Merger Brings Enormous Headaches for Sidley

Sidley & Austin, one of the largest and oldest law firms in Chicago, is finding that Brown & Wood, the partner it acquired in a 2001 merger, brought a lot of baggage. Dallas lawyer David Deary told the Chicago Sun-Times he expects to bring more than 20 suits against the combined firm within six months.

The suits and a federal investigation arose from tax shelters sold by former Brown & Wood partner Raymond Ruble, which he claimed, would offset capital gains and reduce tax bills significantly. That was until the IRS declared the shelter invalid.

"They marketed, sold and implemented tax strategies that they knew were invalid, or should have known were invalid based on the IRS' positions," Deary told the Sun-Times.

Sidley spokesman Paul Verbinnen told the Sun-Times that the "cases have no merit, and we are not going to comment." The combined entity of Sidley Austin Brown & Wood ranked No. 5 among U.S. law firms, bringing in gross revenues of $831 million in 2002, according to American Lawyer magazine.

Last month, the Dallas-based firm of Jenkens & Gilchrist, which worked on some deals with Sidley, paid a $75 million to settle one of Deary’s lawsuits.

Deary has filed suit against Sidley on behalf of tax shelter clients in Florida, California and other states. Last October, the IRS served Sidley with a "John Doe" summons to compel the firm to name the clients who participated in the tax shelter, the Sun-Times reported. The firm fired Ruble after he pled the Fifth before a Senate subcommittee looking into the matter. Thomas Smith, Sidley's New York-based vice chairman, was also called to testify before the subcommittee.

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