By Hailey Konnath

Law360 (May 1, 2020, 10:40 PM EDT ) A New York federal judge on Friday rejected a compassionate release bid from an ex-Jenkens & Gilchrist PC lawyer imprisoned for orchestrating a $7 billion tax fraud scheme, ruling that freeing him would be "unjust" but recommending that he be temporarily released until the pandemic abates.

Paul Daugerdas, 69, asked the judge last month to permit him to serve the remainder of his sentence under home confinement or to reduce his imprisonment to time served, arguing his age, diabetes and other health issues make him more susceptible to the effects of the novel coronavirus.

But prosecutors argued that Daugerdas would actually be safer in his southern Illinois prison than in his Chicago suburban home, adding that he also hadn't exhausted his administrative remedies to pursue his release. In response, Daugerdas conceded that he hadn't exhausted those remedies, but maintained that he would be safer if released.

U.S. District Judge William H. Pauley III said Friday that the pandemic combined with Daugerdas' medical conditions and age may indeed constitute "extraordinary and compelling reasons" for release. However, the judge noted that his criminal conduct "was in a class of its own."

"While this court is cognizant of Daugerdas' need for medical care, that need alone is insufficient to warrant compassionate release, especially given the severity and duration of his criminal conduct," Judge Pauley said.

At the same time, judge acknowledged that reducing prison population is crucial to reducing the death toll among inmates, and said Daugerdas is fit for temporary release from prison until the pandemic lets up.

The catch, the judge said, is that the court lacks the authority to grant Daugerdas temporary release — that authority lies with the Federal Bureau of Prisons.

"Consequently, this court strongly urges the BOP to consider Daugerdas for furlough ... in light of the COVID-19 crisis, his age, and underlying medical conditions until such time as the crisis abates," he said.

Daugerdas, the former head of Jenkens & Gilchrist's Chicago office, was accused of creating and implementing four tax shelters for wealthy clients that resulted in more than $7 billion worth of fraudulent tax deductions or benefits. He personally raked in $95 million from the scheme, according to prosecutors.

In 2013, Daugerdas was convicted on conspiracy, tax evasion, impeding Internal Revenue laws and mail fraud charges, and he's been incarcerated since 2014. At his sentencing, Judge Pauley said Daugerdas would be remembered as "the architect of the greatest tax fraud in U.S. history."

Daugerdas was one of several individuals ensnared in a wide-ranging tax evasion investigation focused on Jenkens & Gilchrist, a once-proud Texas law firm that was forced to shut its doors in 2007 following a nonprosecution deal with the government. Others charged in the fraud included former Jenkens lawyers Donna Guerin and Erwin Mayer, and several former partners at accounting firm BDO Seidman LLP.

Last month, Daugerdas requested his release, proposing that his wife could help keep him safe. But prosecutors countered that his low-security prison has no active coronavirus cases. His release would send him into an area with numerous COVID-19 cases, alongside his wife, who works as a nurse at a hospital treating coronavirus patients, they said.

Daugerdas urged the judge last week to reject the government's opposition, arguing new studies showed widespread infection rates among prisoners even if many are asymptomatic.

Henry Mazurek, counsel for Daugerdas, told Law360 on Friday that he's pleased the court made "a forceful judicial recommendation" that the BOP grant his client a furlough. 

"We will continue to work with prison officials to ensure Mr. Daugerdas' personal safety," he said. "At this time, as a society, we should work hard to protect all of our citizens, including the incarcerated, to show the compassion and mercy that makes us a just society."

The U.S. Department of Justice declined to comment Friday.

The government is represented by Stanley J. Okula Jr. of the U.S. Attorney's Office for the Southern District of New York.

Daugerdas is represented by Henry E. Mazurek and Ilana Haramati of Meister Seelig & Fein LLP.

The case is U.S. v. Daugerdas et al., case number 1:09-cr-00581, in the U.S. District Court for the Southern District of New York.

--Additional reporting by Craig Clough and Kevin Penton. Editing by Breda Lund.

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