United States v. Daugerdas
2016 U.S. App. LEXIS 17219
| 2d Cir. | 2016Background
- Paul M. Daugerdas, a CPA and tax attorney at Arthur Andersen, Altheimer & Gray, and Jenkens & Gilchrist, designed, marketed, and implemented offshore-style tax shelters (Short Sale, Short Option, Swaps, HOMER) sold to wealthy clients with “more-likely-than-not” opinion letters.
- The shelters produced large tax losses but had negligible profit potential; fees charged to clients often eliminated any chance of net gain.
- J&G, BDO Seidman, and Deutsche Bank participated in marketing and implementing the shelters; some trades were later corrected by backdating or related tinkering.
- Evidence showed Daugerdas advised clients on how to characterize motives (e.g., emphasize profit) and personally used the shelters to avoid substantial personal income tax.
- Indicted and tried on counts including conspiracy to defraud the IRS, client and personal tax evasion, obstruction of the IRS, and mail fraud; convicted on conspiracy, four client-evasion counts, obstruction, and mail fraud; sentenced to 180 months, forfeiture, and large restitution.
Issues
| Issue | Plaintiff's Argument (Government) | Defendant's Argument (Daugerdas) | Held |
|---|---|---|---|
| Sufficiency of evidence (mens rea for tax evasion, mail fraud, obstruction) | Evidence showed Daugerdas knew the economic substance rule, knew shelters lacked profit and non-tax business purpose, and therefore had requisite intent | Argued government failed to prove he knew transactions lacked economic substance or that fees should be included in profit analysis | Affirmed — jury could rationally infer knowledge of rule and lack of economic substance; convictions supported |
| Constructive amendment of indictment | Indictment broadly alleged fraud and backdating; proof may proceed on various particulars | Argued rebuttal summation and supplemental instructions added an Annual Accounting Rule theory not in indictment | Affirmed — indictment had described backdating; use of backdating as alternate theory did not alter the core of criminality |
| Duplicitous indictment (Count for obstruction) | Count alleged single offense (obstruction) by multiple acts | Daugerdas argued Count Thirteen combined two separate schemes (client and personal use) into one count | Affirmed — multiple means of committing one offense is not duplicity |
| Due process — cumulative errors (evidence admission, summation, inconsistent theories) | Government permitted to impeach witnesses and use reasonable summation arguments; no reversible error | Argued admission of non-party guilty plea, prejudicial summation comments, and inconsistent positions at sentencing deprived him of fair trial | Affirmed — district court did not abuse discretion admitting impeachment; summation permitted and not prejudicial; no inconsistent theories that violated due process |
| Supplemental instruction on Annual Accounting Rule | Court properly instructed jury on Annual Accounting Rule and later clarified that application depends on facts; good-faith defense charged generally | Argued supplemental instruction misstated the law, implied Rule was absolute, misinstructed on mens rea, and should have been limited to conspiracy count | Affirmed — supplemental instruction, read in context with full charge (including good-faith instruction), was not misleading or erroneous |
| Sentence reasonableness (procedural and substantive) | Court considered §3553(a), acquitted conduct may be considered; district court adequately explained sentence | Argued court ignored post-trial juror interviews and relied on acquitted conduct, making sentence unreasonable | Affirmed — no procedural error; consideration of acquitted conduct is permissible; sentence not substantively unreasonable |
| Forfeiture nexus | Government traced funds from J&G Chicago office (source of fees for shelters) into accounts paid to Daugerdas; forfeiture requires preponderance showing proceeds connection | Argued government failed to trace client fees into the J&G account and separate fraudulent fees from other funds | Affirmed — evidence supported nexus that Chicago office fee pool derived from fraudulent shelter income; forfeiture sustained |
Key Cases Cited
- United States v. Parse, 789 F.3d 83 (2d Cir. 2015) (knowledge of economic substance rule and related mens rea analysis)
- Bank of N.Y. Mellon Corp. v. Comm’r of Internal Revenue, 801 F.3d 104 (2d Cir. 2015) (economic substance test: objective profit expectation and subjective non-tax purpose)
- United States v. Pierce, 785 F.3d 832 (2d Cir. 2015) (standard of review for sufficiency challenges)
- United States v. D’Amelio, 683 F.3d 412 (2d Cir. 2012) (constructive amendment doctrine and distinction between core of criminality and particulars)
- United States v. Cavera, 550 F.3d 180 (2d Cir. 2008) (procedural reasonableness standards for sentencing)