Judge quizzes both sides in Vanguard whistleblower case

New York Superior Court Judge Joan Madden grilled lawyers for Vanguard Group and for former Vanguard tax attorney turned whistleblower David Danon this afternoon before promising to consider Vanguard's request to throw the case out.

Judge Madden pressed Vanguard's lawyer, former federal prosecutor Heidi Wendel, who headed a team of attorneys from the big New York corporate law firm Jones Day, about the apparent contradiction between Vanguard's claim that Danon stole valuable company documents -- and its contention that Danon isn't saying anything that wasn't already publicly known when he accused the company of artifically undercharging its own mutual funds for management services so it wouldn't have to pay federal income taxes, in violation of Internal Revenue Service corporate tax rules.

The judge also queried Danon's lawyer, Steve Sorensen, on whether New York law goes beyond the federal whistleblower statute in protecting lawyers who allege illegal activity by their clients, even if the corporate behavior isn't necessarily criminal. Danon contends Vanguard has underpaid federal and state income taxes by more than $1 billion; Vanguard says that's for the IRS and state tax officials to decide.

Madden said she will consider Vanguard's request that she throw out the case, and ended the hearing after 90 minutes. Wendel and Sorensen said they don't know when the judge will rule.

Spectators included a dour group of Vanguard employees, who referred questions to the company's Malvern-based spokespeople, and a New York lawyer who formerly worked for the same firm as Danon before his Vanguard days.

Both lawyers have Philadelphia ties: Wendel graduated from Swarthmore College, Sorensen grew up in Montgomery County.