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October 26, 2006

Has this ever worked?

Step 1: Sell fraudulent certificates of deposit for $1.8 million.

Step 2: Set up a bank account in the name of an LLC in Florida for the money.

Step 3. Hire somebody to use the money to buy cashiers checks.

Step 4. Procede to blow hundreds of thousands of dollars on a girlfriend, a wedding, a honeymoon, and a Barrington, IL. lifestyle.

Step 5. Leave the money off your tax return.

Step 5 got Robert Wayne Hallock, an attorney from Barrington, Illinois, convicted this week on tax fraud charges in a bench trial held in Chicago. Mr. Hallock's defense attorney may have sensed he had a tough case. He submitted a trial memorandum with a section titled "A GOOD-FAITH BELIEF, EVEN IF CRAZY, NEGATES WILLFULNESS," which isn't the sort of argument that exudes confidence. From the trial memorandum:

Hallock honestly believed that the money which the Government claims Hallock should have reported as income was not income because Hallock was obligated to repay that amount plus over Two Million Dollars more. Hallock's obligation to repay arose, in part, under the applicable provisions of hte Univorm Commercial Code.

Hallock received money from the sale of certificates of deposit which Hallock believed were issued by Deutche Bank (the "Certificates"). Deutesche Bank dishonored the Certificates because they were fruadulent.

The memo explains that an indorser of a fraudulent instrument is obliged to repay the money; as Hallock felt he would have to repay someday, it wasn't really income. Never mind that he gave all that money to his girlfriend and her parents. Never mind the $100,000 honeymoon on the yacht. Never mind the funky bank account to hide the money. The spectre of someday having to repay the proceeds for the phony CDs haunted him, so he had a good faith belief that he had no income.

The judge didn't buy it. Now Mr. Hallock is a guest of the court system until his sentencing. If the judge goes along with the $325,000-$550,000 tax loss and other aggrivating factors in the indictment, Mr. Hallock hits offense level 21 in the 1997 federal sentencing guidelines. That means he might expect to enjoy the hospitality of the Bureau of Prisons for 37-46 months.

In presumably unrelated news, the TaxProf reports "Treasury Department Seeks to Hire Ethics Attorney." In any case, Mr. Hallock is unavailable for now.


Department of Justice Press Release
WebCPA coverage
Chicago Tribune coverage
Hallock Draft Jury Instructions

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