Free Response - District Court of Federal Claims - federal

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1 2

UNITED STATES COURT OF FEDERAL CLAIMS

3 STOBIE CREEK INVESTMENTS, LLC, 4 JFW ENTERPRISES, INC., Tax 5 Matters and Notice Partner, 6 7 vs. Plaintiff, ) ) 05-748 T ) )

)

8 THE UNITED STATES OF AMERICA, 9 10 11 Defendant. )

)(Judge Block)

The deposition of PAUL M. DAUGERDAS,

12 called for examination, taken before ELLEN DUSZA, 13 CSR No. 84-3386, a Notary Public within and for the 14 County of DuPage, State of Illinois, and a 15 Certified Shorthand Reporter of said state, at 16 Suite 500, 219 South Dearborn Street, Chicago, 17 Illinois, on the 30th day of August, A.D. 2007, at 18 9:07 a.m. 19

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20 21 22 23 24

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1 PRESENT: 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 JENNER & BLOCK LLP, (330 North Wabash Avenue, U.S. DEPARTMENT OF JUSTICE, (Room 7201, Judiciary Center Building, 555 Fourth Street, NW, Washington, DC 20001, 202-307-3046), by: MR. CORY A. JOHNSON, Trial Attorney, Tax Division, appeared on behalf of the Defendant; SCHIFF HARDIN, LLP, (6600 Sears Tower, Chicago, Illinois 60606, 312-258-5717), by: MS. COLLEEN M. FEENEY, appeared on behalf of the Plaintiffs;

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Chicago, Illinois 60607, 312-222-9350), by: MS. SHANNON BARTLETT, appeared on behalf of the Deponent.

24 REPORTED BY: ELLEN DUSZA, CSR No. 84-3386.

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(WHEREUPON, the witness was duly sworn.) PAUL M. DAUGERDAS,

4 called as a witness herein, having been first duly 5 sworn, was examined and testified as follows: 6 EXAMINATION

7 BY MR. JOHNSON: 8 Q. Good morning. Could you tell us your

9 name and home residence for the record, sir? 10 A. My name is Paul Daugerdas and I live at

11 816 Forest Avenue in Wilmette, Illinois. 12 Q. Is that a single-family home on Forest

13 Avenue? 14 A. Based upon the advice given to me by my

15 attorney, I respectfully decline to answer that 16 question based on the privileges granted to me by 17 the Fifth Amendment to the United States 18 Constitution. 19 Q. Do you operate any business out of that

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20 residence? 21 A. Based upon the advice given to me by my

22 attorney, I respectfully decline to answer that 23 question based on the privileges granted to me by 24 the Fifth Amendment to the United States

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1 Constitution 2 MR. JOHNSON: Counsel, do you want to agree

3 that the witness can short-hand his response if 4 he's going to give the same response that he's just 5 given the last two times, that we can shorthand it 6 somehow? 7 MS. BARTLETT: That sounds like a good idea to

8 me. 9 MR. JOHNSON: Mr. Daugerdas, if you're

10 intending to assert the same rights that you just 11 did, if you want to shorthand it and say "Same 12 response" or "I assert the Fifth," I think that's 13 fine with counsel here. 14 15 MS. FEENEY: Yes. MS. BARTLETT: That's fine.

16 BY MR. JOHNSON: 17 18 Q. A. Are you a lawyer, Mr. Daugerdas? Based upon the advice given to me by my

19 attorney, I respectfully decline to answer that

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20 question based on the privileges granted to me by 21 the Fifth Amendment to the United States 22 Constitution. 23 Q. Are you licensed by Illinois as a

24 lawyer?

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1

A.

Based upon the advice given to me by my

2 attorney, I respectfully decline to answer that 3 question based on the privileges granted to me by 4 the Fifth Amendment to the United States 5 Constitution. 6 7 Q. A. How long have you been a lawyer? Based upon the advice given to me by my

8 attorney, I respectfully decline to answer that 9 question based on the privileges granted to me by 10 the Fifth Amendment to the United States 11 Constitution. 12 Q. Did you work for the firm Jenkens &

13 Gilchrist during the years 1999 through at least 14 2001? 15 A. Based upon the advice given to me by my

16 attorney, I respectfully decline to answer that 17 question based on the privileges granted to me by 18 the Fifth Amendment to the United States 19 Constitution.

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Q.

Can you tell me what your practice was

21 while you were at Jenkens & Gilchrist? 22 A. Based upon the advice given to me by my

23 attorney, I respectfully decline to answer that 24 question based on the privileges granted to me by

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1 the Fifth Amendment to the United States 2 Constitution. 3 4 Q. A. Did you have any specialties? Based upon the advice given to me by my

5 attorney, I respectfully decline to answer that 6 question based on the privileges granted to me by 7 the Fifth Amendment to the United States 8 Constitution. 9 10 Q. A. Did you specialize in tax law? Based upon the advice given to me by my

11 attorney, I respectfully decline to answer that 12 question based on the privileges granted to me by 13 the Fifth Amendment to the United States 14 Constitution. 15 Q. Do you have any education or training in

16 finance or investments? 17 A. Based upon the advice given to me by my

18 attorney, I respectfully decline to answer that 19 question based on the privileges granted to me by

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20 the Fifth Amendment to the United States 21 Constitution. 22 Q. Do you have any education, training or

23 expertise in foreign currency options? 24 A. Based upon the advice given to me by my

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1 attorney, I respectfully decline to answer that 2 question based on the privileges granted to me by 3 the Fifth Amendment to the United States 4 Constitution. 5 Q. Do you have any education, training or

6 expertise or experience in foreign currency 7 markets? 8 A. Based upon the advice given to me by my

9 attorney, I respectfully decline to answer that 10 question based on the privileges granted to me by 11 the Fifth Amendment to the United States 12 Constitution. 13 Q. Have you ever been in the business of

14 providing investment advice? 15 A. Based upon the advice given to me by my

16 attorney, I respectfully decline to answer that 17 question based on the privileges granted to me by 18 the Fifth Amendment to the United States 19 Constitution.

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Q.

Prior to joining Jenkins & Gilchrist

21 were you with the law firm Altheimer & Gray in 22 Chicago? 23 A. Based upon the advice given to me by my

24 attorney, I respectfully decline to answer that

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1 question based on the privileges granted to me by 2 the Fifth Amendment to the United States 3 Constitution. 4 Q. When you were at Altheimer & Gray, did

5 you work with Donna Guerin and Erwin Mayer? 6 A. Based upon the advice given to me by my

7 attorney, I respectfully decline to answer that 8 question based on the privileges granted to me by 9 the Fifth Amendment to the United States 10 Constitution. 11 Q. Did Ms. Guerin and Mr. Mayer also work

12 at Jenkens & Gilchrist when you were there? 13 14 A. Q. Privileged. During the time period you were at

15 Jenkens & Gilchrist, did you ever represent or 16 provide advice to any member of the Welles family, 17 and by that I mean David Welles, Sr. and his wife 18 Georgia, and their children, David Welles, Jr., 19 Jeff Welles, Peter Welles, Chris Welles or Virginia

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20 Welles Jordan? 21 A. Based upon the advice given to me by my

22 attorney, I respectfully decline to answer that 23 question based on the privileges granted to me by 24 the Fifth Amendment to the United States

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1 Constitution. 2 Q. If we consider those individuals I just

3 listed as the Welles family, can you tell me if you 4 have ever had any communications with any members 5 of the Welles family? 6 A. Based upon the advice given to me by my

7 attorney, I respectfully decline to answer that 8 question based on the privileges granted to me by 9 the Fifth Amendment to the United States 10 Constitution. 11 Q. Have you ever provided any advice to the

12 members of the Welles family regarding the tax 13 results or tax consequences of any transactions 14 they may have entered into? 15 A. Based upon the advice given to me by my

16 attorney, I respectfully decline to answer that 17 question based on the privileges granted to me by 18 the Fifth Amendment to the United States 19 Constitution.

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Q.

Did you provide them any advice as to

21 the tax benefits or tax consequences of a foreign 22 exchange digital currency transaction? 23 A. Based upon the advice given to me by my

24 attorney, I respectfully decline to answer that

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1 question based on the privileges granted to me by 2 the Fifth Amendment to the United States 3 Constitution. 4 Q. Have you ever heard of the Welles family

5 before, prior to receiving the subpoena in this 6 case? 7 A. Based upon the advice given to me by my

8 attorney, I respectfully decline to answer that 9 question based on the privileges granted to me by 10 the Fifth Amendment to the United States 11 Constitution. 12 Q. Mr. Daugerdas, I'd like to show you what

13 has been previously marked as Welles Exhibit 96. 14 15 16 (WHEREUPON, the document marked Exhibit No. 96 was first referred to.)

17 BY MR. JOHNSON: 18 Q. This is a document that's been

19 previously marked as Exhibit 96, Mr. Daugerdas,

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20 produced by plaintiff in this case or perhaps Jeff 21 Welles. Could you turn to the fifth page of the 22 document that's Bates stamped JFW-0651? 23 24 A. Is that your signature there? Based upon the advice given to me by my

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1 attorney, I respectfully decline to answer that 2 question based on the privileges granted to me by 3 the Fifth Amendment to the United States 4 Constitution. 5 Q. Can you tell me if this document is a

6 copy of a confidentiality agreement that you signed 7 on behalf of Jenkins & Gilchrist? 8 A. Based upon the advice given to me by my

9 attorney, I respectfully decline to answer that 10 question based on the privileges granted to me by 11 the Fifth Amendment to the United States 12 Constitution. 13 Q. I'd also like to show you -- ask you to

14 take a look on the second page of the exhibit and 15 that's the page Bates stamped JFW-0648. In the 16 first paragraph there, the second sentence says, 17 quote, "The confidential, proprietary information, 18 (confidential information) involves certain 19 financing structures (the structures) developed by

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20 J&G and/or its clients, consultants or co-counsel 21 that provide economic, financial, business and tax 22 advantages for individuals and companies through 23 the use of the structures." 24 Do you see that sentence?

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1

A.

Based upon the advice given to me by my

2 attorney, I respectfully decline to answer that 3 question based on the privileges granted to me by 4 the Fifth Amendment to the United States 5 Constitution. 6 Q. Did you have any involvement in

7 developing the structures that are referenced here? 8 A. Based upon the advice given to me by my

9 attorney, I respectfully decline to answer that 10 question based on the privileges granted to me by 11 the Fifth Amendment to the United States 12 Constitution. 13 Q. Do you understand the structures that

14 are being referred to here, do you know what they 15 are? 16 A. Based upon the advice given to me by my

17 attorney, I respectfully decline to answer that 18 question based on the privileges granted to me by 19 the Fifth Amendment to the United States

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20 Constitution. 21 Q. Do you know who else at Jenkins &

22 Gilchrist -- do you know who at Jenkins & Gilchrist 23 may have been involved in developing these 24 structures?

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1

A.

Based upon the advice given to me by my

2 attorney, I respectfully decline to answer that 3 question based on the privileges granted to me by 4 the Fifth Amendment to the United States 5 Constitution. 6 Q. That paragraph also represents --

7 references other clients' consultants or co-counsel 8 may have been involved in developing these 9 structures. Can you tell me who else other than 10 Jenkins & Gilchrist may have been involved in 11 developing these structures? 12 A. Based upon the advice given to me by my

13 attorney, I respectfully decline to answer that 14 question based on the privileges granted to me by 15 the Fifth Amendment to the United States 16 Constitution. 17 Q. Was Deutsche Bank involved in developing

18 these structures? 19 A. Based upon the advice given to me by my

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20 attorney, I respectfully decline to answer that 21 question based on the privileges granted to me by 22 the Fifth Amendment to the United States 23 Constitution Deutsche Bank. 24 Q. Can you tell me anything about the

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1 economic or financial or business advantages that 2 these structures could provide for clients? 3 A. Based upon the advice given to me by my

4 attorney, I respectfully decline to answer that 5 question based on the privileges granted to me by 6 the Fifth Amendment to the United States 7 Constitution. 8 Q. Can you tell me anything about the tax

9 advantages that could be provided to clients from 10 these structures? 11 A. Based upon the advice given to me by my

12 attorney, I respectfully decline to answer that 13 question based on the privileges granted to me by 14 the Fifth Amendment to the United States 15 Constitution. 16 Q. Is it correct that the primary motive

17 for these structures was to reduce taxes? 18 A. Based upon the advice given to me by my

19 attorney, I respectfully decline to answer that

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20 question based on the privileges granted to me by 21 the Fifth Amendment to the United States 22 Constitution. 23 Q. Can you tell me why Jenkins & Gilchrist

24 wanted to keep the information regarding the

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1 structures confidential? 2 A. Based upon the advice given to me by my

3 attorney, I respectfully decline to answer that 4 question based on the privileges granted to me by 5 the Fifth Amendment to the United States 6 Constitution. 7 Q. This letter is addressed to Jeffrey

8 Welles. Have you ever spoken to Jeffrey Welles? 9 A. Based upon the advice given to me by my

10 attorney, I respectfully decline to answer that 11 question based on the privileges granted to me by 12 the Fifth Amendment to the United States 13 Constitution. 14 Q. Paragraph 6 on page Bates stamped

15 JFW 0649 states in it that, quote, "The undersigned 16 and J&G are acting solely as independent 17 contracting parties and neither party shall be 18 deemed to be an agent or fiduciary of the other." 19 Do you see that?

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20

A.

Based upon the advice given to me by my

21 attorney, I respectfully decline to answer that 22 question based on the privileges granted to me by 23 the Fifth Amendment to the United States 24 Constitution.

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16

1

Q.

Was it your understanding that with

2 regard to Mr. Jeffrey Welles that Jenkins & 3 Gilchrist and you were not acting as a fiduciary 4 with regard to these structures? 5 A. Based upon the advice given to me by my

6 attorney, I respectfully decline to answer that 7 question based on the privileges granted to me by 8 the Fifth Amendment to the United States 9 Constitution. 10 Q. Is it correct that Jenkens & Gilchrist

11 required all clients to sign a confidentiality 12 agreement similar to this before they would 13 disclose the details of these structures? 14 A. Based upon the advice given to me by my

15 attorney, I respectfully decline to answer that 16 question based on the privileges granted to me by 17 the Fifth Amendment to the United States 18 Constitution. 19 Q. Going back to the first paragraph on

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20 page JFW-0648, did you or to your knowledge did 21 anyone else at Jenkens & Gilchrist rely on any 22 other person or entity to advise Jenkens about the 23 economic or financial or business advantages that 24 could arise from these structures?

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17

1

A.

Based upon the advice given to me by my

2 attorney, I respectfully decline to answer that 3 question based on the privileges granted to me by 4 the Fifth Amendment to the United States 5 Constitution. 6 Q. Did Jenkens engage any person or firm to

7 provide advise to it about the economic, financial 8 or business advantages of these structures? 9 A. Based upon the advice given to me by my

10 attorney, I respectfully decline to answer that 11 question based on the privileges granted to me by 12 the Fifth Amendment to the United States 13 Constitution. 14 Q. Let me show you next, Mr. Daugerdas,

15 what's previously been marked as Guerin Exhibit 1. 16 This is a document that was produced by Jenkens in 17 this case pursuant to a subpoena. Do you recognize 18 this? 19 (WHEREUPON, the document marked

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20 21

Guerin Deposition Exhibit No. 1 was first referred to.)

22 BY THE WITNESS: 23 A. Based upon the advice given to me by my

24 attorney, I respectfully decline to answer that

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1 question based on the privileges granted to me by 2 the Fifth Amendment to the United States 3 Constitution. 4 BY MR. JOHNSON: 5 Q. Is it true that this is an e-mail with

6 an attachment that you sent to Ms. Guerin, 7 Mr. Mayer, Mr. Beery back in October of 1999? 8 A. Based upon the advice given to me by my

9 attorney, I respectfully decline to answer that 10 question based on the privileges granted to me by 11 the Fifth Amendment to the United States 12 Constitution. 13 Q. It's labeled New Strategy. Is this

14 strategy one of the structures that's referred 15 to in the confidentiality agreement we just looked 16 at? 17 A. Based upon the advice given to me by my

18 attorney, I respectfully decline to answer that 19 question based on the privileges granted to me by

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20 the Fifth Amendment to the United States 21 Constitution. 22 Q. Is this a tax strategy that you helped

23 develop along with Deutsche Bank back in 1999? 24 A. Based upon the advice given to me by my

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1 attorney, I respectfully decline to answer that 2 question based on the privileges granted to me by 3 the Fifth Amendment to the United States 4 Constitution. 5 Q. Mr. Daugerdas, on the second page of the

6 exhibit, the title is Currency Link Digital Swap. 7 I like to show you what was previously marked as 8 Welles Exhibit 98 and Welles Exhibit 99 and ask you 9 if these documents reflect transactions similar to 10 those you're referring to in this Guerin Exhibit 1 11 when you referred to Currency Linked Digital Swap? 12 13 14 15 (WHEREUPON, the document marked Welles Deposition Exhibit Nos. 98 and 99 was first referred to.)

16 BY THE WITNESS: 17 A. Based upon the advice given to me by my

18 attorney, I respectfully decline to answer that 19 question based on the privileges granted to me by

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20 the Fifth Amendment to the United States 21 Constitution. 22 BY MR. JOHNSON: 23 Q. What are you referring to in that title

24 when you say "digital swap"?

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20

1

A.

Based upon the advice given to me by my

2 attorney, I respectfully decline to answer that 3 question based on the privileges granted to me by 4 the Fifth Amendment to the United States 5 Constitution. 6 Q. There are a number of steps listed

7 in this chart that begins on Page 2 of the 8 exhibit. Step 1 has a sentence that states, 9 "Target amount that client seeks to invest is the 10 target basis." 11 12 there? 13 14 A. Q. Privilege. Is that a target tax basis for some What is the basis you're referring to

15 asset? 16 A. Based upon the advice given to me by my

17 attorney, I respectfully decline to answer that 18 question based on the privileges granted to me by 19 the Fifth Amendment to the United States

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20 Constitution. 21 Q. Isn't it correct that that's the basis

22 that was sought to be created pursuant to this 23 strategy either in order to create a tax loss or an 24 enhancement to the basis of some asset?

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21

1

A.

Based upon the advice given to me by my

2 attorney, I respectfully decline to answer that 3 question based on the privileges granted to me by 4 the Fifth Amendment to the United States 5 Constitution. 6 Q. Further on in that step one it

7 references a lottery payout. Can you tell me what 8 that is? 9 A. Based upon the advice given to me by my

10 attorney, I respectfully decline to answer that 11 question based on the privileges granted to me by 12 the Fifth Amendment to the United States 13 Constitution. 14 Q. Does that refer to the two PIP spread in

15 the digital option transactions? 16 A. Based upon the advice given to me by my

17 attorney, I respectfully decline to answer that 18 question based on the privileges granted to me by 19 the Fifth Amendment to the United States

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20 Constitution. 21 Q. Moving on to the third page of the

22 exhibit, Step 10. There's a sentence that says, 23 "Final DS pricing after funds wired." 24 Does "DS" refer to digital swap?

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22

1

A.

Based upon the advice given to me by my

2 attorney, I respectfully decline to answer that 3 question based on the privileges granted to me by 4 the Fifth Amendment to the United States 5 Constitution. 6 Q. Does that sentence, does that indicate

7 that the pricing for the digital swap would not be 8 determined or even agreed upon until after the 9 client had wired money to Deutsche Bank? 10 A. Based upon the advice given to me by my

11 attorney, I respectfully decline to answer that 12 question based on the privileges granted to me by 13 the Fifth Amendment to the United States 14 Constitution. 15 Q. Do you know who determined the digital

16 swap pricing for any of these deals? 17 A. Based upon the advice given to me by my

18 attorney, I respectfully decline to answer that 19 question based on the privileges granted to me by

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20 the Fifth Amendment to the United States 21 Constitution. 22 Q. Can you tell me what the purpose of this

23 strategy was? 24 A. Based upon the advice given to me by my

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1 attorney, I respectfully decline to answer that 2 question based on the privileges granted to me by 3 the Fifth Amendment to the United States 4 Constitution. 5 Q. Was the purpose to shelter capital gain

6 that a client might have? 7 A. Based upon the advice given to me by my

8 attorney, I respectfully decline to answer that 9 question based on the privileges granted to me by 10 the Fifth Amendment to the United States 11 Constitution. 12 Q. Was the purpose to make money on foreign

13 currency options? 14 A. Based upon the advice given to me by my

15 attorney, I respectfully decline to answer that 16 question based on the privileges granted to me by 17 the Fifth Amendment to the United States 18 Constitution. 19 Q. Was the purpose to make money on the

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20 digital swap? 21 A. Based upon the advice given to me by my

22 attorney, I respectfully decline to answer that 23 question based on the privileges granted to me by 24 the Fifth Amendment to the United States

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1 Constitution. 2 Q. Step 12 talks about, again on Page 3,

3 quote, "J&G will prepare and provide assignment 4 executed by a client to DBAG to move DS to target 5 entity." 6 7 A. Can you tell me what that concerns? Based upon the advice given to me by my

8 attorney, I respectfully decline to answer that 9 question based on the privileges granted to me by 10 the Fifth Amendment to the United States 11 Constitution. 12 Q. Was one of the steps in this text

13 strategy the assignment of the digital options or 14 digital swap to a partnership? 15 A. Based upon the advice given to me by my

16 attorney, I respectfully decline to answer that 17 question based on the privileges granted to me by 18 the Fifth Amendment to the United States 19 Constitution.

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20

Q.

And was that assignment of the options

21 to the partnership one of the steps necessary for 22 the claims tax benefits? 23 A. Based upon the advice given to me by my

24 attorney, I respectfully decline to answer that

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1 question based on the privileges granted to me by 2 the Fifth Amendment to the United States 3 Constitution. 4 Q. Do you know of a business purpose at

5 least in your mind when you wrote this strategy for 6 the assignment of the option to a target entity? 7 A. Based upon the advice given to me by my

8 attorney, I respectfully decline to answer that 9 question based on the privileges granted to me by 10 the Fifth Amendment to the United States 11 Constitution. 12 Q. Step 14 talks toward the end about

13 providing an audit trail. Do you see that? 14 A. Based upon the advice given to me by my

15 attorney, I respectfully decline to answer that 16 question based on the privileges granted to me by 17 the Fifth Amendment to the United States 18 Constitution. 19 Q. When you use the word "audit" there,

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20 what are you referring to? 21 A. Based upon the advice given to me by my

22 attorney, I respectfully decline to answer that 23 question based on the privileges granted to me by 24 the Fifth Amendment to the United States

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1 Constitution. 2 3 Q. A. Are you referring to an IRS audit? Based upon the advice given to me by my

4 attorney, I respectfully decline to answer that 5 question based on the privileges granted to me by 6 the Fifth Amendment to the United States 7 Constitution. 8 Q. Is there some other audit internal to

9 Deutsche Bank that you're referring to? 10 A. Based upon the advice given to me by my

11 attorney, I respectfully decline to answer that 12 question based on the privileges granted to me by 13 the Fifth Amendment to the United States 14 Constitution. 15 Q. Is there any other sort of audit that

16 you're referring to? 17 A. Based upon the advice given to me by my

18 attorney, I respectfully decline to answer that 19 question based on the privileges granted to me by

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20 the Fifth Amendment to the United States 21 Constitution. 22 Q. Step 15(a) on that same page talks about

23 a tax reserve fund and can you tell me what that 24 is?

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1

A.

Based upon the advice given to me by my

2 attorney, I respectfully decline to answer that 3 question based on the privileges granted to me by 4 the Fifth Amendment to the United States 5 Constitution. 6 Q. It also references earning a return on

7 this fund during the "statute of limitations." 8 What statute of limitations were you referring to 9 here? 10 A. Based upon the advice given to me by my

11 attorney, I respectfully decline to answer that 12 question based on the privileges granted to me by 13 the Fifth Amendment to the United States 14 Constitution. 15 Q. Are you referring to the statute of

16 limitations that would be applicable to the IRS 17 assessing additional tax that might be due in 18 connection with someone who did this strategy? 19 A. Based upon the advice given to me by my

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20 attorney, I respectfully decline to answer that 21 question based on the privileges granted to me by 22 the Fifth Amendment to the United States 23 Constitution. 24 Q. When you created this strategy, were you

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1 concerned that the IRS would dispute the tax 2 benefits that were to be claimed? 3 A. Based upon the advice given to me by my

4 attorney, I respectfully decline to answer that 5 question based on the privileges granted to me by 6 the Fifth Amendment to the United States 7 Constitution. 8 Q. Step 15(b) states, "Trading activity

9 before year-end to reenforce profit motive/business 10 purpose." 11 12 there? 13 A. Based upon the advice given to me by my Can you tell me what you're referring to

14 attorney, I respectfully decline to answer that 15 question based on the privileges granted to me by 16 the Fifth Amendment to the United States 17 Constitution. 18 Q. Did you have a profit motive or business

19 purpose in mind when you were developing this

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20 strategy? 21 A. Based upon the advice given to me by my

22 attorney, I respectfully decline to answer that 23 question based on the privileges granted to me by 24 the Fifth Amendment to the United States

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1 Constitution. 2 Q. The profit motive and business purpose

3 you're referring to there, is that related to the 4 profit motive or business purpose that is required 5 by case law for certain transactions to be 6 respected for tax purposes? 7 A. Based upon the advice given to me by my

8 attorney, I respectfully decline to answer that 9 question based on the privileges granted to me by 10 the Fifth Amendment to the United States 11 Constitution. 12 Q. Were you concerned in any way that any

13 of the transactions involved in this strategy did 14 not have a valid profit motive or business purpose? 15 A. Based upon the advice given to me by my

16 attorney, I respectfully decline to answer that 17 question based on the privileges granted to me by 18 the Fifth Amendment to the United States 19 Constitution.

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Q.

For purposes of this strategy, were you

21 intending that someone else would provide evidence 22 of the profit motive or business purpose? 23 A. Based upon the advice given to me by my

24 attorney, I respectfully decline to answer that

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1 question based on the privileges granted to me by 2 the Fifth Amendment to the United States 3 Constitution. 4 Q. The e-mail subject line says "New

5 Strategy." What became of this strategy? 6 A. Based upon the advice given to me by my

7 attorney, I respectfully decline to answer that 8 question based on the privileges granted to me by 9 the Fifth Amendment to the United States 10 Constitution. 11 Q. Do you know did any clients of yours or

12 of Jenkens & Gilchrist implement the strategy? 13 A. Based upon the advice given to me by my

14 attorney, I respectfully decline to answer that 15 question based on the privileges granted to me by 16 the Fifth Amendment to the United States 17 Constitution. 18 19 MR. JOHNSON: I'm going to mark that. MS. FEENEY: What is this?

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20

MR. JOHNSON: Exhibit 1, Daugerdas 1. That's

21 her copy, sorry. 22 23 24 (WHEREUPON, a certain document was marked Daugerdas Deposition Exhibit No. 1, for

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1

identification, as of 8/30/07.)

2 BY MR. JOHNSON: 3 Q. Mr. Daugerdas, we've marked as Exhibit 1

4 a two-page document produced by Jenkens in this 5 case Bates stamped JG-NC 038918. 6 7 8 9 MS. FEENEY: Through 20. MR. JOHNSON: Does yours have three pages? MS. FEENEY: Yes. MR. JOHNSON: Mine has two for some reason.

10 BY MR. JOHNSON: 11 Q. Through 20. With some handwriting on

12 that. Can you tell me if that's your handwriting? 13 A. Based upon the advice given to me by my

14 attorney, I respectfully decline to answer that 15 question based on the privileges granted to me by 16 the Fifth Amendment to the United States 17 Constitution. 18 Q. Were you involved in developing the

19 terms or reviewing the terms of foreign exchange

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20 digital options transactions that were to be 21 entered into with Deutsche Bank as the 22 counterparty? 23 A. Based upon the advice given to me by my

24 attorney, I respectfully decline to answer that

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1 question based on the privileges granted to me by 2 the Fifth Amendment to the United States 3 Constitution. 4 5 Q. A. Do you know a Craig Brubaker? Based upon the advice given to me by my

6 attorney, I respectfully decline to answer that 7 question based on the privileges granted to me by 8 the Fifth Amendment to the United States 9 Constitution. 10 Q. Did you ever communicate with

11 Mr. Brubaker? 12 A. Based upon the advice given to me by my

13 attorney, I respectfully decline to answer that 14 question based on the privileges granted to me by 15 the Fifth Amendment to the United States 16 Constitution. 17 Q. He was with Deutsche Bank, is that

18 right? 19 A. Based upon the advice given to me by my

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20 attorney, I respectfully decline to answer that 21 question based on the privileges granted to me by 22 the Fifth Amendment to the United States 23 Constitution. 24 Q. Did you work with him to develop the

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33

1 digital option strategy? 2 A. Based upon the advice given to me by my

3 attorney, I respectfully decline to answer that 4 question based on the privileges granted to me by 5 the Fifth Amendment to the United States 6 Constitution. 7 8 Q. A. Do you know a David Parse? Based upon the advice given to me by my

9 attorney, I respectfully decline to answer that 10 question based on the privileges granted to me by 11 the Fifth Amendment to the United States 12 Constitution. 13 14 Q. A. Do you know a Jason Shih? Based upon the advice given to me by my

15 attorney, I respectfully decline to answer that 16 question based on the privileges granted to me by 17 the Fifth Amendment to the United States 18 Constitution. 19 Q. Do you know a Dan Brooks?

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20

A.

Based upon the advice given to me by my

21 attorney, I respectfully decline to answer that 22 question based on the privileges granted to me by 23 the Fifth Amendment to the United States 24 Constitution.

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1

Q.

How about -- did you ever work with

2 anybody at Ernst & Young in relation to developing 3 a tax strategy? 4 A. Based upon the advice given to me by my

5 attorney, I respectfully decline to answer that 6 question based on the privileges granted to me by 7 the Fifth Amendment to the United States 8 Constitution. 9 10 Q. A. Do you know a Robert or a Bob Copeland? Based upon the advice given to me by my

11 attorney, I respectfully decline to answer that 12 question based on the privileges granted to me by 13 the Fifth Amendment to the United States 14 Constitution. 15 MR. JOHNSON: Can you mark that as the next

16 exhibit? 17 18 19 (WHEREUPON, a certain document was marked Daugerdas Deposition Exhibit No. 2, for

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20

identification, as of 8/30/07.)

21 BY MR. JOHNSON: 22 Q. Mr. Daugerdas, we've marked as Exhibit 2

23 a blank piece of paper. I wanted to ask you to 24 give me a handwriting sampler.

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1

A.

Based upon the advice given to me by my

2 attorney, I respectfully decline to answer that 3 question based on the privileges granted to me by 4 the Fifth Amendment to the United States 5 Constitution. 6 Q. Well, I disagree with that assertion of

7 the privilege because handwriting samples are not 8 testimonial and therefore a witness cannot assert 9 the Fifth on that. 10 A. Based upon the advice given to me by my

11 attorney, I respectfully decline to answer that 12 question based on the privileges granted to me by 13 the Fifth Amendment to the United States 14 Constitution. 15 MS. BARTLETT: I disagree. I instruct him not

16 to comply with your request. 17 MR. JOHNSON: Well, we'll fight about it later

18 then. 19 (WHEREUPON, documents marked

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20 21 22

Guerin Deposition Exhibit Nos. 3, 4, 5 and 6 were first referred to.)

23 BY MR. JOHNSON: 24 Q. Mr. Daugerdas, I'd like to show you a

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1 number of exhibits that were previously marked as 2 Guerin Exhibits 3, 4, 5 and 6. Again, these were 3 all documents that were produced to us in this case 4 by Jenkens & Gilchrist. 5 The first one, Guerin Exhibit 3, is

6 titled Basis Enhancing Derivatives Structure. 7 You're welcome to page through it if you'd like. 8 Do you recognize this? Have you ever

9 seen a copy of this document before? 10 A. Based upon the advice given to me by my

11 attorney, I respectfully decline to answer that 12 question based on the privileges granted to me by 13 the Fifth Amendment to the United States 14 Constitution. 15 Q. Did you have any involvement in

16 developing this structure? 17 A. Based upon the advice given to me by my

18 attorney, I respectfully decline to answer that 19 question based on the privileges granted to me by

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20 the Fifth Amendment to the United States 21 Constitution. 22 Q. Do you know who at Jenkens may have been

23 involved in developing this structure? 24 A. Based upon the advice given to me by my

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1 attorney, I respectfully decline to answer that 2 question based on the privileges granted to me by 3 the Fifth Amendment to the United States 4 Constitution. 5 Q. Do you know the purpose of this

6 structure? 7 A. Based upon the advice given to me by my

8 attorney, I respectfully decline to answer that 9 question based on the privileges granted to me by 10 the Fifth Amendment to the United States 11 Constitution. 12 Q. Do you know if it had any economic or

13 business purpose? 14 A. Based upon the advice given to me by my

15 attorney, I respectfully decline to answer that 16 question based on the privileges granted to me by 17 the Fifth Amendment to the United States 18 Constitution. 19 Q. The second page says, "Method to create

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20 ordinary or capital losses." Is it correct that 21 that was the purpose of this structure? 22 A. Based upon the advice given to me by my

23 attorney, I respectfully decline to answer that 24 question based on the privileges granted to me by

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1 the Fifth Amendment to the United States 2 Constitution. 3 Q. The next document, Guerin Exhibit 4, is

4 titled Basis Enhancing Securities Transaction and, 5 again, you're welcome to page through it. Did you 6 have any involvement in developing this 7 transaction? 8 A. Based upon the advice given to me by my

9 attorney, I respectfully decline to answer that 10 question based on the privileges granted to me by 11 the Fifth Amendment to the United States 12 Constitution. 13 14 Q. A. Do you know who may have been involved? Based upon the advice given to me by my

15 attorney, I respectfully decline to answer that 16 question based on the privileges granted to me by 17 the Fifth Amendment to the United States 18 Constitution. 19 Q. Do you know the purpose of this

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20 transaction? 21 A. Based upon the advice given to me by my

22 attorney, I respectfully decline to answer that 23 question based on the privileges granted to me by 24 the Fifth Amendment to the United States

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1 Constitution. 2 Q. Do you know if it has a business or

3 economic purpose aside from any tax benefits? 4 A. Based upon the advice given to me by my

5 attorney, I respectfully decline to answer that 6 question based on the privileges granted to me by 7 the Fifth Amendment to the United States 8 Constitution. 9 Q. Is it correct that this was designed as

10 a tax shelter? 11 A. Based upon the advice given to me by my

12 attorney, I respectfully decline to answer that 13 question based on the privileges granted to me by 14 the Fifth Amendment to the United States 15 Constitution. 16 Q. How about Guerin Exhibit 5. That's,

17 again, it's a different document, but it is also 18 titled Basis Enhancing Securities Transaction. 19 Again, you're welcome to page through it.

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Did you have any involvement in

21 developing this transaction? 22 A. Based upon the advice given to me by my

23 attorney, I respectfully decline to answer that 24 question based on the privileges granted to me by

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1 the Fifth Amendment to the United States 2 Constitution. 3 Q. Can you tell me the purpose of this

4 transaction? 5 A. Based upon the advice given to me by my

6 attorney, I respectfully decline to answer that 7 question based on the privileges granted to me by 8 the Fifth Amendment to the United States 9 Constitution. 10 Q. Do you know who may have been involved

11 in developing it? 12 A. Based upon the advice given to me by my

13 attorney, I respectfully decl