A court order forcing some of Donald Trump’s former top tax lawyers to give thousands of documents to investigators shows the risk attorneys face when their own actions go under a microscope.
Judge Arthur F. Engoron last week ordered law firm Morgan, Lewis & Bockius LLP to give New York Attorney General Letitia James reams of communications with former President Trump and his company. Morgan Lewis, which argued that the documents are shielded by attorney-client privilege, was required to turn them over by Thursday.
James’ probe comes as Morgan Lewis, which has long advised Trump on tax issues, is joining other law firms in a scramble to distance themselves from the former president and his businesses.
Lawyers generally are not responsible for the potential sins of their clients. There are limits, however, on aiding illegal activity or turning a blind eye to it. Tax investigators often turn their attention to the lawyers advising a person or company how far they can go.
“Lawyers are allowed to make mistakes, but they are not allowed to give intentionally bad advice or cover up a crime,” Betty Williams, a California tax lawyer, said.
James is looking into allegations that the Trump Organization manipulated the value of assets in order to get loans and tax benefits. She’s focusing on the appraisal of a more than 200-acre property in New York’s Westchester County, Bloomberg News recently reported.
James hasn’t publicly accused Morgan Lewis lawyers Sheri Dillon and William Nelson of any wrongdoing, and there is no indication that the firm’s lawyers are being targeted for misconduct in the investigation.
But James said the firm advised the company on two of the easements in question. She said Dillon was “primarily responsible” for handling a conservation easement donation for which the company obtained $21.1 million in tax deductions.
Dillon, best known for standing by Trump in a 2016 press conference in which he vowed to step away from his businesses and eventually make his tax returns public, was also reportedly involved in the appraisal of another conservation easement at the center of the probe—this one for a Trump property in Los Angeles.
Dillon, Nelson, and Morgan Lewis spokeswoman Emily Carhart didn’t respond to a request for comment. Morgan Lewis partner Timothy Stephens, who is representing the firm in New York’s legal action, likewise couldn’t be reached. Dillon’s attorney, Zuckerman Spaeder partner Graeme Bush, declined comment.
Fabien Levy, a spokesman for James, declined to comment on the investigation.
Probing Property Deals
Williams said valuations like those at issue in the Trump probe are commonly performed by accounting professionals and with the advice of tax lawyers.
“You get a range in terms of how much clients want to push the envelope,” she said. “Some say, ‘Look, let’s roll the dice. Tell me how far I can go.’”
Even if New York authorities wanted to probe any wrong doing by attorneys—and there’s no indication in the Trump case they want to do that—proving such instances are difficult, said Tyler Maulsby, a New York lawyer who defends attorneys accused of malpractice.
“There’s a very high bar to show that a lawyer has committed a crime, as opposed to providing legal advice,” Maulsby said. “These are very difficult cases to prove.”
The investigations have drawn Morgan Lewis lawyers Dillon and Nelson into the public eye. The pair has been among Trump’s closest tax advisers.
Dillon worked at a handful of Washington law firms before joining Morgan Lewis in 2015. She stood by President-elect Trump during a closely watched 2016 press conference in which he pledged to divest from various business interests and pointed to stacks of documents that he said were tax returns and other information that he would make public once certain audits were completed. That appearance was later lampooned on “Saturday Night Live.”
Nelson served as the Internal Revenue Service’s chief counsel in the Reagan administration. He joined Dillon in writing a highly-publicized 2017 letter to Trump confirming the then-president’s claim that he had few business ties to Russia. Nelson and Dillon said at the time they had reviewed a decade worth of tax returns and concluded that he did not owe money to Russian lenders.
Legal ethics rules typically make it clear that lawyers cannot “bury their heads in the sand” when they suspect their clients are committing crimes, said Maulsby, a partner with Frankfurt Kurnit Klein & Selz in New York. “It’s a black letter rule—you cannot knowingly assist your client in committing a crime or a fraud.”
Some ethics rules assume attorneys should be able to “reasonably infer” that their clients may be involved in wrongdoing and take steps to address it.
Advising clients on tax matters can be especially tricky, in part because of the complicated nature of the issues at stake, according to Maulsby, Williams, and William Freivogel, a Chicago-based independent consultantcy for law firms on ethics and professional liability issues.
“Because of the complexity of tax laws, clients tend to rely so much on their attorneys for guidance,” Maulsby said.
Legal ethics rules have tightened in recent years, making it clearer to attorneys who historically may have been reluctant to concede that “they could be on the hook” for their clients’ behavior, Freivogel said.
“Law firms are increasingly getting wise to the smell test,” said Freivogel. “That is, if it doesn’t smell right, let’s be more careful” about representing clients engaged in potentially unlawful activities.
When Advice is Criminal
The consequences for lawyers who get too close to the fire range from licensing-related punishments to sanctions and civil liability. They can extend to criminal penalties in the rarest cases, Maulsby said.
New York lawyer Peter DiChiara helped his client Morrie Tobin hide control of Environmental Packaging Technologies Holdings Inc. so he could dump shares and “profit at the expense of defrauded investors,” according to the complaint filed by the Securities and Exchange Commission.
Overseas, Hanno Berger, one of Germany’s most profitable tax lawyers, was charged last October along with four bankers at M.M. Warburg & Co. over a scandal that’s rocked the financial industry. It is the second indictment Berger has faced over a controversial trading strategy. He has repeatedly denied the charges.
In 2009, Raymond R.J. Ruble, formerly of Sidley Austin and Brown & Wood, was sentenced to six-and-a-half years in prison for writing letters that authorized bogus tax shelters KPMG accountants had created for wealthy customers. Federal prosecutors in Manhattan declined to seek criminal charges against Sidley, but the firm was forced to pay a $39.4 million civil penalty to the IRS.
And in a case one judge called “the biggest tax fraud prosecution ever,” several lawyers with the now-defunct Jenkens & Gilchrist engaged in a range of tax crimes. One highlight was a 20-year scheme that one of the lawyers, Paul Daugerdas, concocted that generated more than $7 billion in fraudulent tax losses—and yielded about $95 million in fees to the attorney personally.
—Donna Borak and Aysha Bagchi contributed to this report.
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