Paul L. Caron

Thursday, November 19, 2015

NY Court: Ethics Rules Bar Whistleblower Suit By Former Vanguard Tax Lawyer Alleging Mutual Fund Giant Evaded $1 Billion in Taxes

VanguardFollowing up on my previous posts (links below): Philadelphia Inquirer, Danon Barred From Whistleblower's Cut in Vanguard NY Case:

A New York State Supreme Court justice has ruled that a former Vanguard Group tax lawyer cannot expect to collect a whistleblower's cut of potential back state taxes owed by the mutual-fund giant because he was employed by Vanguard at the time he secretly filed the complaint.

David Danon's state whistleblower complaint, filed in 2013 and made public a year later, "must be dismissed" and cannot be re-filed because Danon violated New York State legal-ethics rules when he and his lawyers brought the suit while he was still working at Vanguard and "in a position to obtain confidential information" against his employer, State Supreme Court Justice Joan Madden wrote in her opinion, dated Nov. 13. ...

In the opinion, Madden added that she was not ruling on the merits of Danon's complaint that Vanguard had systematically underpaid its federal and state income taxes since its founding in the 1970s, saying a state court decision on those merits "would require an intense factual inquiry that cannot be determined based on the record before the court."

Madden also wrote that her order dismissing the New York whistleblower case does not stop New York tax authorities from pursuing potential claims following Danon's "allegations regarding Vanguard's tax prices and filings."

However, she reiterated that Danon, as "Vanguard's prior in-house counsel for tax matters, may not proceed with, nor profit from, any disclosure of confidential information" connected to the case "in violation of New York State attorney ethics rules." He and his lawyer are barred from filing another New York whistleblower case based on the case and its facts.

See also Law360, Vanguard Tax Fraud Suit Axed Over Attorney Ethics Breach

(Hat Tip:  Dale W Spradling.)  Prior TaxProf Blog coverage:

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