Judge Nominee Shelley Marcus Testifies Never Gave Tax Advice To Clients; Top UConn Tax Expert Says Payments In Trial Were Taxable

Professor Richard Pomp is one of the nation’s leading experts on tax law. Besides being a consultant to the IRS, U.S. Treasury, U.S. Department of Justice, and the World Bank, he has written a landmark book that has been translated in part into Chinese, Japanese, Vietnamese, German, and other languages.

When Pomp talks about taxes, people listen.

As a University of Connecticut law school professor, Pomp has been paying attention to an ongoing federal trial in Hartford on “gifting tables’’ in which the U.S. Attorney’s office is charging that the organizers ran a financial conspiracy and Ponzi scheme in which more than $5 million changed hands. Various testimony has shown that some people involved in the case contended that the transactions were gifts – and they contended that they were told by both lawyers and accountants that the arrangement was legal and not taxable.

Pomp is not involved in the case, but he said in an interview Monday that the law in tax cases should be crystal clear to any lawyer who has studied the subject. A Harvard Law School graduate, Pomp has been teaching for decades and said many of his students learn these principles during their first year of law school.

“We have a very specific definition with a Supreme Court decision right on point,’’ Pomp said in an interview. “If there is an anticipated benefit, then it is no longer a gift. … This is what all the courts have said. They are the hallmarks of a gift. It’s taxable. … Every law student who takes the basic tax course knows exactly what I just told you. I wouldn’t even use this scenario on an exam because it’s too obvious. No tax lawyer would give an opinion like that.’’

The trial involves two women who federal prosecutors say were the ringleaders in the case. The case has also focused on Shelley A. Marcus, a 61-year-old attorney who has been nominated by Gov. Dannel P. Malloy to be a Superior Court judge.

Marcus, a UConn law school graduate who is the daughter of former state Democratic Party chairman Edward Marcus, testified Monday that her family’s law firm never gave tax advice in the case. Under cross examination, she said she has been involved in very few criminal cases since graduating from law school and has focused her practice on civil law.

Stating that he is not a criminal lawyer, Pomp said it is important to know what the women were told about the tax implications.

“I’d love to see an opinion letter,” Pomp said. “Verbal agreements are worth no more than the paper they’re written on.’’

He added, “Every law student gets a unit on what constitutes a gift. It is part of every basic tax course. … If I’m a lawyer and you come to me, I’m going to do the research. Within three minutes, I should learn what I just told you. This is not rocket science. This is black letter law. This is standard doctrine.’’

“The most famous Supreme Court case is Commissioner vs. Duberstein,” he said. “It’s a 1960 case. The principles are settled law. … The principles are cut and dry.  It’s certainly a slam dunk on whether it is taxable or not.’’

When the attorney general’s office announced a civil settlement with five Connecticut women in October, both Attorney General George Jepsen and consumer protection commissioner William Rubenstein spoke strongly about the gifting tables.

“As with any pyramid scheme, these gifting tables are inherently deceptive,” Jepsen said at the time. “Representations are made about a potential for large sums of money that, as recruitment stalls, are unattainable. People lose thousands of dollars believing they will receive a windfall return that never materializes. Consumers should be aware that state and federal law prohibits these kinds of schemes, and any offer involving upfront money payments with promises of big profits that depend on recruiting others should be considered suspect.”

Rubenstein said, “These pyramid schemes resurface every few years in different forms, but they are always illegal. Any time you are not selling a product or service, but have to recruit new members into the scheme in order to get paid, it is an illegal pyramid. Simple math dictates that within a very short period of time, the number of new recruits who are needed in the scheme will outstrip the entire population of Connecticut, with nearly everyone but the original players losing everything. Beyond causing financial loss, these schemes are insidious because they require every recruit to perpetrate the scam on the next victim, and thereby commit fraud themselves.”

Five women agreed to forfeit various sums, ranging from $20,000 to $65,000, that were paid to the state’s general fund. The overall payments totaled more than $200,000.

On Friday, Malloy told reporters that he had no knowledge of Marcus’s role in the case, which was the subject of a front-page article earlier thiat day in The Hartford Courant. The story said that a witness testified Thursday in federal court that Marcus told a participant that she should not be concerned about an investigation by then-Attorney General Richard Blumenthal into the legality of the club. Federal prosecutors have described the club’s activities as a financial conspiracy and essentially a Ponzi scheme involving large amounts of cash, while the defendants said they were advised by lawyers and accountants that the club was legal. Overall, more than $5 million changed hands among more than 70 women, including many who lived in upscale towns like Guilford and Branford.

“It did not come up in her review before the [Judicial Selection Commission] that sent her, and it did not come up in her background search that they do,” Malloy told The Courant.

When asked by The Courant if he still has confidence in Marcus as his nominee for a judgeship, Malloy said, “Yeah. What I’m going to do is just wait until this whole thing is over, and we’ll take a look at it. There’s no reason to do anything at this point.”

All nominees for judgeships are asked a standard, catch-all question of whether there is anything in their background that might embarrass themselves or the administration if it became public.

“This did not come up,” Malloy said.

When asked by an online reporter if he should have been given a heads-up by Marcus on the catch-all question about any possible embarrassment, Malloy said, “Answering that, you know, my legal staff does all of the initial interviews and asks those kinds of questions. So, I don’t have an exact date, and so it would be difficult for me to tell you when exactly that question was asked and when this particular issue came up. So I don’t want to speak to that. But what’s happening is the trial is playing itself out. People say things in the course of trials. Let’s wait and see till it’s over.”