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Jamie Auffenberg is acquitted of tax charges
[March 05, 2009]

Jamie Auffenberg is acquitted of tax charges


(St. Louis Post-Dispatch Via Acquire Media NewsEdge) Mar. 5--After a nearly two-month trial in the U.S. Virgin Islands, car dealer Jamie Auffenberg was acquitted Wednesday of all of the conspiracy, tax evasion and fraud charges that he had been facing since his 2007 indictment.



Defense lawyers said it was a big victory for Auffenberg in a major tax case and represents a significant blow to the federal government, which reportedly spent millions on the case.

"It was just a wonderful victory for Jamie Auffenberg and, I guess, for the individual citizen against the might of the federal government," said Clyde Kuehn, one of Auffenberg's lawyers.


In addition to the possibility of criminal penalties, a conviction would have put Auffenberg's 14 area car dealerships at risk because of franchise rules against felons.

One of the central questions in the case was whether Auffenberg's legal residence was in Swansea or an island condo. He claimed tax credits based on a federal program to promote the economy in the Virgin Islands that requires residency there.

Defense lawyers say that a conviction would have strengthened prosecutors' hands against some of the almost 80 other individuals and hundreds of their associated businesses involved in the same tax shelter as Auffenberg. Most have not been charged.

"I imagine that around the country, people are dancing," said Kuehn's son and law partner, Justin Kuehn.

Auffenberg, three other men and five companies were originally indicted in federal court in East St. Louis in July 2007. The case was transferred to the U.S. Virgin Islands because most of the witnesses and most of what was at issue occurred there.

Auffenberg and others were accused of funneling more than $300 million through a management consulting business called Kapok since 1999 in an effort to dodge $74 million in taxes by pretending to be Kapok employees and island residents. Auffenberg sent $11 million to Kapok one year, and got almost 95 percent of that back from Kapok, according to the indictment in the case.

The indictment alleged that two men set up the "scheme": a physician, Peter G. Fagan of DeLeon, Texas, and a certified public accountant, James W. Ferguson III of Amarillo, Texas. A certified public accountant, J. David Jackson of St. Croix, helped carry out the deal, according to the indictment.

Prosecutors called it a sham and said that many of the partners, including Auffenberg, never really lived in the islands.

All of the defendants were acquitted.

The government can still bring civil claims against Auffenberg and the others.

Prosecutors declined to comment, other than to confirm the verdict and say that any decision on prosecuting other partners would come "from the tax division in Washington." An IRS spokeswoman said that her office could not comment until the prosecutors "returned to the mainland." Auffenberg, of Swansea, and his lawyers have contended since his indictment that he had checked with multiple tax experts, who had all blessed Kapok as legitimate.

Lawyer Clyde Kuehn said that in order to prove most of the counts against Auffenberg, prosecutors had to prove "that he knew that Kapok was an illegal tax evasion scheme and that he went forward with it anyway." He trusted his experts, Kuehn said, "and did not have any criminal intent." Lee Rohn, an Auffenberg lawyer based in the Virgin Islands, said jurors approached her after the trial to say that prosecutors "put on a case that was way too long -- 5 1/2 weeks -- and way too detailed and way too irrelevant." Rohn said the trial hinged on the residency of the Kapok partners, but there was a great deal of confusion about what the residency rules actually were.

She also said the trial may have tapped into islanders' "love-hate" relationship with the mainland and the federal government, and said the verdict may have represented jurors' beliefs that "this was the federal government as usual trying to be colonialist over the Virgin Islands." Rhea, who represented Kapok CFO David Jackson, said, "What we pointed out (in court) was that Kapok was part of a government-approved and government-instigated and structured tax incentive program designed to do exactly what it did" -- drive business to the U.S. Virgin Islands.

The case was not without its twists and turns. An undercover IRS agent posed as a wealthy mainlander, making surreptitious recordings of Kapok employees and Auffenberg.

Later, one juror approached the defense team and offered to help them out. That juror was dismissed. Details were scarce because the trial judge issued a gag order about the incident.

Lawyer Judy Cates said that she had advised Auffenberg not to comment. In a prepared statement released by his lawyers, he said, "My faith in the system has been confirmed. I am so happy to close this difficult chapter in my life. I am grateful for all who supported me." [email protected] -- 314-621-5154 To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com.

Copyright (c) 2009, St. Louis Post-Dispatch Distributed by McClatchy-Tribune Information Services.

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