with any crime, and Rice said Goldberg’s only role in the case would be as a witness. At the time of the indictment, defense attorney Black said “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 related to which year the deductions were taken. Offering hints of a defense strategy, Black criticized the government for filing criminal charges against a lawyer for doing nothing more than providing legal services to a client. Jacobs, he said, “was indicted for making legal judgments for clients” and “got caught in the middle.” But Delaney’s decision to cut a deal and testify against Jacobs apparently left Jacobs without a viable defense. Black declined to comment as he left court Monday. Wolf Block Chairman Mark Alderman confirmed Monday that Jacobs had resigned from the firm’s partnership after being indicted but before he pleaded guilty. Alderman said that he and “everyone else at the firm” were “saddened by recent developments in Bob’s life and for the effect they are having on him and his family.” Jeff Blumenthal of The Legal Intelligencer staff contributed to this report.

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