Winnetkan Faces Prison in Billion-Dollar Tax Scam

A Winnetka man who pleaded guilty last year to charges of conspiracy and tax evasion will be sentenced with his co-defendants this fall.

Erwin Mayer, 47, formerly with the Jenkens & Gilchrist law firm, entered his in U.S. District Court in New York City. The charges are related to illegal tax shelters he implemented to help clients fraudulently reduce their taxes, resulting in billions of dollars in tax losses for the government.

For each conspiracy and tax evasion charge, Mayer and his co-defendants face five years in prison, three years of supervision and a fine as high as $250,000 on each of the charges. They also face as much as 20 years behind bars for each mail fraud charge.

Four other people were convicted on charges Tuesday after a 10-week trial presided over by U.S. District Judge William Pauley III. Among those convicted were three Illinois residents: Paul Daugerdas, 60, of Wilmette, along with Donna Guerin, 50, and David Parse, 49, both of Elmhurst. 

In October, Mayer agreed to give up assets valued at more than $10 million, including two residences and financial accounts, as part of a plea agreement. One residence is at 340 White Oak Ln. in Winnetka and the other in Green Lake, WI.

"The multibillion dollar tax fraud scheme perpetrated by this corrupt group of attorneys, accountants, and bankers was stunning in scope, and today’s guilty verdicts are a just result," Preet Bharara, U.S. Attorney for the Southern District of New York, said in a press release.

"These privileged professionals wove an intricate web of deceit that spanned nearly a decade, enabling them to enrich themselves and their well-heeled clients to the tune of hundreds of millions of dollars," he added.

"Surely there are many Americans who dread April 15, but they put their checks in the mail nonetheless, Bharara said about the filing deadline for federal tax returns. He noted that the " defendants thought they were above the law and found out the hard way that they were not."

Judge Pauley has scheduled sentencing for Oct. 14.

Mayer and other attorneys at Jenkens & Gilchrist created tax shelters to "allow high-net-worth clients to eliminate and reduce taxes on significant income or gains" between 1996 and 2004, according to the press release. The scheme required collaboration with brokers, accountants and marketing firms in the creation of bank accounts and other partnerships.

At least 290 clients participated in the "short sale" tax shelter from 1994-1999, resulting in more than $2.6 billion in fraudulent losses of potential tax revenue. Another shelter that run from 1998-2000 was made available to at least 550 clients, according to the U.S. Attorney's Office.

The fraudulent losses from that shelter are more than $3.9 billion. The "swaps" shelter was sold to at least 55 individuals between 2001 and 2002, resulting in $420 million in fraudulent losses. Based on each client's individual tax loss, Mayer and his co-conspirators received a percentage of the loss as a fee.

Mayer said during his guilty plea that he knew the IRS would only permit the tax shelters if the clients were seeking the option for nontax reasons. However, if a profit seemed likely and if the losses were for nontax-related reasons, Mayer said he knew the shelters would not generate a profit, according to the press release.