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A jury on Tuesday convicted two prominent lawyers, the former head of a major accounting firm and an accountant of mail fraud charges in a massive multi-billion-dollar tax shelter prosecution, ending a 10-week trial that featured a parade of wealthy Americans from across the country who told how they dodged taxes through the complex investment instruments the defendants created.
The jury also exonerated one accountant in the 10-year scheme that the government said brought the defendants $130 million in illicit profits.
Assistant U.S. Attorney Nanette Davis said in her closing argument to the jury that those who benefited from the tax shelters included some of the "most well-heeled, richest investors in the world," people like the late sports entrepreneur Lamar Hunt, trust fund recipients, inventors, a grandson of the late industrialist Armand Hammer, people who built fortunes on real estate or family businesses and one man she described as an "accidental millionaire" because he was one of the earliest investors in Microsoft Corp.
Among those convicted was Paul M. Daugerdas, a 60-year-old Wilmette, Ill., lawyer who was described by prosecutors as the mastermind of the scheme. He was the former head of the Chicago office of the Jenkens & Gilchrist law firm and its tax practice. The other lawyer convicted at the trial was Donna M. Guerin, 50, of Elmhurst, Ill., who worked at the same office as Daugerdas.
Also convicted were Denis M. Field, 53, of Naples, Fla., the former chief executive officer and chairman of the board of the accounting firm BDO Seidman and former head of its national tax practice, and David Parse, 49, of Elmhurst, Ill., a former Deutsche Bank broker. Acquitted in the scheme was Raymond Craig Brubaker, 55, of Plano, Texas.
Sentencing was set for Oct. 14. All four faces sentences that could exceed 20 years in prison.
U.S. Attorney Preet Bharara said the tax fraud scheme "was stunning in scope" and cheated the Internal Revenue Service out of millions of dollars in revenue.
Prosecutors said Daugerdas made $95 million through the sale of the shelters and then reduced his income from the shelters to less than $8,000 so he could evade paying taxes.
Defense lawyers argued during the trial that their clients did not think what they were doing was wrong.
Davis said the scheme relied on a pattern of lies, including false information about what the tax shelters were and how they worked, lies in formal opinion letters, backdated transactions, fake information in files prepared for the IRS, lies to the IRS during audits and the coaching of clients to lie to the IRS.
Davis said the defendants "were confident that with all the bells and whistles they put on the tax shelters, with all the complexity to the transactions, with all the fly-by-night corporations and partnerships they set up and dissolved, with all the consulting agreements that they used to hide what they were doing, that the IRS would not figure out what it was that they were doing and what exactly was going on."
But the defendants "were dead wrong," she said.
The trial featured testimony by 24 tax shelter clients and five former colleagues of the defendants, including four who had pleaded guilty in the case.
Davis blamed greed for the crimes, saying that Daugerdas would have had to pay more than $32 million in taxes on his $95 million in profits, but with the shelters managed to pay only a few thousand dollars in taxes.
"That's a shock and an insult, ladies and gentlemen," she said. "They all knew that the name of this game was hiding the ball from the IRS. They are smart. They are highly educated and sophisticated professionals."
Attorney Charles Sklarsky argued for Daugerdas at closings that his client was a lawyer "who pushed the law, who took aggressive positions that the IRS didn't like."
Attorney Mark Rotert, arguing for Guerin, said the facts of the case "scream out that what she was doing was how a tax attorney makes a living."