Paul Stockler, one of Alaska's most prominent defense lawyers, soon will face a judge to find out if he will go to prison himself for his failure to pay income taxes over three years.
Alaska lawyers and clients are coming forward to urge mercy for Stockler, a former prosecutor and longtime Anchorage lawyer. They say they know him as a man good to his word who often represents people for free if they can't afford an attorney. His lawyer is fighting to keep him out of jail.
But a federal prosecution team based in Washington, D.C., says Stockler was motivated by greed when he decided not to pay his taxes for 2006, 2008 and 2009 — back taxes that amount to $886,058. They want him to not only pay what he owes and a $10,000 fine but also serve two years in prison.
In effect, prosecutors say, Stockler stole hundreds of thousands of dollars from U.S. taxpayers.
"If this defendant were released and simply ordered to pay back what he stole over time, the message to his co-workers, his neighbors, and honest taxpayers everywhere is 'Cheat!' " prosecutors wrote in their sentencing memorandum for Stockler. "The general public would realize that if you are caught violating the tax laws, which is somewhat unlikely, and prosecuted, which is more unlikely, there is no real punishment."
Stockler, 54, pleaded guilty in 2014 to three misdemeanor counts of willful failure to file a tax return and is awaiting sentencing.
His money troubles, he said in court filings, stem largely from big losses in day-trading stocks in 2005 and 2006. He was trading in part with money he was holding for Mark Avery, a man convicted this week of 11 felonies in a federal fraud case.
In 2006, after Avery spent all the millions he was found to have obtained illegally, he and partner Rob Kane began selling aircraft at fire sale prices. They stashed the money — more than $8 million — in Stockler's financial accounts, according to testimony in Avery's trial. Prosecutors said they were trying to hide it rather then return it to the widow's trust that owned it, the May Smith Trust.
Neither Stockler nor his attorney in the tax case, Marcus Topel of San Francisco, responded to requests for comment.
Stockler's connection to Avery and Kane began in another federal case, in which Kane was charged with federal weapons violations. Stockler led the defense team and won acquittal on all counts. Kane wanted to reward him handsomely, according to court filings after Avery landed in bankruptcy.
In a January 2007 bankruptcy court hearing, Stockler testified under oath that he wasn't hiding the money from the government or from Avery's fellow trustees overseeing May Smith's money. He said some of the money was spent on Avery's business interests. He was told that some belonged to Kane and some was supposed to fund the defense, he said. And he maintained that he didn't know much about where it came from, other than it was wired to him from one business or another owned by Avery, he said.
The bankruptcy trustee, William Barstow, told the Avery jury that he sued Stockler to recover $1.1 million. Barstow also testified that Stockler lost about $3.5 million of the money in day trading.
The source of Stockler's income is one element among many that can be considered under sentencing guidelines for the tax case, according to the U.S. Department of Justice tax division, which is prosecuting him.
Stockler said that in 2006, the first tax year at issue, he had a lot on his mind. He had been divorced the year before. He was sharing custody of his daughter. He was the lead lawyer in the federal weapons case and other big and complex cases. He was getting notices regarding his 2005 taxes and used that uncertainty as an excuse to delay filing in 2006, then missed one deadline after another, he said in a statement filed in court.
"I was overwhelmed and felt helpless in dealing with my personal financial obligations beyond immediate living concerns," he said in a statement filed in court for his sentencing.
Late in 2006, things got worse when he had to pay back the $1 million through the bankruptcies of Avery and Avery's Security Aviation company, he said. He didn't have the money for that and his taxes, he said.
"I was embarrassed to admit to anyone that, even though I was a successful attorney, I failed to manage my own life and timely file my tax returns," Stockler wrote. Mostly, he said, he was disappointed in himself over the kind of example he set for his daughter.
When Stockler pleaded guilty to the tax charges, he maintained he didn't actually owe money because his income was offset by hundreds of thousands of dollars in stock market losses in 2005 and 2006.
After a lengthy court hearing and filings by both sides, U.S. District Judge Sharon Gleason determined that Stockler could deduct only $3,000 a year as a capital loss. That meant he owed more than $886,000, she determined. Had he been approved by the IRS as a securities trader, he could deduct all his stock market losses from his income, she found.
But he didn't file that paperwork and didn't qualify anyway because his main business was his law practice, not day trading, according to the prosecutors in his case, Kevin Sweeney, a trial attorney with the Department of Justice tax division, and Katherine Wong, now an assistant U.S. attorney in Alexandria, Virginia.
People can't decide years later to change their tax status to reap benefits of losses, Wong told Gleason at a hearing in March 2015.
Stockler described himself as an active trader. He hoped eventually to scale back his law practice and make a living in the stock market, he told Gleason.
"But despite this stated intention, Mr. Stockler's day trading was spectacularly unsuccessful," Gleason wrote.
Stockler is honest and owns up to what he did, others wrote in letters urging that he not receive jail time.
Cabot Christianson, an Anchorage attorney, was on the other side in the Avery bankruptcy case. The settlement of $1.1 million "was an extraordinary sum for a solo practitioner," Christianson wrote.
"While Paul may be a victim of hubris, he is far, far away from being evil, greedy, malicious, or otherwise deserving of severe punishment," Christianson wrote.
Attorney Tim Petumenos said Stockler has been his adversary in court too, yet "his word is gold." Stockler is hard on himself over his tax troubles and isn't trying to evade the consequences, Petumenos wrote.
Stockler often represents physicians facing medical malpractice complaints or licensing issues. One supporter called him a "champion of doctors."
When their money or insurance runs out, Stockler doesn't turn them down or abandon them, wrote Roger Holmes, attorney for the Alaska State Medical Association.
No action has been taken on Stockler's law license. That doesn't typically happen until after sentencing. Under court rules, misdemeanor tax crimes are not specifically grounds for discipline, but need to be evaluated to determine what sanctions might be imposed, said Maria Bahr, counsel for the Alaska Bar Association.
For the tax years 2000 through 2011, Stockler filed his return on time only once, in 2005, according to the prosecutors in the tax case.
Gleason removed herself from the case just before the scheduled sentencing because of an undisclosed conflict. U.S. Judge Ralph Beistline, who is now handling the case, hasn't set a new date for sentencing.