Free Reply to Response to Motion - District Court of Federal Claims - federal

Case 1:05-cv-00748-CCM
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u.s. Department of Justice
United States Attorney

Southern District ofNe~-ya-k

The Silvio J. Mollo Building
One Saml Andrew's Plaza

New York, New York 10007

March 26, 2007

Robert B. Fiske, Jr., Esq. James P. Rouhandeh;Esq. Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017

Re: Jenkens & Gilchrist
Dear Messrs. Fiske and Rouhandeh:

The protection against prosecution with respect to the tax offenses set fort below has been approved by the Tax Division, Department of Justice.

District of

Pursuant to our discussions, the Office ofthe United States Attorney for the Southern New York ("this Offce") and Jenkens & Gilchrist (uJ&G"),' pursuant to the authority granted by the Boards of Directors or Management Committees of J&G Texas, J&G Ilinois, these Resolutions for each of J&G California, J&G New York, and JGPC, Inc., in the form of which are attached hereto as Exhibit A), and represented by its undersigned entities (copies of attorneys, hereby enter into this Agreement.

i Jenkens & Gilchrist and J&G are defined herein to include Jenkens & Gilchrìst, A Professional

Corporation, a Texas professional corporation (EIN 75-2204006) ("J&G Texas"); Jenkens & Gilchrist, A Professional Corporation, an llinois professional corporation (EIN 36-4263272) ("J&G Illinois"); Jenkens & Gilchrist LLP (EIN 95-4775690) ("J&G California"); Jenlcens & Gilchrist Parker Chapin, LLP (EIN 13-4148545) (uJ&G New York"); and JGPC Incorporated 2005, all of the attorneys of J&G New York either ("JGPC Inc.") (EIN: 20-8614033). In April retired or withdrew from that entity and joined Troutman Sanders LLP or other law firms.
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Robert B. Fiske, Esq. James P.Rouhandeh, Esq.

This Offce has been investigating the tax shelter activities engaged in by J&G during the period 1998 through 2004. According to representations made to this Offce by and on behalf of J&G, J&G has suffered and continues to suffer significant financial hardship caused largely by its revenues associated with the deparure former tax shelter practice, including a significant loss of of 397 attorneys since 200 i, with the number of attorneys employed by the firm dropping from 605 attorneys in 200 i to 208 attorneys as of February 28, 2007. J&G has also represented to this Offce: that as a result of its fiancial diffculties, J&O' s offces have already been or wil soon join other law firms; that J&G Texas be closed, and J&G's lawyers have already joined or wil
thereafter wil remain in operation to wind up J&G's business affairs; that the purposes of

this

continuing entity will include continuing to cooperate with this Offce by assisting in the ongoing criminal investigation of J&O's tax shelter activities and any resulting prosecutions, as well as
paying a civil penalty to the Internal Revenue Service (the "IRS") pursuant to the terms

of the

Closing Agreement reached by J&G and the IRS to resolve the promoter penalty audit and other matters, and otherwise complying with the terms of the Closing Agreement; and that J&G will no longer be engaged in the practice of law. Since September 2004, J&O has cooperated with this Responsibility (the Offce's investigation. Moreover, J&O has provided a Statement of "Statement") to this Offce, acknowledging that certain J&G attorneys developed and marketed fraudulent tax shelters that wrongly deprived the U.S. Treasury of significant tax revenues. A copy of the Statement is attached hereto as Exhibit B. In consideration of the foregoing, this Offce enters into this Agreement with J&G.

On the understandings specified below, this Offce, and with respect to tax offenses, the Tax Division, Department of Justice, wil not criminally prosecute J&O for crimes arising from J&G's tax shelter activities from 1998 through 2004, including but not limited to: the design, development, marketing, sale, and implementation of certain tax shelters commonly referred to the so-called "Son of BOSS" shelter that went by as BOSS, BART, HOMER, and variants of names including BEST, BEDS, BLISS, COBRA, the Short Option Strategy ("SOS"), and the Option Partnership Strategy ("OPS"); J&G's issuance of legal opinions supporting those tax those transactions against the IRS; and J&O's failure, shelters; J&O's assistance in the defense of at any time, to withhold taxes or file certain tax forms (including IRS Forms 1099 and W-2) with respect to compensation paid to "Paul M. Daugerdas, Chartered." This Agreement does not provide any protection against prosecution for any crimes except as set forth above. It is understood that this Agreement does not apply to any former or current shareholder, partner, associate, or employee of J&G, but only to J &G, as defined above.

It is further understood that J&O has entered into a Closing Agreement with the IRS in connection with the IRS's promoter penalty audit of J&G, and that the Closing Agreement wil also resolve all other outstanding issues between J&G and the IRS upon such terms and
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Robert B. Fiske, Esq.
James P. Rouhandeh, Esq.

conditions as have been mutually agreed upon. It is understood that the resolution reached in the Closing Agreement is a condition precedent to ths Agreement, and that J&G's commission of a the Closing Agreement shall constitute a violation of Default under the terms of Major Event of this Agreement. In view of J&O's agreement to resolve the IRS's promoter penalty audit, and J&O's financial condition, this Offce wil not seek any restitution or fine from J&O in
connection with any of

the conduct described in this Agreement.

It is further understood that J&G: (a) shall trthfully and completely disclose all information in its possession and control with respect to the activities of J&G, its current or former shareholders, partners, associates, and employees, concerning all matters about which this Office, the IRS (civil and criminal), and the Tax Division, Departent ofJustice (civil and criminal) ("Tax DOJ") inquires, which information can be used for any purpose; (b) shall cooperate fully with this Offce, the IRS (civil and criminal), Tax DOJ, and any other law enforcement agency designated by this Offce; (c) shall volunteer and provide to this Offce any information and documents that come to J&G's attention that may be relevant to this Offce's investigation; (d) shall use its best efforts to assemble, organize, and provide, in a responsive and prompt fashion, and upon request, in an expedited fashion, all documents, records, information, or control as may be requested by this Offce, and other evidence in J&G's possession, custody the IRS (civil and criminal), Tax DOJ, or any other law enforcement agency designated by this Offce; (e) shall use its best efforts to make available its present and former shareholders,
parers, associates, and employees to provide information and/or testimony before a grand jury

or in court proceedings, and in interviews with law enforcement authorities, and to identify witnesses who, to J&G's knowledge may have material information concerning this Offce's investigation, including but not limited to the conduct described in the fourth paragraph öfthis Agreement and in J&O's Statement; (f) shall use its best efforts to provide testimony or establish the original location, authenticity, or other basis for admission in evidence of documents and/or physical evidence in any criminal proceeding as requested by this Offce, the IRS (civil and which J&O criminal), or Tax DOJ; (g) shall bring to this Offce's attention any crimes of becomes aware that J&G or its current and former shareholders, partners, associates, and employees have committed, and all administrative, civil or criminal proceedings, investigations,
or prosecutions of which J&G becomes aware in which J&O, or any of

its current and former

shareholders, partners, associates, or employees have been or are a subject, target, part, or witness (excluding domestic disputes, traffc and personal injury proceedings, as well as any
proceedings regarding real property owned by current and former shareholders, parters,

associates, or employees in a personal capacity); and (h) shall commit no crimes whatsoever.

other items of

It is further understood that J&G shall maintain the originals of all documents, records, or tangible evidence in its possession and control related to the conduct described in
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Robert B. Fiske, Esq. James P. Rouhandeh, Esq.
the fourth paragraph of this Agreement, at J&G's own expense, in a location or locations that shall be designated in writing to this Offce and leased for a period of three years from the signing ofthIs Agreement. J&G shall designate and train appropriate personnel, who wil be available for a period of five years, to satisfy its obligations to provide materials under subsection (d) of the preceding paragraph. J&G shall also provide for payment to retain the services of such personnel to fulfill such obligations for a period of three years from the signing of this Agreement. After three years, this Offce and/or the IRS shall pay for the storage of these documents and other materials, and for the retention of personnel designated and trained by J&G to satisfy its obligations under subsection (d) of records and other items of

the preceding paragraph. These documents,

tangible evidence include: (i) the firm's accounting ledgers and biling records pertaining in any manner to the conduct described in the fourth paragraph of this Agreement; (ii) the hard-copy originals of all client fies pertaining in any manner to the conduct described in the fourth paragraph of this Agreement, to the extent they presently exist; (iii) the hard-copy originals of all "non-client" fies pertaining in any manner to the conduct described in
the fourh paragraph of this Agreement, to the extent they presently exist; (iv) electronic copies

of all of the files in the firm's iManage database system pertaining in any manner to the conduct
described in the fourth paragraph of this Agreement; (v) electronic copies ofall of

the e-mail

currently present on or derived from the firm's e-mail servers contained in the e-mail accounts of certain current and former shareholders, partners, associates, and employees to be designated in writing by this Offce upon consultation with J&G; and (vi) the hard drives of current and former shareholders, partners, associates, and employees to be designated in writing by this Offce upon consultation with J&G, to the extent such hard drives presently exist.

It is further understood by this Office that by agreeing to take the actions indicated in the preceding two paragraphs, J&O is not waiving any attorney-client or work product privilege with respect to its representation in connection with this Office's criminal investigation, its representation in the IRS promoter penalty audit, and its representation in private civil litigation. It is the understanding of this Offce, however, that following the 2004 cour decision directing J&G to disclose the names of tax shelter clients, and in the course of complying with grand jury subpoenas issued by this Offce, J&G has not maintained or asserted that its activities with respect to the design, development, marketing, sale, and implementation of tax shelters is covered by any attorney-client or work product privilege, or that it had any privileged communications with third parties with respect to such activities.

It is further understood that should J&G commit any crimes after the signing of this Agreement, or should this Offce, in its sole discretion, determne that J&G, or any individual or

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Robert B. Fiske, Esq.
James P. Rouhandeh, Esq.

entity authorized to act on behalf of J&G, has given false, incomplete, or misleading testimony or this Agreement, J&O shall thereafter be subject to prosecution for any federal criminal violation of which this Offce has justice. Any such prosecution that is not timeknowledge, including perjury and obstruction of this Agreement may be barred by the applicable statute of limitations on the date of the signing of the statute of limitations between the commenced against J&G, notwithstanding the expiration of
infonnation, or should J&O otherwise violate any provision of signing of this Agreement and the commencement of

such prosecution. It is J&O's intent by

entering into this Agreement to waive all defenses based on the statute of limitations with respect to any prosecution that is not time-barred on the date that this Agreement is signed.

It is further understood that should J&G commit any crime after the signing of this Agreement, or should this Offce determine that J&O, or any individual or entity authorized to

act on behalf of J&O, has given false, incomplete, or misleading testimony or information, or this Agreement, (a) all statements made by should J&O otherwise violate any provision of shareholders, parners, associates, employees, and agents of J&O to this Offce or other designated law enforcement agents, and any testimony given by shareholders, partners, jury or other tribunal, whether prior to associates, employees, and agents of J&G before a grand this Agreement, and any leads from such statements or testimony or subsequent to the signing of shall be admissible in evidence in any criminal proceeding brought against J&O; and (b) J&G
shall assert no claim under the United States Constitution, any statute, Rule 410 of

the Federal

Rules of Evidence, or any other federal rule that such statements or any leads therefrom should
be suppressed. It is J&O's intent by entering into this Agreement to waive all rights in the

foregoing respects.

It is furher understood that this Agreement does not bind any federal, state or local
prosecuting authority other than this Office and, to the

extent set fort above, the Tax Division,

Department of Justice, This Offce wil, however, bring the cooperation of J&O to the attention requested by J&G. of other prosecuting offces, if

It is further understood that this Offce and/or J&G may disclose this Agreement to the
public.

With respect to this matter, this Agreement supersedes all prior, ifany, understandings, promises and/or conditions between this Offce, the Tax Division, Department of Justice, and J&G. No additional promises, agreements, and conditions have been entered into other than

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Robert B. Fiske, Esq.
James P. Rouhandeh, Esq.

those set fort in this letter and none wil be entered into unless in writing and sIgned by all

paries.
Very trly yours,

APL~
SHIRAH NEIMAN Chief Counsel to the United States Attorney

;"~PTEl( AND AGREED BY:

'WiÃeL t ~d~j7LPATRICK E. MITCHELL, ESQ.,
Authorized Signatory for:

.3 - 2(" - 07
DATE

J&O Texas

J&O Ilinois J&G California
J&O New York
JGPC, Inc.

'E, I ., ESQ.

DA

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~ P LL. / p. L L
JA ES P. ROUHANDEH, ESQ.

3/2.6/07
DATE

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UNANIMOUS CONSENT IN LIEU OF MEETING OF THE BOAR OF DIREClORS OF JENKENS & GILCHRST, A PROFESSIONAL CORPORATION

Pursuant to the authority contaÙled in Aricle 9.10B of the Texas Busines Corporation
Act, the undersigned. being all of the members of the Board of

Directors of Jenkens & Gilchrst,

A Professional Corporation, a Texas professional corporation (the "Company"). do hereby adopt

the following recitals and resolutions with the same force and effect as though adopted at a
special meeting of the Board of

Directors duly called and held:

Resolutions Appro'Ving Settlement Agreements

RESOL VEDt that the Board of Directors hereby appro'Ves a Closing Agreement As To
Final Deterination Of Tax Liabilty And Specific Mattrs and a Non Prosecution and

Cooperation Agreement among the Company, certn of its afliates and certain agencies of the United States governent (the "Agreements") in the fonn presented to and reviewed by each of the members ofthe Board of Directors.

hereby is, authorized, empowered and directed on behalf of

RESOLVED, in furtherance of the foregoing resolutions, that Patrck Mitchell be, and he the Company, to execute and deliver the Agreements, to take or cause to be taen all such furter actions and to execute,

acknowledge, certify, deliver, accept, record and file all such other instrments and notices in the name and on behalf ofthe Company as in his discretion he may deem necessa or appropriate in order to cary out and effectuate the intent and purses of the foregoing resolutions,

RESOLVED, that all actions heretofore taken by the offcers and directors of the
Company in furterance of the puroses of these resolutions ar hereby raified and confrmed in
all respects.

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IN WINESS WHREOF, the undersigned have hereunto set their hands.

Date: 3 - 2 t, - 07

Date:. :¡.U '" t? '1
Date: ~.. ;)£9 - Ð 7
.'

~C~~
Thomas H. Cantrll

Jo . Eichman .

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UNANMOUS WRTTEN CONSENT OF THE MAAGEMENT COMMTTEE
OF
JENKENS & GILCHRST, LLP,

The undersigned being the Management Commttee of Jenkens & Gilclust, LLP, a
Californa linùted liability parnersrup (the "Parnersrup"), pursuant to the authority granted to
them in the Parershp Agreement of the Paiership, do hereby tae the following action and

adopt the following resolutions:

Resolutions Approving Settlement Agreements
RESOLVED, that the Management Committee hereby approves a Closing Agreement As To Final Detennnation Of Tax Liabilty And Specific Matters and a Non Prosecution and Cooperation Agrement among t~e Parership, certain of its affliates and certain agencies of
the United States government (the "Agreements") in Uie form presented to and reviewed by each of the Management Commttee. the members of

RESOLVED, in furherace of the foregoing resolutions, tht Patrck Mitchell be, and he
hereby is, auUiorized, empowered and directed on behalf of

the Partership, to execute and

deliver the Agreements. to tae or cause to be taken all such fuer actions and to execute, acknowledge, certify, deliver, accept, record and file all such other inents and notices in the

name and on behalf of the Partership as in his discretion he may deem necessar or appropriate in order to carry out and effectuate the intent and purposes of the foregoing resolutions.
RESOLVED, that all actions heretofore taken by the representatives and members of the
Management Committee of the Parership in furtherace of the purposes of

these resolutions are

hereby ratified and confirmed in all respects.

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~ WITNESS WHEREOF, the undersigned have hereunto set their hands.

Date: M rut1 ~"i ~nl)7
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Date: ll~ 1£, 1C
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UNANIMOUS WRTTEN CONSENT

OF THE BOAR OF DIRClORS OF
JENKENS & GILCHRIST, A PROFESSIONAL CORPORATION (ILLINOIS)
The undersigned. being al of the directors of Jenkens & Gilchrst. a Professional

Corporation, an Ilinois professional corporation (the "Company"), do hereby consent and agree
to the adoption of the following resolutions pursuant to Section 8.45 of

the Busines Corporation

Act of

the State of

Illinois:

Resolutions Approving Settlement Agreements
RESOLVED, that the Board of Directors hereby approves a Closing Agreement As To
Final Detennination Of Tax Liabilty And Specific Matters and a Non Prosecution and

Cooperation Agreement among the Company, certain of its affliates and certain agencies of the
United States governent (the "Agreements") in the fonn presented to and reviewed by each of Directors. the members of the Board of
RESOLVED, in furerance of

the foregoing resolutions, tht Patrck Mitchell be, and he

hereby is, authorized, empowered and directed on behalf of the Company, to execute and deliver

the Agreements, to take or cause to be taken all such further actions and to execute,
acknowledge, certify, deliver, accept, record and fie all such other instruents and notices in the name and on behalf of the Company as in his discretion he may deem necessar or appropriate in
order to cary out and effectuate the intent and purposes of the foregoing resolutions.

RESOLVED, that all actions hertofore taken by the offcers and directors of the
Company in furtherance of

the puroses of these resolutions are hereby ratified and conÏined in

all respects.

DALLAS

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IN WITNESS WHEREOF, the undersigned have hereunto set their hands.

Date: 3-2~- 07
Date: 7/Ut' ¿¡ 7'

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UNANIMOUS WRTIEN CONSENT OF THE MAAGEMENT COMMlTIE
OF

JENKENS & GILCHRT PARR CHAIN LLP,
. The undersigned being the Management Commtte of Jenkens & Gilchrst Parker
Chapin LL'p, a New York limited liability parership (the "Parers~p" or the "Finn"), pursuant
to the authority granted to them in the Parerslup Agreement of

the Parersrup, do hereby take

the following action and adopt the following resolutions:

Resolutions Approving Settlement Agreements
RESOL VED, that the Management Committee hereby approves a Closing Agreement As To Final Determination Of Tax Liability And Specific Matters and a Non Prosecution and Cooperation Agreement among the Parership, certain of its affiiates and certain agencies of
the United States governent, (the "Agrements") in the form presented to and reviewed by each
ofthe members of

the Management Committee.

RESOLVED, in furterace of the foregoing resolutions, that Patrck Mitchell be, and he
hereby is, authorized, empowered and directed on behalf of

the Parership, to execute and

delivered Agreements, to take or cause to be taen all such fuher actions and to execute,

acknowledge, certify, deliver, accept, record and file all such other instrents and notices in the

name and on behalf of the Parnership as in his discretion he may deem necessay or appropriate in order to carry out and effectuate the intent and purposes of the foregoing resolutions.
RESOLVED, that all actions heretofore taken by the representatives and members of Management Committee ofthe Parership in furterace of the puroses of

the
these reolutions are

hereby ratified and confrmed in all respects.

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IN WITNESS WHREOF. the undersigned have hereuto set their hands.

""

Date:

3 - 2(, - 0 7

Date:

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UNANIMOUS WRITTEN CONSENT

OF THE BOAR OF DIRECTORS OF
JGPC INCORPORATED

The undersigne.~, bemg all of the directors of JGPC IncoIporated, a New York
corporation (the "Company"), do hereby consent and agree to the adoption of the following
resolutions pursuant to applicable law:
'.

Resolutions Approving Settlement Agreements"
RESOLVED, that the Board of

Directors hereby approves a Closmg Agreement As To

Final Detennination Of Tax Liabilty And Specific Matter and a Non Prosecution and

Cooperation Agreement among the Company, certain of its affliates and certin agencies of the
United States governent (the "Agreements'') in the form presented to and reviewed by each of the members of the Board of Directors.

hereby is, authorized, empowered and directe on behalf of

RESOL YED, in furtherance ofthe foregoing resolutions, that Patrick Mitchell be, and he the Company, to execute and deliver the Agreements, to take or cause to be taken all such furher actions and to execute,
acknowledge, certify, deliver, accept, record and file all such other intrents and notices in the the Company as in his discretion he may deem necessar or appropriate in order to car out and effectuate the intent and puroses of the foregoing resolutions,

name and on behalf of

RESOL YEn, that all actions heretofore taken by the offcers and directors of the Company in fuerance of the puroses of these resolutions are hereby ratified and confined in
all respects.

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IN WITSS WHREOF, the undersigned have hereunto set their hands.

Date:

3-2fD- D7

Date:

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\\ Exhibit B
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J enkens & Gilchrist
A PROFESSIONAL CORPORATION

STATEMENT OF JEKENS & GILCHRST

Jenkens & Gilchrst ("J&G") has agreed to resolve a crial investigation
conducted by the United States Attorney's Offce for the Southern District of

New

York, as well as a civil promoter penalty audit undertken by the IRS, in

connection with tax shelters promoted by the firm's Chicago offce to high net wort individuals, and legal opinons issued by the firm in support of those the shelters, durng the period from 1999 through 2003. Under the terms of agreement with the United States Attorney's Offce, the Governent wil not prosecute J&G, and J&O wil fully cooperate with the United States Attorney's Office and the IRS. In final settlement of the promoter penalty audit, J&G has
undertaken to pay a civil penalty to the IRS.

Offce for the Southern District of

J&G has made the following statement to the United States Attorney's New York concerning the investigation:

"We believe certn J&G attrneys developed and marketed fraudulent tax
shelters, with fraudulent tax opinions, that wrongly deprived the U.S. Treasur of

significant tax revenues. The firm's tax shelter practice was spearheaded by tax practitioners in J&G's Chicago offce who are no longer with the firm. Those responsible for overseeing the Chicago tax practice placed unwarranted trust in the judgment and integrity of the attorneys pricipally responsible for that practice, and failed to exercise effective oversight and control over the firm's tax
shelter practice. Unfortately, that misplaced trust and reliance extended to our

initial response to the IRS and led to public statements we issued in support of our legal opinions. Our prior support for the opinions adversely affected the efforts of the IRS to assess and collect tax revenues. We deeply regret our involvement in this tax practice, and the serious har it caused to the United States Treasury.

standing reputation, revenues, and stability. We appreciate the wilingness of

"The Chicago tax shelter practice seriously undermined this firm's longthe U.S. Attorney's Offce and the IRS to consider those factors, as well as the
cooperation we have provided to the Governent since 2004, in detennning an

appropriate resolution of the grand jur and tax proceedings."