Sadly – and far too often, lawyers, when asked, will readily admit they are the brightest bulbs in the room. I am not quite certain of the origins of such arrogance and I know for a fact that law schools don’t teach it, but lawyerly-arrogance rears its legal head with higher-than-normal frequency.
Paul Daugerdas
Paul Daugerdas, the best and brightest (in his mind at least), was associated with a law firm that has since gone out of business after crumbling under IRS fines. Daugerdas had a large part in creating those fines.
According to a Reuters report (October 31, 2021), Daugerdas who was found guilty of running a tax shelter scam was “convicted on seven of 16 counts including conspiracy, tax evasion and mail fraud following an eight-week re-trial in his criminal case.”
Daugerdas had a fool for an attorney – himself. Already in jail, he pushed the courts for a re-trial along with an accused accountant (who has since been acquitted). He got his wish.
He discovered that in the first trial, dating back to 2012, one of the jurors had lied during jury selection. Getting to his version of the truth turned out to be Daugerdas’ downfall.
Daugerdas created a multibillion-dollar tax fraud scheme that yielded Daugerdas and his law firm $130 million in profits. The law firm, Jenkens & Gilchrist, with 600 people on staff, had multiple offices. Daugerdas oversaw the Chicago office and out of that office he created a highly unethical tax fraud business for wealthy clients. I suppose that those around him could have said something, but no one did.
The IRS forced Jenkens & Gilchrist to pay a $76 million penalty and the accounting firm, BDO USA, agreed to pay $50 million. However, it was Daugerdas, the man who profited the most from the scam, who faced the most severe penalties. In a sense, his life.
The Crime
The association of Daugerdas and BDO created a scam that “sold tax shelters that generated $6.5 billion in phony tax losses for wealthy clients.” In selling the fake tax shelters, Daugerdas was able to make millions of dollars in commissions, bonuses and management fees. He lived the good life and it was taken from him. He figured he could get it back.
Daugerdas won the right to a retrial. He had been sentenced in 2012 to eight years in jail. Daugerdas should have let well enough alone. Though the accountant/co-defendants were largely exonerated, in the retrial Daugerdas faced up to 58 years in prison plus severe financial penalties.
In the latest Reuters update (writer David Thomas) detailed that Daugerdas (who remains jailed) must come up with $536 million after losing the appeal. Therefore, in addition to a total of 15 years in prison (some of which he has been served), “Daugerdas was ordered to forfeit $164.7 million and make restitution payments of $371 million.”
Naturally, and being a lawyer, Daugerdas tried to mitigate the sentence by coming up with numerous legal roadblocks. The judge rejected all of it. This judgment goes on record as being one of the most severe penalties ever imposed on such a scam.
Hard to Weep
Daugerdas is 71. The way things now look, he will be well into his 80s before he sniffs at fresh air. I can’t weep for him. From the 1990s all the way through 2007, he pocketed money setting up scam tax evasion strategies. He roped others into participating and while we don’t know all of the penalties, those he convinced to dodge their taxes, obviously paid millions in penalties in and of themselves. The IRS has little regard for ignorance of the law as an excuse.
Daugerdas lived like a king, convinced of his genius. And, I well imagine, he got away with it for years.
As I like to remind my audiences and kind readers, every choice has a consequence. As with many who consider themselves the brightest and the best, he felt that he was above oversite and consequence. He wasn’t. There are thousands at the IRS who, quietly, do their jobs and note patterns and inconsistencies.
I started this post wondering where the arrogance comes from? As I have spoken in front of thousands of lawyers, I why some come to think that way? It may simply be a matter that they don’t think that way initially, they rationalize that way.
Law professors are brilliant, no doubt but they lack experience in the real world. They dwell in the theoretical and the didactic. The posit pictures of what could happen and not what does happen. I believe Paul Daugerdas never quite understood that one day he would have to answer the real world.
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