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Law Firms

Co-founder of defunct firm LeClairRyan may be able to avoid tax liability after 4th Circuit decision on his exit

By Debra Cassens Weiss

February 12, 2025, 10:44 am CST

The co-founder and former CEO of the defunct law firm LeClairRyan may be able to avoid tax liability in connection with the firm’s collapse because of a ruling Friday by a federal appeals court.

The 4th U.S. Circuit Court of Appeals at Richmond, Virginia, ruled for former partner Gary LeClair in a Feb. 7 opinion, Law360 reports.

The Legal Profession Blog published highlights.

The 4th Circuit ruled that LeClairRyan’s operating agreement didn’t bar LeClair from withdrawing as a partner after a vote to dissolve in July 2019. Bankruptcy and federal courts had reached the opposite conclusion, which made LeClair liable for some tax obligations because he was considered a partner on the day that the firm filed for bankruptcy in September 2019.

The firm had included LeClair on a list of equity holders filed with the bankruptcy court. LeClair wanted to amend the list to remove his name.

The 4th Circuit remanded for a determination.

“We leave it to the bankruptcy court on remand to determine whether any equitable considerations warrant denial of the motion to amend despite LeClair’s correct interpretation of the operating agreement,” the appeals court said.

See also:

Too big too soon: How LeClairRyan went under

LeClairRyan bankruptcy trustee targets firm co-founder, compares firm to movie ‘Weekend at Bernie’s’

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3. SCOTUSblog founder Tom Goldstein accused…

Criminal Justice

SCOTUSblog founder Tom Goldstein accused of transferring millions in cryptocurrency after tax indictment

By Debra Cassens Weiss

February 11, 2025, 9:55 am CST

A federal magistrate judge has concluded that SCOTUSblog co-founder Tom Goldstein violated his conditions of release on tax fraud charges by failing to disclose the existence of two cryptocurrency wallets through which he allegedly received and sent millions of dollars in the currency.

Goldstein, a former U.S. Supreme Court litigator and a high-stakes poker player, was arrested again Monday, report Law360, Bloomberg Law and Reuters.

U.S. Magistrate Judge Timothy J. Sullivan of the District of Maryland ordered Goldstein’s detention the same day, finding that prosecutors had produced clear and convincing evidence of the pretrial release violation.

Goldstein received more than $8 million in cryptocurrency and sent more than $6 million over the last five days, according to a prosecution motion unsealed Monday. The motion sought an arrest warrant and a revocation of the order authorizing Goldstein’s pretrial release.

Goldstein “presents an urgent risk of flight,” the motion said.

Prosecutors also alleged in a separate legal filing that Goldstein has instructed third parties, including potential witnesses, to destroy evidence that is relevant to the charges.

Goldstein said at a hearing Monday the cryptocurrency wallets did not belong to him, according to Law360.

“These are not my accounts,” he said after asked to be placed under oath. “I didn’t engage in these transfers.”

Goldstein was charged in a Jan. 16 indictment with understating gambling winnings on tax returns earned in “ultrahigh-stakes” poker matches while using his boutique law firm to pay debts and to pay women with whom he was involved or pursuing. He was also accused of failing to report money owed in debts and taxes when he applied for a mortgage.

The indictment includes allegations that Goldstein concealed cryptocurrency transactions on his tax returns.

One of the witnesses in the case is a California-based actor who hired Goldstein to collect a poker debt, prosecutors said. The government thinks that the actor will testify that Goldstein told him to pay his fee directly to a businessman to whom Goldstein owed money, which meant that the income was not captured in his firm banking records or reported on his tax returns.

At the same time that he most recently moved cryptocurrency, Goldstein claimed to be “destitute,” prosecutors said. Goldstein made the claim in a bid to substitute properties owned by relatives for the Washington, D.C., home that he owned with his wife, SCOTUSblog co-founder and reporter Amy Howe, as collateral to assure his future court appearances.

Goldstein had referenced a pretrial services report that said he had a negative net worth of more than $3.3 million in a motion that he filed under his signature Feb. 5. Goldstein said he wanted to use the equity in his home to pay for his lawyers.

Yet one of Goldstein’s bank accounts has a balance of $250,000, and he has been spending $20,000 per month for an apartment in Dallas, $5,000 per month for a housekeeper, and $8,000 per month on a personal assistant, prosecutors said.

The wallets said to have been recently used by Goldstein were “unhosted,” meaning that no cryptocurrency exchange, bank or financial institution controls access to the wallets, and there is no institution that can be subpoenaed for the owner’s identity, the government said.

But Goldstein allegedly revealed existence of the wallets to others.

Goldstein had identified one of the wallets to the CEO of a luxury travel company, and he had used it to send more than $73 million in cryptocurrency and receive more than $75 million in the currency since it was opened, according to prosecutors. There were no assets in the wallet at the time of Goldstein’s indictment.

Goldstein had used the second wallet to collect a poker debt of more than $242,000, prosecutors said.

Goldstein continues to maintain that he can’t afford the lawyers who had been representing him as “limited appearance” counsel, Sullivan said. Goldstein will be representing himself in the future, Sullivan said, after he was advised that “any type of hybrid representation (where he acts has his own attorney for some matters but has a lawyer act on his behalf for other matters) will not be permitted.”

See also:

Indicted SCOTUSblog founder Tom Goldstein can’t switch collateral, magistrate judge rules

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3. SCOTUSblog founder Tom Goldstein faces tax…

Tax Law

SCOTUSblog founder Tom Goldstein faces tax evasion charges

By Amanda Robert and Lee Rawles

January 16, 2025, 3:58 pm CST

Updated: SCOTUSblog publisher and co-founder Tom Goldstein was indicted on federal tax evasion charges Thursday.

Between 2016 and 2022, Goldstein allegedly schemed to “evade the assessment of taxes, file false tax returns and fail to pay his tax obligations when they were due,” according to the indictment, which was filed in the District of Maryland. The 22-count indictment lists four counts of tax evasion; 10 counts of aiding and assisting the preparation of false and fraudulent tax returns; five counts of willful failure to pay taxes; and three counts relating to false statements on mortgage loan applications.

Law360 has coverage.

Goldstein was described as an “ultrahigh-stakes poker player” and allegedly took millions of dollars from his boutique law firm, Goldstein & Russell, to pay personal debts, including gambling debts, the indictment said. He also underreported his gambling winnings by millions of dollars.

Goldstein announced his retirement from his U.S. Supreme Court practice and his firm, which was in Bethesda, Maryland, in 2023. At the time, he cited the increasingly conservative balance of the court as one of the reasons.

He said he would continue to publish the blog that he co-founded, SCOTUSblog, which features reporting by his wife, Amy Howe, who’s also a co-founder.

Past ABA Journal coverage also noted that Goldstein is a “formidable” poker player who once won $100,000 in an 18-hour game at the Bellagio. In 2009, the Journal included Goldstein in its inaugural class of Legal Rebels.

According to the indictment, Goldstein also allegedly was involved in intimate relationships with a least a dozen women from 2016 to 2022, and he created “sham employment arrangements” for several of those women.

The indictment said he transferred hundreds of thousands of dollars to them for travel and other expenses, and to supplement those payments, he “hired” them as employees at his firm.

They received salaries and health insurance despite performing little to no work for the firm, the indictment said.

Among the other details alleged in the indictment:

• In 2014, Goldstein approached a former client, a California-based billionaire, for a $10 million loan to support his gambling activities. The businessman “agreed to do so but required Goldstein to sign a promissory note memorializing the loan and Goldstein’s obligation to repay” and “by the end of 2022, Goldstein still owed more than $8.89 million.”

• In a series of poker games in Beverly Hills in 2016, Goldstein won $26,435,000. The same year, he also lost millions and sent $1,171,600 via wire transfers from the Goldstein & Russell bank accounts to satisfy “four gambling debt payments and two promissory note payments.” The firm manager was not told that these were personal debts, “resulting in those transfers being falsely classified as ‘Legal Fee[]’ expenses” of the firm.

• In 2017, Goldstein had a $250,000 legal fee owed by an unnamed law firm to Goldstein & Russell “in connection with G&R’s Supreme Court briefing in a securities class action case” deposited to a personal bank account he used for gambling. According to the indictment, Goldstein did not have his firm manager prepare an invoice for the $250,000, and “he did not tell anyone at G&R or the accounting firm that he had diverted the G&R fee to his gambling account, or that he had used it to satisfy a personal poker debt.”

• Also in 2017, a second unnamed law firm and a named partner at that law firm agreed to “invest” $500,000 in return for a share of Goldstein’s winnings from a series of poker matches against a California businessman. However, “the overall result of the matches during that period was that Goldstein lost more than $16 million,” and the law firm demanded its $500,000 be returned. Payments were transferred to the law firm from the Goldstein & Russell accounts, but the Goldstein & Russell firm manager was not told they were personal gambling-related debts.

• After a 2018 trip to Macau, China, Goldstein landed at Dulles International Airport with a duffel bag holding $968,000 in cash. He told a U.S. Customs and Border Protection officer that these were gambling winnings, but failed to report it as such on his 2018 taxes.

• In 2019, Goldstein represented a foreign gambler whom he had previously played poker against, “in connection with certain court proceedings in Macau.” He was paid $235,000 for that legal work, but when the money was deposited into his firm’s bank account, it “was not reported as legal fee income,” and Goldstein allegedly asked his accounts to make sure the money was “classified as a reduction to shareholder distributions.”

• During 2020 and 2021, Goldstein allegedly conducted some 280 cryptocurrency transactions worth more than $9.5 million. Despite this, on both years’ tax forms, he answered “no” when asked whether he had made any virtual currency transactions.

• In 2021, when applying for a mortgage for a $2.65 million home in Washington, D.C, Goldstein “falsely omitted more than $15,500,000 that he owed in personal debts and federal taxes.”

CNBC reports that Goldstein has hired attorneys John Lauro of Lauro & Singer and Christopher Kise of Continental Attorneys-at-Law to represent him. Lauro and Kise have appeared in previous media coverage in connection with their representation of President-elect Donald Trump.

In a statement to CNBC, Kise and Lauro said: “Mr. Goldstein is a prominent attorney with an impeccable reputation. We are deeply disappointed that the government brought these charges in a rush to judgment without understanding all of the important facts. Our client intends to vigorously contest these charges, and we expect he will be exonerated at trial.”

An email sent by the ABA Journal to Goldstein’s SCOTUSblog address was returned as undeliverable.

Last updated on Jan. 17 to correct a reference to John Lauro’s law firm.

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3. New nonequity partners are sometimes stuck…

Law Firms

New nonequity partners are sometimes stuck paying more health and tax costs

By Debra Cassens Weiss

November 12, 2024, 3:40 pm CST

Take-home pay is only slightly higher for some newly promoted nonequity partners because their law firms treat them as equity partners for tax purposes.

Many nonequity partners are stuck paying thousands of dollars in health and tax costs that they didn’t have to pay as associates because they are classified as self-employed, Bloomberg Law reports.

These nonequity partners receive the same IRS K-1 schedule as partners do, which means that they have to pay full Social Security and Medicare taxes, Bloomberg Law explains. As associates, these lawyers paid only half those costs. In addition, some of these nonequity partners pay all the premiums for health insurance—a cost that is often subsidized for associates.

“Some nonequity partners get extra compensation in recognition of the costs, while others persuade firms to change their tax classification because of the expenses,” Bloomberg Law reports. “Still others get used to the change, enjoying the status of being called ‘partner’ and realizing there are other tax deductions they can take” for unreimbursed business expenses.

The percentage of partners in the nonequity tier is increasing, Bloomberg Law reports, citing American Lawyer data. Almost half of the partners in the nation’s top 200 grossing firms had nonequity status in 2023, compared to 40% in 2013.

One firm that changed its treatment of nonequity partners is McDermott Will & Emery, Ira Coleman, the firm’s chair, told Bloomberg Law.

“We talked to our income partners and our income partner committee, and they said there’s got to be a better way to do this,” Coleman said.

McDermott switched back to W-2s for nonequity partners in 2020, he said.

Lawsuits filed against Duane Morris and Thompson Hine take issue with the treatment of nonequity partners, the article says.

The plaintiff in the Thompson Hine suit said her status as an income partner was “a meaningless title more akin to an albatross.”

The plaintiff in the Duane Morris suit said after her promotion to nonequity partner, her effective pay decreased. The suit alleged that Duane Morris withheld part of her compensation for a capital contribution and firm operating expenses and also required her to pay a share of partnership taxes owed to states in which the firm practices.

Neither Duane Morris nor Thompson Hine commented specifically on the allegations concerning nonequity partners when the suits were filed, although Duane Morris previously said it strongly disagreed with the plaintiff’s allegations.

The Duane Morris case has been transferred to the U.S. District Court for the Southern District of California. Duane Morris filed a motion to dismiss several claims in the case in August.

“In time,” the motion said, Duane Morris will demonstrate that the plaintiff “is a genuine partner whom the firm has always compensated and otherwise treated fairly and well within the bounds of the law.”

Thompson Hine filed a motion to dismiss in July. When the plaintiff’s 668-paragraph amended complaint is “stripped of all conclusory, argumentative and nonfactual allegations,” it fails to state plausible claims, the motion said.

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Criminal Justice

Ex-BigLaw partner hit with prison time, $4.2M restitution order in tax case

By Debra Cassens Weiss

October 18, 2024, 9:35 am CDT

A former partner at Husch Blackwell and Dykema Gossett has been sentenced to 16 months in federal prison after pleading guilty to two misdemeanors for failing to pay $2.46 million in taxes.

Eric E. Lenzen, 44, was sentenced to prison Tuesday and ordered to pay total restitution of $4.2 million to the Internal Revenue Service, according to an Oct. 16 judgment. The amount represents unpaid taxes plus penalties and interest.

U.S. Magistrate Judge William E. Duffin of the Eastern District of Wisconsin said during sentencing Lenzen’s conduct was “exceptionally aggravated,” and he tried to “thwart the government’s attempts to recover” the money, according to an Oct. 16 press release from the U.S. Department of Justice.

Reuters, Law360 and Bloomberg Law have coverage.

An Oct. 8 government sentencing memorandum said Lenzen was “a high-powered, highly compensated attorney” who “made a choice not to pay his taxes.” Despite being given years to pay up, Lenzen “made a multitude of false representations and took significant actions to avoid paying his taxes,” the memo said.

While refusing to pay his taxes, Lenzen spent nearly $1.5 million on a “lavish lifestyle” that included private planes, jewelry, home remodeling and golf club memberships, the government said. While making promises to pay, Lenzen transferred hundreds of thousands of dollars between accounts or to third parties, the memo asserted.

Lenzen’s crimes “were motivated by greed, not need,” the memo said.

Hunter Biden’s lawsuit over the public disclosure of his tax return information will move forward after a federal judge finds that the IRS might be liable for the actions of two whistleblowers’ lawyers.

As Law&Crime previously reported, Biden sued the IRS in September 2023, alleging that two agents, Gary Shapley and Joseph Ziegler, “completely disregarded their confidentiality obligations” and engaged in a “campaign to publicly smear” Biden through “unauthorized” disclosures of tax return information to media outlets, resulting in an “assault” on his privacy rights.

President Joe Biden’s son argued that Shapley and Ziegler directed their lawyers to publicly share Biden’s tax information, and were therefore subject to laws against disclosure.

The federal agency filed a motion to dismiss in February, arguing that Biden failed to show the agency’s alleged lack of “safeguards” to prevent two whistleblowers and their attorneys from disclosing his “confidential tax return information” in media interviews caused him to suffer “actual damages.” Lawyers for the IRS also argued that sovereign immunity protects the IRS against lawsuits over disclosures made by nonemployees of the federal government — in this case, lawyers for Shapley and Ziegler.