(CN) - An attorney formerly with Dallas-based Jenkins & Gilchrist pleaded guilty this week to conspiracy and tax evasion for his role in a massive fraudulent tax shelter scheme. Federal prosecutors say Erwin Mayer, 47, of Winnetka, Ill., helped design and implement the tax shelters, which generated billions of dollars of fraudulent tax losses for clients. "I am filled with shame and remorse for what I did," Mayer said in Manhattan Federal Court.
Mayer and six others were accused in June 2009 of marketing the phony shelters from 1994 to 2005. Prosecutors said the defendants used the shelters to generate more than $7.32 billion in fraudulent tax losses for at least 931 wealthy people.
Jenkins & Gilchrist shut down in March 2007, after admitting its role in the tax shelters. Prosecutors said short sale, short options strategies and swaps tax shelters were involved in the ruse.
"The short sale tax shelter was marketed and sold from at least 1994 through at least 1999 to at least 290 wealthy individuals, and generated at least $2.6 billion in false and fraudulent tax losses," Manhattan U.S. Attorney's Office said in a statement.
"The [short options strategy] tax shelter was marketed and sold from at least 1998 through at least 2000 to at least 550 wealthy individuals and generated at least $3.9 billion in false and fraudulent tax losses. The swaps tax shelter was marketed and sold in 2001 and 2002 to at least 55 wealthy individuals, and generated more than $420 million in false and fraudulent tax losses."
In return for taking fees from clients based on a percentage of the tax loss, Mayer and others at Jenkins & Gilchrist helped implement all stages of the tax shelters, including setting up bank accounts, corporations and partnerships, prosecutors said.
During the guilty plea proceeding, Mayer admitted he knew that the tax shelters would be allowed by the IRS only if there was a reasonable possibility of a profit. He admitted that the tax shelters had no reasonable possibility of resulting in a profit because, among other reasons, the costs and fees for most of the transactions exceeded the potential profit, if any.
Mayer faces up to 10 years in prison - a maximum of 5 years on the conspiracy charge and a maximum of 5 years for tax evasion.
As part of his plea agreement, Mayer agreed to forfeit his two homes and various bank and investment accounts worth more than $10 million. He is to be sentenced on Feb. 11, 2011, by U.S. District Judge William H. Pauley.
Trial of the remaining defendants is scheduled to begin Feb. 28, 2011.
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