Lawyers' Indictment in Huge Ponzi Scheme Shocks Legal Circles

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Lawyers' Indictment in Huge Ponzi Scheme Shocks Legal Circles
Both lawyers are charged with money laundering and wire fraud conspiracy. Also charged: executives of defunct Mutual Benefits company
John Pacenti
Daily Business Review
January 26, 2009


Two Fort Lauderdale, Fla., attorneys indicted in a nearly $1 billion Ponzi scheme known as Mutual Benefits are anything but fly-by-night hucksters known to be associated with the worn pyramid con.

Michael McNerney and Anthony Livoti Jr. are well-respected advocates and have been fixtures in the legal community for decades.

McNerney served as chairman of the University of Florida Law Center Board of Trustees and the Fort Lauderdale Chamber of Commerce's downtown council, among many trusted positions.

Livoti was a well-known litigator in Broward County courtrooms who earned the respect of a number of judges. He served on boards of directors of such causes as the Art for AIDS Auction and was a nominee for a Florida Bar pro bono award.

"I am in suspended disbelief over the allegations," said attorney Stuart Grossman of Miami's Grossman Roth, who worked with McNerney when both were Florida Bar officers. "When a lawyer is charged, the whole legal community gasps, and when it's a lawyer of Mike McNerney's stature, I think they gasp, and they have a feeling of utter disbelief."

Lawyers for the men say that they were acting in their ethical role as attorneys advising Mutual Benefits.

Livoti's attorney, Joel Hirschhorn of Hirschhorn & Bieber in Coral Gables, called his client "a decent, honest straightforward lawyer who is overwhelmed by the storm around him."

"He did his job as an escrow agent and trustee and is innocent of any wrongdoing," he said. "It's going to cost a lot of emotional and financial capital, but in the end, we think the jury is going to say not guilty on every single count."

McNerney's attorneys, Miami criminal defense attorneys Jose Quinon and Scott Srebnick, say the case is one that should concern their colleagues, especially those advising corporate officers.

"It's fair to say any time a lawyer is prosecuted for conduct in which he was acting as a lawyer deserves close attention by the rest of the Bar," Srebnick said.

It's too early to say whether this is another example of the criminalization of the law profession like the money-laundering indictment of fellow Miami attorney Ben Kuehne, Srebnick said. But he adds it's disconcerting when the government "tries to paint a lawyer with the same broad strokes" as a client who runs afoul of the law.

Before Wall Street poseur Bernard Madoff set new standards for robbing Peter to pay Paul, Mutual Benefits set the gold standard for Ponzi schemes, according to the Securities and Exchange Commission, which shut down the Fort Lauderdale-based company in 2003 and placed it in receivership.

Mutual Benefits dealt in viaticals, buying life insurance policies from the terminally ill, elderly and people with AIDS. It made money if the policyholder died ahead of actuarial schedules or on time. The company described the investment as safe enough for investors saving for college or retirement.

The prospectus did not play out for 28,000 investors. Scientific advances prolonged the lives of many HIV-positive people. Soon enough, the company was paying premiums with money from new investors to keep the venture afloat, federal regulators said.

McNerney handled almost all of Mutual Benefits' legal matters, and his firm Brinkley Morgan Solomon & Tatum served as closing agent on investment transactions, according to the 25-count indictment filed Dec. 23. McNerney left the firm in early 2006. The law firm is not charged in the indictment.

Prosecutors say Livoti was "purportedly responsible for safeguarding investor monies set aside to pay policy premiums and for actually making premium payments."

Both lawyers are charged with money laundering and wire fraud conspiracy. Also charged are executives of the defunct Mutual Benefits: brothers Joel Steinger and Steven Steiner. Another brother linked to the company, Leslie Steiner, died of pancreatic cancer.

Nine other officials connected with Mutual Benefits have pleaded guilty and been sentenced to prison, including company president Peter Lombardi, who is serving a 20-year term.

But attorneys for the latest four defendants plan to take the case to trial. In the civil SEC case filed in 2003, attorneys for the company argued Mutual Benefits did not collapse under its own weight but claimed the SEC acted too hastily when there were millions of dollars in reserves to pay policies.

"We are not talking about Bernie Madoff here," said West Palm Beach attorney Richard Lubin of Lubin & Metz. "This is not what the government has made it out to be."

Joel Steinger, Leslie Steiner and Lombardi agreed to pay $25 million to settle the SEC charges. Steven Steiner agreed to pay $4 million.

On the civil side, the Mutual Benefits case became a litigation engine as the receiver, Roberto Martinez of Colson Hicks Eidson, pushed to recoup investor losses. But it also spawned a lawsuit by Steven Steiner in December against the husband of Broward County Mayor Stacey Ritter, who has been unabashed about her desire to join the Obama administration.

Steiner alleges in a Broward Circuit Court case that a company once owned by Russ Klenet, a state lobbyist and Ritter's husband, owes him $2 million in unpaid loans. Klenet denies owing Steiner anything.

In other settlements, McNerney and the firm he founded agreed to pay $10 million to the receiver in 2005. His attorneys don't expect the settlement to be an issue at trial, saying civil settlements are done for a variety of reasons and usually are at the discretion of the malpractice insurance carrier.

McNerney and Livoti face trial with strong supporters.

Daniel Ponce, a partner with Legon Ponce & Fodiman in Miami, said he has known McNerney since they were University of Florida law students in 1966 and that he has always been a man of integrity.

"The reality is a leopard doesn't change its spots," Ponce said. "This is a pretty stunning event."

Grossman described McNerney as the prototypical "downtown Fort Lauderdale attorney."

"He represented Broward beautifully," Grossman said.

Broward Circuit Judge Jeffrey Cohen said he has the utmost respect for Livoti.

"I've known Tony for 20 years, and he's a very talented, accomplished attorney," said Cohen, who has been on the bench for 24 years. "I only know him to be an extremely ethical and honest man."

Cohen added many of his colleagues in the judiciary feel the same way about Livoti.

In the meantime, the Mutual Benefits indictment has been a hot potato in Miami.

U.S. District Judges Paul Huck and Marcia Cooke recused themselves, as did U.S. Attorney Alex Acosta and his chief assistant, Jeff Sloman.

Acosta's office won't comment on recusals as a matter of policy. Documents under seal in the case apparently hold the reason.

All recused parties, though, can be linked in some way to Martinez, a former U.S. Attorney, as well as his Coral Gables firm.

Cooke was Martinez's executive assistant when he was chief prosecutor, but that may not be enough to warrant a recusal.

Huck sentenced other Mutual Benefit defendants. His son, Paul Huck Jr., is one of Martinez's law partners.

The case isn't expected to move very fast because defendant Joel Steinger is recovering from spinal surgery and is "a functional paraplegic," according to his Miami attorney, Ed Shohat of Bierman Shohat Loewy & Kegerreis. "He has got that fight plus that legal fight, and I'm afraid the legal fight to some degree is going to have to wait its turn."

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