SCOTUSblog Founder Tom Goldstein Trial: Week 1

Jury selection. Opening statements. It’s week one in the federal tax evasion trial of Tom Goldstein, superstar Supreme Court advocate and founder of SCOTUSblog. The case is high-stakes, and not just in poker terms.

What are the top takeaways from this week’s proceedings? More below the fold.

Slimmed-down charges. On Monday, Judge Lydia Kay Griggsby granted the government’s motion “to dismiss, with prejudice, three tax evasion counts, two counts of aiding and abetting in the preparation of a false tax return, and one count of failure to timely pay taxes.” In December, Griggsby dismissed a count involving “sham jobs at [Goldstein’s] law firm for women with whom he was romantically involved.”

The sixteen remaining counts, of course, contain plenty of salacious intrigue. As George Washington law professor JP Collins put it, “Fraud, tax evasion, high stakes gambling, mistresses in the workplace—if a network put out a TV show with a character doing what Goldstein was alleged to have done, it would never get past the pilot (episode) because no one would believe it.”

Professional advice defense. Opening statements previewed the prominent role that Goldstein’s accountants—and their professional advice—will play in his defense. According to Goldstein attorney Stephany Reaves, “Mr. Goldstein did his best in good faith to give his accountant the information he asked for, but it turns out the accountant didn’t ask the right questions.” It’s worth watching how both sides juxtapose Goldstein’s legal and business sophistication with the complexity of his gambling activities.

And there’s already some evidence of Goldstein’s awareness of tax law. Early testimony indicates that Goldstein may have advised a gambling neophyte to claim professional status and use foreign accounts for money transactions. Goldstein apparently gave this advice—which ultimately was not pursued—in response to questions about using gambling losses to reduce federal tax burdens.

Cash flow and loss substantiation. Both sides have a big task in educating jurors about tax law and the economics of Goldstein’s gambling activities. Investors may have staked Goldstein, at least some of the time. And losers may have paid winners, and winners may have paid investors, over time, idiosyncratically, and through intermediaries. If either side plans a deep dive into methods of accounting, the jurors may need a few extra cups of coffee.

This cash flow story is complicated further by tax law. There are a lot of technical issues in the taxation of gambling, including taxpayers’ obligations to substantiate any losses. Gambling tends to involve a lot of gross, with very little net, and Goldstein’s attorneys have indicated that he lost “almost all the time,” notwithstanding some multimillion dollar wins. The role of substantiation, as well as Goldstein’s true financial circumstances as they evolved over time, are issues to watch as the trial unfolds.

Celebrity witnesses. The government floated comedian Kevin Hart, former Spider-Man Tobey Maguire, and Supreme Court insider Jeffrey Toobin as potential witnesses. Goldstein’s indictment refers to an actor who retained Goldstein to recover a $15 million gambling debt (unsurprisingly, poker-related) then was told to transfer Goldstein’s $500,000 legal fee directly to a third party to pay down a gambling debt owed by Goldstein (again, poker-related). Maguire, apparently, is this actor.

False statement allegations. As seems to be the fashion, Goldstein is charged with making false statements on a loan application, as well as counts related to tax evasion, the preparation of inappropriate tax returns, and willful failure to pay tax. The false statement charges “carry the heftiest potential sentences” and “may be an easier lift for the prosecution.”

Will Goldstein testify? Presumably not, but it would be a showstopper. As both sides work to show what Goldstein knew, when he knew it, and what he told (or failed to tell) his professional advisors, that strategic question will carry substantial import.

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