Before he was sentenced this week to 18 months in federal prison, disgraced lawyer Gary Stern listened to former National Football League linebacker Adalius Thomas tell a federal judge in Chicago how Stern’s shoddy tax-saving advice instead ruined his credit and landed him a nearly $1 million fine from the IRS.
Stern, a former equity partner at Chicago’s Chuhak & Tecson, pleaded guilty last year to preparing false tax returns related to an alternative energy tax-credit fraud that a grand jury indictment said led 34 of his clients, including nearly 20 NFL players, to falsely shave nearly $5 million in tax bills between 2005 and 2007.
Pending a possible appeal, Stern’s criminal case may have concluded with his 18-month prison sentence handed down Wednesday by a federal judge in Chicago.
But civil litigation against Stern’s former law firm is set to kick off after an Illinois state court judge called timeout on the suit. Former NFL stars such as Ray Lewis, Kyle Orton and Terrell Owens are seeking more than $20 million from Chuhak & Tecson in a number of suits pending in Cook County Circuit Court in Chicago.
Chuhak & Tecson, which opened in New York in 2015, was founded 30 years ago. Besides its Big Apple base and Windy City headquarters, the 70-lawyer firm also has an office in Totowa, New Jersey. The former football players suing Chuhak & Tecson mostly came to know Stern, a University of Chicago Law School graduate who was once a highly regarded tax and estate planning lawyer, through their agent.
Starting around 2005, Stern and other lawyers at Chuhak & Tecson were selling investments in a trust that would allow clients to claim dollar-for-dollar tax credits. The tax credits originated from another Stern client, Resource Technology Corp., which operated landfills that purportedly generated $5.3 million in alternative-energy tax credits by creating methane, according to Stern’s indictment.
But there were a number of problems with RTC’s claim to those tax credits, the government argued in a 2013 suit against Stern that ultimately prohibited him from further sales of alternative tax credits.
First, RTC had no legal right to claim the tax credits and its owners were eventually barred from the landfills whose gas they had attempted to lease. Second, some of the landfills weren’t even producing methane. And third, the ones that did generate methane had no method of storing it, according to the government’s case.
The IRS determined that 92 percent, or $11.2 million, of the tax credits that Stern allocated to his clients were “bogus,” according to the government’s 2013 complaint. At the time, Stern was working at another Chicago firm called Stahl Cowen Crowley Addis.
The criminal charges that Stern pleaded guilty to a year ago this month concerned what he called the Merrillville Trust, which former Philadelphia Eagles and San Francisco 49ers star wide receiver Terrell Owens bought into. Owens paid more than $400,000 to purchase $700,014 worth of tax credits for his 2006 and 2007 tax years through the Merrillville Trust, the government said.
Ray Lewis, a former Pro Bowl linebacker with the Baltimore Ravens, claimed more than $315,000 in tax credits through the Merrillville Trust in 2006. He paid more than $250,000 for those credits.
“All of the credits that Stern allocated to participants in the Merrillville Trust Arrangement had flowed through a structure that flagrantly violated the tax laws,” said the government in its criminal complaint.
At least one lawyer at Chuhak & Tecson believed the structure of Stern’s tax-credit plan was illegal. In a November 2006 meeting, a Chuhak & Tecson lawyer identified as “Individual A” provided Stern with a memo that said the Boonville Farms tax credits could not legally carry over to the entities that Stern had structured for his clients.
Nevertheless, Stern and “Individual A” signed off on creating more entities to ultimately foster the sale of the credits to clients that included lawyers at Chuhak & Tecson, according to court records.
The first civil suit against Chuhak & Tecson related to the tax credits was filed in 2011 by Orton, a former quarterback for the Chicago Bears. It was put on hold during Stern’s criminal case as he argued that sitting for a deposition in the civil suit could hinder his Fifth Amendment right against self-incrimination in his criminal case.
Daniel Konicek of Chicago’s Konicek & Dillon, who represents the NFL players in their litigation against Chuhak & Tecson, said he would ask the court to allow the suit to proceed now that Stern has been sentenced. Along with Adalius Thomas, Dillon spoke at Stern’s sentencing hearing in Chicago on Wednesday. Konicek said Stern told U.S. District Judge Harry Leinenweber that Chuhak & Tecson advised him to continue serving his clients despite concerns about the legality of his practice.
“The law firm was not only apprised of the illegality, but made a collective decision by the higher-ups to go forward with it because it was the largest client of the firm,” Konicek said. “Yesterday was really the first time I learned that this went all the way up, and it was consciously discussed and decided. That’s what Stern said as he was pleading for lenience.”
Chuhak & Tecson is represented in the player suits by Terrence McAvoy, a civil litigation partner in Chicago at Hinshaw & Culbertson. The firm, which is known for advising other firms facing ethics and malpractice-related matters, hired former Dewey & LeBoeuf general counsel Janis Meyer in late 2015 to beef up its professional liability practice.
McAvoy did not return requests for comment about Chuhak & Tecson.