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September 12, 2008 6:58 PM

Tax Shelter Case that Snared Arnold & Porter Partner Not Done Yet

Posted by Zach Lowe

A year ago, the legal community was abuzz over news that a federal investigation of illegal tax shelters for multi-millionaires had homed in on at least five major law firms. Two of those firms--Sidley Austin and the now-closed Jenkens & Gilchrist--paid hefty fines to avoid criminal charges.

Since then, there have been few developments in the matter. But on Thursday, former Arnold & Porter partner Peter Cinquegrani, 48, pleaded guilty to tax fraud charges that sprang out of the investigation. In exchange for his plea, Cinquegrani will receive a maximum prison sentence of five years.

Also on Thursday, the IRS announced that as part of an earlier settlement, Cinquegrani's old firm--he worked at Arnold & Porter from 1986 through 1993 and again from 1997 through last year--had paid an undisclosed fine to avoid prosecution. (Where did Cinquegrani work between his two Arnold & Porter stints? That's right, as a tax lawyer for the IRS.)

In a statement, the firm acknowledged Cinquegrani's plea and said it had "cooperated fully" with the investigation.

Cinquegrani's plea and Arnold's payment leaves at least two firms still squarely in DOJ's crosshairs: Proskauer Rose and Locke Lord Bissell & Liddell--home to a certain George W. Bush administration alum who caused some controversy during her time at the president's side.

Sources close to the investigation have confirmed that the two firms are the ones labeled "Law Firm A" and "Law Firm D" in the indictment of the Ernst & Young accountants .

Lawyers at those firms--it's unclear how many may be involved--are under investigation for doing the same thing that got Cinquegrani into trouble: helping the richest of the rich illegally hide millions in taxable income in complex tax shelters.

Ernst & Young accountants, authorities allege, were largely responsible for arranging the scheme. But protecting their clients required a supposedly "independent" lawyer to write a letter saying the shelters were "likely" legal.

The problem, the DOJ says in the indictment, is that the lawyers knew of the scam and took fees ranging from $50,000 to $150,000 in exchange for writing the letters.

Seven Ernst employees have been charged with fraud as a result of the probe. One has pleaded guilty so far. The rest, who are awaiting trial, are being represented by several firms, including O'Melveny & Myers, Zuckerman Spaeder, Clayman & Rosenberg and Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer

Representatives at Locke Lord and Proskauer did not return calls or e-mails seeking comment.

Cinquegrani's attorney, Paul Rauser of the Aegis Law Group, did not return messages seeking comment.

Prosecutors would say only that the investigation is ongoing.

Meanwhile, the fate of former Sidley partner R.J. Ruble appears headed to trial this year. Ruble earned $50,000 a pop for writing about 600 letters that gave his blessing to the illegal tax shelters. Sidley fired Ruble in 2003, and the firm paid the IRS $39.4 million to avoid criminal charges linked to the shelters. Judging by the following quote Ruble's lawyer, Jack Hoffinger, gave to The American Lawyer's David Bario last year, his client is ready to fight:

"I mean, greed is a sin, but so are lust and envy," Hoffinger said. "I never read a statute that says greed is a crime. If it were a crime, who would be the jailers?"

Ruble, it appears, may soon get to find out.

Download Indictment

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