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Many Motions, Little Movement in Auffenberg Pretrial Hearing

Jan. 17, 2008 — There was a flurry of motions but little movement Thursday in U.S. District Court on St. Croix as Judge Raymond L. Finch heard a laundry list of defense and prosecution motions in the case of James A. Auffenberg Jr. and three other men charged with evading federal taxes by misusing the V.I. Economic Development Commission program.
The U.S. Department of Justice is charging that the four men illegally claimed a 90 percent federal tax break on more than $300 million funneled through the St. Croix-based company Kapok Management, L.P. It alleges that Auffenberg, a prominent car dealer in Swansea, Ill., illegally avoided more than $74 million in taxes from 1999 to 2002 by joining Kapok as a partner and shipping money to Kapok, run by Peter G. Fagan of De Leon, Texas; James W. Ferguson III of Amarillo, Texas; and J. David Jackson of St. Croix. All four have pleaded innocent.
The four were charged in Illinois on March 23, 2007, but the case was moved to Virgin Islands District Court at the request of Jackson's attorneys in August on the grounds that Jackson lives here and the case is about activities involving a V.I. program and residents.
Only the judge, attorneys and court staff were present at Thursday's hearing; there were no defendants or spectators beyond a small press presence. Fighting to lay the groundwork for the upcoming trial, defense attorneys presented motions to force the IRS to turn over audits and other documents to the defense. The IRS, for its part, has claimed many of these documents are exempt from discovery — the legal obligation to provide the defense with all information that might that might aid their defense — because they are work product and internal deliberations, and because of confidentiality concerns with tax records. The IRS attorneys said they must guard against letting confidential information become public.
"We've logged over 1,300 hours going through these records to clear 15,000 documents for the defense," said U.S. Attorney Michael J. Quinley. He later said they were not trying to hide anything and would provide some of the documents or all of the documents as the judge chose.
The case is closely being followed by Virgin Islands government officials, companies with current EDC benefits and business advisors stateside because of its potential impact on the EDC program and potential for federal prosecution for companies that stretch the program's rules.
The EDC confers very substantial tax benefits on businesses that open in the Virgin Islands, reducing most taxes to zero. In exchange, individuals and companies must commit $100,000 of capital, employ 10 local residents, buy goods and services from local suppliers and promise to make charitable donations. They must also establish residency, and are advised to buy or lease a house and car, obtain a local driver's license and join local clubs, among other things.
Trial is scheduled to begin in June.
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