Last week, the first federal criminal trial related to syndicated conservation easement (“SCE”) deals began with impaneling the jury and opening statements. Each of the Fisher defendants on trial, Jack Fisher, James Sinnott, and Clayton Weibel, followed the government’s opening statement, which described an intricate scheme of “Lies and Deception” and presented an alternative explanation of the evidence to be presented to the jury.
Fisher’s Opening Statement
Fisher, who the government positioned in their opening statement as the “mastermind” of an alleged $1.3 billion fraudulent scheme, provided his opening statement first. Russ Ferguson, Fisher’s trial counsel, described to the jury Fisher’s rural upbringing in North Carolina and diligent study of accounting in school. In his early career, Fisher worked for the IRS and one of the “big four” accounting firms before starting his own firm. According to his counsel, Fisher began working on conservation easements to combat environmental harm in his home state while also benefitting taxpayers. Fisher’s impact conserving nearly 10,000 acres of land in perpetuity was highlighted in part by the display of “breathtaking” photographs of the land conserved.
One of Fisher’s main defenses focused on the fact that the tax deduction was created, authorized, and reviewed by Congress and until last year Congress made no attempts to revise or limit the availability of the deductions. Ferguson compared legislation authorizing charitable deductions for the donation of conservation easements to other types of legal “tax shelters” authorized by Congress, such as 401k accounts or child and family tax deductions. According to his lawyer, Fisher hired and claimed to rely on expert appraisers, including Claud Clark III whose appraisal prevailed in the influential Kiva Dunes case, and other professionals not for “mere optics” as the government asserted, but rather in a good faith effort to ensure that the deals were structured in compliance with the law. Fisher’s counsel argued that individuals were permitted to rely on the law as written, and that Fisher believed the IRS merely disagreed with the appraisals and the laws as written by Congress.
Notably, several of the professionals Fisher worked with have entered into plea agreements with the Department of Justice and earlier this year Clark entered into a civil settlement agreement with the government related to his work on appraisals of other conservation easements.
Fisher’s counsel also addressed the allegations that certain documents were backdated to allow investors to claim charitable deductions for investments made after the tax year had closed. The defense explained that backdating was “not always wrong” where, for example, there was a prior oral agreement, the number of documents affected were minimal, backdating was only done for internal accounting efforts, and the effort did not impact the SCE for tax purposes.
Sinnott’s Opening Statement
Counsel for Sinnott delivered many similar themes to Fisher’s counsel and emphasized that land donation requires giving up future development forever and determining the highest and best use of a donated property “in perpetuity.” His defense posed questions: (1) What kind of deductions are you entitled to for agreeing to never develop donated land, and (2) What value have you given up in doing so?
The defense went through examples of several properties with pictures, markups of development, hypothetical uses of the land, and criticisms of the government expert’s appraisals as used with the Hillside Holdings property example. For the Hillside Holdings property in Reno, Nevada, the U.S.’s expert appraiser said that the property was worth around a fraction of the purchase price (roughly $2 million) and most suited for an individual occupant buyer for personal use. The defense pointed out that this was essentially the exact appraisal given for multiple other properties by the government’s expert and argued the property was worth far more, as it was near “one of the fastest growing cities” in the country and about 30 minutes from Lake Tahoe. The defense argued that the materials created by professionals and relied upon by the defendants were not “mere optics,” but used to prove the worth of the land.
Sinnott’s defense concluded by saying that the “good news” in the case is that while the government expert reached a different calculation, the jury need not decide who did a correct appraisal. Rather, the defense asserts that the only question the jury need answer is whether the defendant was acting in good faith.
Weibel’s Opening Statement
Guinevere Moore delivered the opening statement for Weibel and reiterated the same points made by his co-defendants. The defense portrayed Weibel as a professional appraiser with 40 years of experience and defined appraisals as “essentially an opinion of value.” The defense indicated that Weibel expected his “opinions of value” would be seen by the IRS and if the IRS disagreed, he expected a civil trial similar to Kiva Dunes, which would find his value correct. The defense emphasized that even if the IRS disagreed with the appraisals, they were lawfully prepared.
Weibel counsel noted the evidence failed to show that the recording made by Sinnott stating everyone was “on board” did not include Weibel. The defense expressed that he never knew about or agreed to backdate or inflate appraisals and never received a benefit other than his “normal professional fee.” The defense asked the jury to consider: Does it make sense that professional with 40 years of experience would do this without any benefit other than a professional fee? They argued no because it never happened.
Polsinelli will continue to monitor this case closely to understand the impact on our professional and investor clients and provide additional updates as the trial progresses.