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Ex-Sullivan & Cromwell Partner Failed To Pay Taxes on Millions

John J. O'Brien

Remember John J. O’Brien? Back in April 2009, we wrote about the mysterious departure of John O’Brien from Sullivan & Cromwell, where he was a well-regarded and well-liked partner in the M&A department. In a follow-up post in December 2009, we noted : “When partners leave a place like Sullivan & Cromwell, there’s often a story behind the departure.”

In our December 2009 post, we reported that John O’Brien “left Sullivan & Cromwell due to an issue relating to his taxes.” We added that the problem was personal, i.e., that it did not implicate S&C or any of its clients (unlike the fraud of another former SullCrom partner, Carlos Spinelli-Noseda, who defrauded the firm and its clients of more than $500K).

Some readers pushed back on this reporting. They claimed that John O’Brien left voluntarily and for perfectly innocent reasons. They told us to leave O’Brien alone. They accused us of harboring ill-will towards Sullivan & Cromwell (even though, to be honest, large law firms are somewhat interchangeable for us here at ATL; they’re all just potential sources of news to write about).

In light of all the flak we took for our John O’Brien coverage — similar to the criticism we received for covering Theodore Freedman’s departure from Kirkland & Ellis, a few months before Freedman got indicted by the feds — please forgive us for gloating a little. (This gloating is directed at our critics, not at John O’Brien; we have nothing against O’Brien and wish him the best of luck in moving on with his life.)

Today brings news that John J. O’Brien has been hit with federal criminal charges. Like Ted Freedman, John O’Brien has been hit with tax-related charges. But the numbers involved are larger — a lot larger….

UPDATE (7 PM): O’Brien pleaded guilty. See the update appended to the end of this post.

Here’s a report from Chad Bray, over at the WSJ Law Blog:

John J. O’Brien, who specialized in corporate mergers and acquisitions at “a major Wall Street law firm,” was charged Thursday with four misdemeanor tax counts by federal prosecutors in Manhattan, including willful failure to file federal income tax returns. He allegedly left the firm, which isn’t named in court documents, in [the spring of] 2009….

According to court documents, O’Brien failed to file income-tax returns for tax years 2001 to 2008 on more than $10 million in income, instead using the unreported partnership income for personal expenses, including buying a weekend home, international travel and funding a rare books business.

Ten million bucks — actually, it’s closer to $11 million — is quite a tidy sum. As you may recall, the charges against Ted Freedman involve an alleged failure to declare about $2 million in income.

According to the New York Law Journal’s report on John O’Brien, the former Wall Street dealmaker may have reached a deal of his own, with prosecutors:

Former Sullivan & Cromwell partner John J. O’Brien is expected to plead guilty today to failing to pay more than $2.5 million in personal income taxes on profits he earned at the firm.

Mr. O’Brien, a mergers and acquisitions specialist who left the firm in 2009, was set to appear before Southern District Magistrate Judge Henry B. Pitman. A criminal information released today charges Mr. O’Brien with two counts of willful failure to file individual income tax returns on $10,799,351 in partnership income between 2001 and 2008 and two counts of willful failure to pay taxes, all misdemeanors.

Even though we’ve covered countless stories like this, we’re still always puzzled by allegations of highly-paid partners risking it all just to keep a little bit more. As we wrote in one of our prior posts about John O’Brien:

[It] seems odd for a corporate — er, “general practice” — partner at S&C to get in trouble over a tax matter. First, and most obviously, one would expect a corporate partner at a top-tier firm to know a lot about — and follow — the law. Second, Biglaw partners usually receive a great deal of assistance in preparing their tax returns from the administrative / accounting staff at their firms (especially since they must file in all jurisdictions where the partnership does business).

In any event, we will keep you posted. If John O’Brien does in fact plead guilty today, as the NYLJ predicts, we will update this post.

UPDATE (7 PM): O’Brien pleaded guilty, as reported by the New York Law Journal:

Former Sullivan & Cromwell partner John J. O’Brien admitted [this afternoon] to failing to pay more than $2.8 million in personal income taxes on profits he earned at the firm.

Mr. O’Brien, 48, a mergers and acquisitions specialist who left the firm in 2009, pleaded guilty to four misdemeanors before Southern District Magistrate Judge Henry B. Pitman, conceding he failed to pay taxes in 2005 and 2007, and failed to file income tax returns in 2004 and 2006.

Mr. O’Brien’s voice shook as he allocuted for the court and said, “I plead guilty, your honor.”

Magistrate Judge Pitman said yesterday that Mr. O’Brien’s range under the advisory U.S. Sentencing Guidelines is three years and one month to three years and 10 months. Mr. O’Brien is scheduled to be sentenced on Nov. 16.

P.S. You can check out John O’Brien’s impressive résumé — featuring all the right schools, and some major transactions — in his cached S&C bio, reprinted on the next page (or click here).

Ex-M&A Lawyer Charged With Failing To Pay Taxes [WSJ Law Blog]
Ex-Sullivan & Cromwell Partner to Plead Guilty to Tax Evasion [New York Law Journal]

Earlier: Why Did John O’Brien Leave Sullivan & Cromwell?
Another Sullivan & Cromwell Partner Has Left the Building

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