Confidence Games by Tanina Rostain & Milton C. Regan Jr

Author:Tanina Rostain & Milton C. Regan, Jr. [Rostain, Tanina]
Language: eng
Format: epub
Tags: [KEYWORDS, COMMA SEPARATED]
ISBN: 9780262027137
Publisher: The MIT Press
Published: 2014-03-10T16:00:00+00:00

9 Lowering the Bar

The tax shelter crisis almost certainly generated the largest number of criminal prosecutions against lawyers in connection with any set of events in United States history. At least twenty-nine lawyers were charged in an indictment or criminal information for their work on abusive tax shelters. Some were involved in private practice, while others worked in accounting or financial services firms. Eight were convicted, eleven pled guilty, two were acquitted, two had their convictions reversed on appeal, one is a fugitive from justice, and five had their indictments dismissed when KPMG terminated payment of their attorneys’ fees at the behest of the government.1 Other lawyers who were not prosecuted were publically criticized because of their work on abusive shelters.

Although prosecutions have mainly focused on the activities of individual lawyers, their tax shelter activities were very much a product of the organizations in which they worked. Accounting firms, as previous chapters underscore, created organizational structures and incentives that rewarded shelter participation. In law firms, different organizational influences tended to operate. Jenkens & Gilchrist took on Paul Daugerdas and his tax shelter practice as a part of a strategy to get ahead in the increasingly competitive market for legal services. Firm leaders failed to appreciate the significant risks of the shelter work. What risks they did recognize they wrongly believed they could manage successfully.

At other firms, tax shelter activity was often seen and characterized as “rogue” behavior—the behavior of individual lawyers who had become involved in the market without the firm’s permission and knowledge. It was rogue behavior, however, that was facilitated by the loose oversight structure characteristic of law firms. In addition, it was behavior that inured to firms’ financial benefit. Designing tax shelters and writing shelter opinions brought in substantial fees that not only enriched firm partners but also enhanced firms’ profiles in the never-ending challenge to stay competitive. Under these circumstances it was not difficult for firm leaders to turn a blind eye to shelter activity.

Brown & Wood: “Opinions R Us”

Founded in 1914, New York-based Brown & Wood was a prestigious law firm well known for its representation of issuers and underwriters in securities offerings. From 1993 through the end of 1996, Brown & Wood ranked first among all law firms in the number of public debt and equity securities issues in which it had been involved. It ranked second in terms of the total dollar amount of securities issued in such transactions. The firm had an especially strong reputation for its technical expertise in structuring transactions involving complex financial securities, and was one of only four firms ranked in the top ten in six or more categories of capital markets work.

The lawyer who spearheaded shelter activity at Brown & Wood was the peripatetic R. J. Ruble, who had joined the firm as a partner in 1993. Between 1996 and 2003, Ruble issued more than seven hundred opinions on at least thirteen transactions that were listed as abusive by the IRS.

Ruble issued the vast majority of his opinions before Brown & Wood merged with Sidley & Austin in 2001.

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