Former Jenkens & Gilchrist partner Paul Daugerdas was sentenced to 15 years in prison Wednesday for being the architect of the largest tax shelter fraud in U.S. history.
Southern District Judge William Pauley (See Profie) said the Chicago lawyer was “in a class by himself—he was at the apex of tax shelter fraud racketeers” as he built a practice that cost the government $1.6 billion in tax revenues through opinion letters used by the wealthy to shelter billions.
“Oliver Wendell Holmes famously [said] taxes are the price we pay for a civilized society,” Pauley said. “This case shows the astonishing lengths that some super-wealthy Americans will go, to avoid their obligations as citizens.”
Daugerdas, 63, was ordered to surrender and begin his sentence on Sept. 18. Pauley denied his plea to remain free pending appeal, expressing skepticism that the appeal had any chance of success.
Daugerdas was also ordered to forfeit $164,737,500 and pay a share of $371 million in restitution with his codefendants, who also were convicted in the scheme.
The government, led by Southern District Assistant U.S. Attorneys Stanley Okula and Nanette Davis, asked for 20 years in prison for Daugerdas, a graduate of DePaul University School of Law who went on to work at Arthur Andersen and then the Chicago firm of Altheimer & Gray before striking a deal with the now-defunct Jenkens & Gilchrist.
His defense attorney, Henry Mazurek of Clayman & Rosenberg, asked for much less time based on the fact that the jury, despite convicting his client of seven counts, acquitted him of nine, showing it rejected the central theory of the government’s case. That contention was vehemently disputed by Okula and rejected by Pauley.
Mazurek said ignoring the message sent by the acquittals “disregards the work of the jury.” He said Pauley should sentence his client to far less than sought by the government out of “fundamental fairness.”
While Pauley said he took the acquittals into account, he took a dimmer view of Daugerdas’ legal career, saying no matter how much money the lawyer earned, “it was never enough.”
Daugerdas was convicted in 2011 following a 13-week trial along with former Jenkens & Gilchrist partner Donna Guerin, former BDO Seidman CEO Denis Field, and banker David Parse.
But Pauley was forced to throw out the convictions of Daugerdas, Guerin and Field after it was revealed that juror Catherine Conrad had lied to the court about her identity as a suspended lawyer with a criminal record (NYLJ June 5, 2012).
Parse’s conviction was allowed to stand because Pauley found his lawyers should have alerted the court to their suspicions about Conrad’s true identity during trial.
Guerin went on to plead guilty and was sentenced to eight years in prison.
Daugerdas and Field opted for a retrial that took nine weeks in 2013 and ended with Field being acquitted and Daugerdas facing a lengthy prison term.
Before he went into the details of sentencing Daugerdas, Pauley said he had asked the government three years ago to consider filing perjury charges against Conrad.
“Conrad is one of the most brazen perjurers” in federal court, he said, adding that while the government gets headlines for targeting public figures such as Martha Stewart and Barry Bonds for obstruction, it has yet to bring Conrad to justice.
“This court wonders why,” he said.
Okula on Wednesday told the court there was no one who caused as much tax loss as Daugerdas, nor anyone who generated as many fees—some $95 million.
“His conduct, in the aggregate, is unprecedented,” Okula said, asking Pauley to send a “loud and clear message” with a stiff sentence.
Okula then invoked the 20-year sentence handed down to former attorney Marc Dreier in 2009 for defrauding investors of hundreds of millions of dollars.
Pauley wouldn’t accept a sentence of that length, but he was persuaded by trial evidence that a long sentence was required for many reasons, including that Daugerdas corrupted young lawyers with “talking points” on the illegal shelters.
“He was one of the biggest generators at one of the largest law firms in the United States,” he said. “He was a senior partner and ringleader, and when [his crimes] came to light, a firm of 600 attorneys with offices around the country collapsed under the weight of his criminal” behavior.
@|Mark Hamblett can be reached at firstname.lastname@example.org. Twitter: @MarkHamblett1