Attorney Must Face $370 Million Fraud Trial

     CHICAGO (CN) – A Chicago federal court will allow the United States to proceed on its claims against a tax attorney allegedly behind $370 million worth of tax shelters.




      The United States brought suit against John E. Rogers, “a self-professed tax expert and attorney who creates and promotes abusive tax avoidance schemes,” including Sugarloaf Fund LLC, Jetstream Business Limited, and Distressed Asset Debt. His actions allegedly began in 2003.
     These fraudulent schemes ” generated over $370 million of fictitious tax deductions for Rogers’ customers,” according to the order.
     Following the filing of the complaint, the defendants – which include Rogers and various corporations he set up – argued that the government “failed to plead the fraud-based claims with particularity,” as required by the Federal Rules of Civil Procedure.
     But last week’s opinion, authored by United States District Court Judge Samual Der-Yeghiayan, finds that the government lived up to its burden by alleging the “who, what, when, where, and how” of the fraud.
     “In great detail, the Government explains how Rogers and his associates promoted with false statements the tax shelters.”
     Even if Rogers was not fully aware of the fraudulent nature of his actions, he may still be held liable if this was due to turning a blind eye. According to the court, fraud is constituted by giving a client any advice or taking any action “which the person knows or has reason to know is false or fraudulent as to any material matter.”
     In response, Rogers argued that the complaint includes allegations that only indicate that he] would have had the requisite knowledge in hindsight and that the allegations do not suggest that he would have had knowledge at the time of his statements.”
     However, “[t]he Federal Rules of Civil Procedure do not require a plaintiff, even when subject to Rule 9(b), to swear that the plaintiff is 100% certain that all the facts are true and accurate in a complaint,” explained Judge Der-Yeghiayan.
     Rogers is facing various other federal and tax court lawsuits for his actions, and on this basis claimed that the government should not be allowed to pursue the case in question. He argued that to proceed in this case may have “preclusive effects for other litigants in tax courts and may violate their due process rights under the Fifth Amendment.”
     In response, the government pointed to authority that shows that the litigation of a suit such as the instant action against the promoter of a tax scheme simultaneously with actions in federal tax courts brought against the promoter’s customers is appropriate and promotes judicial economy.
     Additionally, concerns of collateral estoppel do not stop the government from pursuing this case, since none of the other cases have concluded, it said.

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