Biglaw, Crime, Partner Issues, Tax Law, Weirdness, White-Collar Crime

Mystery Departure Solved: Ex-Kirkland Partner Hit With Federal Criminal Charges

Last fall, we wrote about prominent bankruptcy lawyer Ted Freedman's unexplained departure from Kirkland & Ellis. Now we learn that he has been indicted on federal tax-fraud charges, for allegedly hiding millions in income.

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Last October, we wrote about the mysterious departure from Kirkland & Ellis of Theodore Freedman. Freedman was a prominent bankruptcy and restructuring partner at the firm, based out of the New York office.

As we mentioned in the story, our coverage of Freedman’s departure was prompted by “interesting rumors.” We hoped that our post would result in additional corroboration of what we were hearing. Alas, our write-up just prompted the usual attacks from Kirkland Kool-Aid drinkers, who accused us in the comments of harboring ill-will toward K&E and engaging in shoddy journalism.

Well, this time we’ll enjoy the last laugh (not because we have anything against K&E — we don’t — but because we like being proven correct). We can share what we know about Ted Freedman, because the rumors are now embodied in a federal criminal indictment….

Here’s the report, from Thomson Reuters:

A former Kirkland & Ellis partner was indicted on federal tax-fraud charges for allegedly hiding $2.1 million of income he earned from the law firm, one of the nation’s largest.

According to an indictment released on Thursday, Theodore Freedman understated his income and falsely claimed expenses from 2001 to 2004, enabling him to avoid $1.01 million of federal income taxes.

It’s an interesting allegation. Partners at K&E — at least equity or “share” partners, as opposed to “non-share” partners — earn buckets of cash. Would one of them really risk criminal liability in order to save an extra million?

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Freedman also falsely claimed on tax forms that he ran a solo legal practice, the indictment said. In three of those years, he said the practice was in Dutchess County in upstate New York, while in 2003 he said it was located at his law firm’s Manhattan address, the indictment said.

This also seems odd. Perhaps there is some explanation related to the structure of the Kirkland partnership? I’m not a tax lawyer, so I will not speculate further.

Here are additional numbers about the scale of the alleged fraud, via the WSJ Law Blog:

Federal prosecutors alleged that Freedman earned about $5.39 million between 2001 and 2004 at Kirkland, but only reported $3.29 million in partnership revenue and falsely claimed expenses of $548,726 as a sole proprietor.

Freedman’s been charged with four counts of filing false individual income tax returns. He faces up to three years in prison on each count.

Yikes. K&E can be a bit of a sweatshop sometimes, but prison is even less fun.

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Kirkland was characteristically tight-lipped about the matter. “We understand that the federal indictment relates exclusively to Mr. Freedman’s personal conduct,” said a firm spokeswoman. “Accordingly, the firm will not comment on the matter.”

U.S. Attorney Preet Bharara was more forthcoming. Bharara described Ted Freedman as “an accomplished and well-compensated attorney [who] abdicated his legal and ethical responsibilities by cheating on his taxes.”

We will keep you posted on what happens in Freedman’s criminal case. If you have a mysterious partner departure that you’d like to report, or information about prior mystery departures — e.g., these two unsolved mysteries (see the “P.S.”), involving Sullivan & Cromwell and Davis Polk — please feel free to email us or text us. Thanks.

UPDATE (3:25 PM): Here’s more about Ted Freedman — specifically, his real estate holdings — from the New York Post (via ABA Journal):

Freedman… until recently owned a $1.4 million home in Dutchess County and $1 million-plus Lincoln Center apartment…. According to public records, Freedman recently transferred his Pine Plains, NY home to his wife, and his Manhattan apartment was transferred to a California trust.

UPDATE (9/18/2013, 1:45 PM): Theodore Freedman has been sentenced to a year in prison.

Ex-Kirkland & Ellis partner charged with tax fraud [Thomson Reuters News & Insight]
Ex-Kirkland Partner Charged With Underreporting Taxes [WSJ Law Blog]
Ex-Kirkland Partner Indicted on Income Tax Charges [New York Law Journal]

Earlier: Musical Chairs: Is Ted Freedman Out at Kirkland?

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