Anthony Lin reports in the NYLJ that Sidley Austin has avoided prosecution for tax shelter manipulation, even though one of its "expelled" attorneys is facing felony charges.  SA will pay $ 39 milliion in fines.

"Federal prosecutors have decided not to bring criminal charges against Chicago law firm Sidley Austin over its involvement with illegal tax shelters, though the law firm will pay a civil penalty of $39.4 million to the Internal Revenue Service.

In announcing the decision yesterday, U.S. Attorney Michael J. Garcia of the Southern District of New York distinguished the actions of the firm from that of former tax partner Raymond J. Ruble, who is already facing a criminal trial in Manhattan federal court.

Mr. Ruble, who was expelled from Sidley Austin in 2003, and several former employees of accounting firm KPMG are charged with creating and promoting tax shelters banned by the IRS, with Mr. Ruble also issuing hundreds of opinion letters meant to provide legal cover for the shelters. The IRS estimates 700 wealthy individuals and corporations relied on Sidley Austin opinions in purchasing illegal tax shelters.

In deciding not to prosecute the law firm, Mr. Garcia said his office took into account the fact that most of Mr. Ruble’s activities took place when he was a partner at New York’s Brown & Wood, with which the firm then known as Sidley & Austin merged in 2001. The former Sidley & Austin had never had a tax shelter practice and took steps at the time of the merger to rein in Mr. Ruble’s practice. Mr. Garcia said Mr. Ruble continued his practice only by misleading his partners at the merged firm. "