(Bloomberg) Former Jenkens & Gilchrist lawyer Donna Guerin was sentenced to eight years in prison and ordered to pay $190 million for her role in what the U.S. called the largest criminal tax fraud in history.
Guerin, 52, pleaded guilty in September 2012 just as she was set to be retried with three other defendants for running a 10-year scheme that created $7 billion in fraudulent tax deductions, more than $1.5 billion in phony losses and $92 million in actual losses to the U.S. Treasury.
U.S. District Judge William Pauley in New York, who presided over the case, said that as both a lawyer and a certified public accountant, Guerin had violated her oaths to uphold the law by helping her clients avoid paying their taxes through shelters.
“It’s the modern-day equivalent of Hawthorne’s story of Midas,” Pauley said Friday. “Everything she touched turned to gold with tragic consequences. Her fall has been Faustian.” Guerin was “the embodiment of the American dream, but then her lust for money turned her dream into a nightmare,” he said.
Pauley ordered Guerin to report to prison on May 14. The judge also directed her to pay $200,000 before she surrenders to U.S. prison authorities and said she must turn over 20 percent of her gross income after she’s released from prison. Guerin and her lawyer declined to comment after the hearing.
“When an attorney violates her oath to uphold the law, she undermines our entire system of justice,” Pauley said. “This tax shelter fraud conspiracy was breathtaking in its scope and in the damage it caused our nation.”
Mark Rotert, Guerin’s lawyer, argued that his client’s culpability in the conspiracy was “relatively minor” and said she had merely followed others at her firm who were willing to “push the envelope” on an aggressive tax shelter strategy.
Her lawyers had sought something shorter than the 10-year term calculated by U.S. probation officials and said their client was merely a “junior” law partner when it came to implementing the tax shelters.
Pauley rejected his argument, saying Guerin hadn’t been satisfied earning hundreds of thousands of dollars as a partner and instead had earned millions that were generated through the tax-shelter scheme. Pauley said Guerin had been a “leader” and had even instructed young associates at her now-defunct law firm how to conduct a “hide the ball tax strategy.”
“Lawyers and accountants became willing tools for their ultra-wealthy clients to avoid their fair share of taxes. These professionals violated their oaths to line their pockets. Ms. Guerin played a central role, she was not a mindless automaton,” the judge said. “She became a criminal for two reasons: the lure of the money and because she believed that she was never going to be brought to justice.”
Guerin told the judge her crimes had caused her to abandon efforts to adopt a child. She said she regretted relying on her superiors and not asking more questions or challenging the tax-fraud scheme.
“I am here as a defeated person,” she said. “I never wanted to be a famous attorney, nor an infamous one.”
Guerin was initially convicted by a federal jury in Manhattan in May 2011 with her three co-defendants. Those convictions were overturned after Pauley found that a juror had lied about her past, including that she was an alcoholic and a suspended attorney.
Assistant U.S. Attorneys Stanley Okula and Nanette Davis said in court papers that Guerin deserved a “significant” prison term of at least 10 years.
“This was a species or a subset of activity that was so flagrant and knowingly wrong, any first-year law student would know was wrong,” Okula told Pauley Friday. He argued that Guerin had given tutorials to young associates at the firm, teaching them how to evade taxes.
Okula disputed Rotert’s claim that Guerin’s co-defendants had merely followed others at the firm.
“This was a truly unprecedented fraud scheme, which generated $7.3 billion in fraudulent tax losses,” Okula said. “The IRS is out more than $200 million. The mammoth losses were as a result of sustained activity for years and years.”
Okula told the judge, “She didn’t just ‘edge over the line,’ as Mr. Rotert suggests. It’s Accounting 101.”
Guerin pleaded guilty to one count of conspiracy and one count of tax evasion. She had faced a maximum of 10 years in prison on both counts and agreed to pay $1.6 million in penalties. She made the payment Friday, her lawyer told the judge.
During her guilty plea Guerin said she worked on tax shelters with Paul Daugerdas, also a defendant in the case, while the two were lawyers at former Chicago-based firm Altheimer & Gray. The two joined Dallas-based Jenkens & Gilchrist in 1998, she said, and continued their work in helping clients shelter income.
Guerin admitted she advised clients on how to conduct complex transactions that allowed them to wipe out financial gains. Guerin said she also provided opinion letters to her clients helping them assert that the deals were legitimate.
Pauley said Guerin earned $11.5 million in 2000 and closely questioned Rotert on what happened to the money she’d earned, after the lawyer said his client had “a negative net worth of $122,000.”
Jewelry and Art Sales
The lawyer said Guerin sold her jewelry and emeralds for $65,000, as well as a large home, and has lived in a “modest” four-bedroom home in Scottsdale, Ariz. Rotert said Guerin spent money on her defense, fertility treatments, an art collection and home improvements. Guerin was unable to sell any of the art collection, he said.
Pauley rejected Rotert’s argument that Guerin couldn’t pay restitution. He said prosecutors had issued a grand jury subpoena upon Guerin’s husband to determine whether the funds had been funneled to a trust she established in his name. The judge said he reviewed evidence showing that Guerin’s husband transferred millions of dollars into the trust from the couple’s joint bank account in 2004.
“I get paid to be skeptical, that’s the nature of the job is to be skeptical,” Pauley told the defense lawyer. “So when I am presented with a case that involves extraordinary fraud, I’m extremely skeptical.”
A jury returned guilty verdicts on May 24, 2011, against Guerin and Daugerdas; Denis Field, the former chief executive officer at accounting firm BDO Seidman LLP; and David Parse, who worked for Deutsche Bank AG unit Alex. Brown. Craig Brubaker, a second former Alex. Brown accountant, was found not guilty.
Pauley dismissed the convictions of Guerin, Daugerdas and Field after finding that a juror, Catherine Conrad, Juror No. 1 in the trial, had lied repeatedly about her background in an effort to make herself “more marketable” as a juror.
Guerin’s co-defendants have filed motions of acquittal or in the alternative, have asked for separate trials. Those requests are pending.
The restitution that Guerin must pay is more than the $123 million. Ernst & Young LLP will pay to settle a U.S. tax-fraud probe as part of a non-prosecution agreement. The accounting firm “admitted wrongful conduct” by its partners and employees in connection with four tax shelters, from 1999 to 2004, according to Friday’s statement. About 200 Ernst & Young clients used the shelters to try to avoid more than $2 billion in taxes, Manhattan U.S. Attorney Preet Bharara’s office said in a statement.
The case is U.S. v. Daugerdas, 09-cr-00581, U.S. District Court, Southern District of New York (Manhattan).