Law Bulletin | ra Information NetworkIN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS . COUNTY DEPARTMENT - LAW DIVISION jo: Stobie Creek Investments, LLC, on behalf of itself and its members, Plaintiffs, ‘Case No. v. ) ) ) ) ) ) ) ) Jury Trial Demanded Deutsche Bank AG, Deutsche Bank) Securities, Inc., d/b/a Deutsche Bank) Alex. Brown, DB Alex Brown, LLC, ) and David Parse, ) ) ) Defendants. COMPLAINT Plaintiffs Stobie Creek Investments, LLC, and its members, Georgia E. Welles, David K. Welles Jr, Jeff F. Welles, Christopher S. Welles, Peter C. Welles, and Virginia W. Jordan (collectively, “Stobie Creek” or the Welles), complains against Deutsche Bank AG ("Deutsche Bank AG”), Deutsche Bank Securities, Inc. d/b/a Deutsche Bank Alex, Brown ("DBSI”), DB Alex Brown, LLC (collectively “Deutsche Bank”), and Deutsche Bank executive David Parse (“Parse”), as follows:NATURE OF THE CASE 1. Deutsche Bank, with co-conspirator Jenkens & Gilchrist, P.C. ("Jenkens”), perpetrated a massive tax fraud on hundreds of trusting clients, including Stobie Creek, by pushing a supposed loophole in the tax code they knew would not withstand IRS scrutiny, for the sole purpose of enriching themselves with unconscionable fees, and without regard to the monetary and reputational damage their conduct would cause clients. Federal criminal indictments of these professionals including counts for conspiracy, tax fraud, and mail fraud have followed, which resulted in guilty pleas soon thereafter, Defendant David Parse and another Deutsche Bank executive face a February 2011 criminal trial where their colleagues and co-conspirators will testify against them. 2. Deutsche Bank principal David Parse played an essential role in marketing and selling the illegal shelter to Stobie Creek, and then implementing the shelter. Parse counseled and advised Jeff Welles and other Stobie Creek representatives that the trading and other financial machinations underlying the Son of BOSS tax shelter were valid and legitimate, and had a realistic possibility for economic gain. In fact, Deutsche Bank knew that, in light of the excessive fees charged by Deutsche Bank and its co-conspirators, profit by Stobie Creek was impossible. For convincing Stobie Creek to participate in this illegal tax shelter,Deutsche Bank charged Stobie Creek more than $2 million in excessive option “premiums,” of which Parse received a $400,000 bonus. 3. Unbeknownst to Stobie Creek, Deutsche Bank had specifically designed the digital options to create the least amount of risk/cost fo the Bank and the least potential for payout to the client while extorting the maximum conceivable fee. That Deutsche Bank priced the option premiums it sold to Stobie Creek at more than 200% greater than the market rate (and at a price inconsistent with the Bank's own internal theoretical pricing model), is itself damaging evidence that Deutsche Bank knowingly participated in Jenkens’ scheme to sell Stobie Creek an illegal tax shelter. 4. By virtue of a prior working relationship, Parse knew that Jeff Welles placed faith and trust in Parse and, therefore, Deutsche Bank. In conversations with Jeff Welles (and Stobie Creek's advisors), Parse meticulously detailed how the complicated trading to be performed by Deutsche Bank, and upon which the tax shelter relied, could result in purportedly real economic activity. Parse’s statements and recommendations were deceptive, misleading or at least reckless, and designed to induce and did induce, Stobie Creek to participate in the tax shelter. Deutsche Bank paid Parse a bonus of over $400,000 solely for his role in selling Stobie Creek to participate in the Son of BOSS strategy, and over $3 million in commissions on Son of BOSS trades for the first eleven months of 2000.5. Deutsche Bank also drafted and circulated to Stobie Creek documents essential to implementing the Son of BOSS tax shelter, including documents evidencing that Deutsche Bank was party to an agreement in which the shelter was effectuated. Deutsche Bank also sent Stobie Creek account statements, trade confirmations, corporate resolutions, IRS tax forms, and draft transmittals to implement the financial machinations underlying the shelter, all of which Deutsche Bank knew created the appearance to Stobie Creek of legitimate economic activity, even though Deutsche Bank knew there was none. 6. A 2005 US, Senate Subcommittee Report found that the tax shelters could not have been executed without the active and willing participation of major banks like Deutsche Bank. Specifically, the report found that Deutsche Bank and other banks “provided billions of dollars in lending critical to transactions which the banks knew were tax motivated, involved little or no credit risk, and facilitated potentially abusive or illegal tax shelters.” Senate Perm’t Subcomm. on Investigations Report entitled “The Role of Professional Firms in the US. Tax Shelter Industry” (Feb. 8, 2005). 7. The transactions Deutsche Bank encouraged Stobie Creek to execute were nothing more than an illegitimate tax shelter, which were developed and implemented by Jenkens and Deutsche Bank for the sole purpose of generating fees. In direct contravention of established rules, regulations and laws governing tax shelters, the shelter involved the establishment of entities toengage in transactions that were economically valueless, Deutsche Bank and in particular David Parse, Craig Brubaker, and others at Deutsche Bank knew that because of well-established legal doctrine disallowing the recognition of losses from transactions that lacked “economic substance,” the tax shelter would not withstand an IRS audit. Asa result, when the Welleses were audited, the IRS. determined that Stobie Creek had entered into illegal tax shelters, 8 In June 2009, Deutsche Bank executives Parse and Brubaker, Jenkens partners Daugerdas, Guerin, and Mayer, and a number of BDO accounting professionals with whom Deutsche Bank conspired on other Son of BOSS shelters were indicted by the United States Attorney for the Southern District of New York for conspiracy to commit tax fraud and other federal crimes in connection with their roles in creating, marketing, and implementing tax shelter schemes, including the Son of BOSS transaction into which Stobie Creek was placed. See USA v. Daugerdas, et al., Case No 09cr581, Docket No. 81. At least five of the ringleaders indicted for their roles in creating the Son of BOSS tax shelters have now pled guilty, and numerous professionals who marketed and sold other, similar options trading tax shelters have pled guilty or been convicted. 9. Just four weeks ago, Jenkens partner Erwin Mayer, who was one of the principal architects of the Son of BOSS tax shelter, pled guilty to conspiring with Deutsche Bank executives Parse and Brubaker to commit tax fraud,disgorging in excess of $10 million in fees, and will now be a cooperating witness against his former partners and Deutsche Bank executives at trial. Among other things, Mayer admitted that he and others with whom he conspired knew the tax shelter Jenkens sold Stobie Creek would not pass IRS scrutiny. See Erwin Mayer Plea Allocution, attached as Ex. A, at pps. 19-20, 10. _Stobie Creek reasonably relied on the advice and actions of Deutsche Bank, one of the most well respected investment banks in the world, as well as Deutsche Bank's co-conspirators, when it agreed to participate in the Son of BOSS strategy. After Stobie Creek was audited by the IRS and was served with a notice of deficiency, Stobie Creek, based in part on Deutsche Bank's and Parse’s prior representations of economic substance, initiated tax court litigation against the IRS in an attempt to defend the legitimacy of the shelter recommended by defendants. 11. _ In depositions in Stobie Creek's tax court litigation, defendant Parse, four other Deutsche Bank executives and three co-conspirators from Jenkens all asserted Fifth Amendment privileges in response to all deposition questioning concerning the advice they provided to Stobie Creek, and concerning development, marketing, and implementation of the Son of BOSS strategy generally. Further, intemal communications between Deutsche Bank and their co-conspirators ~of which Stobie Creek was unaware - were among the most damaging evidence against Stobie Creek. According to the Court of