Lawyers burned in Ponzi schemes:Several ways for unwitting attorneys to be ensnared in swindles
Lawyers burned in Ponzi schemes
Several ways for unwitting attorneys to be ensnared in swindles.
Pamela A. MacLean / Staff reporter

February 2, 2009

The Ponzi scheme has become a growth industry in a down market, with as many as six identified in recent weeks, including two that ensnared lawyers in Florida and California.

The indictments of three attorneys raises questions about how lawyers may be drawn into committing alleged frauds such as Ponzi schemes.

"Lawyers get sucked into Ponzi schemes in different ways," said John Steele, a lecturer on ethics at Stanford Law School and the University of California, Berkeley School of Law.

A lawyer may be asked for spot advice and offer clean opinions from someone running a truly evil scheme only to learn it was a Ponzi scheme in the newspapers, he said.

Another version is a legitimate business with investments that go sour and it turns into a Ponzi operation. In that situation, "lawyers need to get the heck out," he said.

Business as bait

David McGowan, an ethics professor at the University of San Diego School of Law and co-chair of the San Diego Bar Association, said lawyers may be drawn in by someone who says he or she has a great business idea and will provide plenty of work for the law firm.

Refusing a potential client may become more difficult in tough financial times or for a lawyer just starting out, he said.

"There should be tangible things a lawyer can see in a legitimate business," McGowan said. "If there is a real estate project, you need contracts, and contractors to do the work and building permits. Those are the nuts and bolts to make sure all the required parts are in place."

In the recent cases, two Fort Lauderdale, Fla., lawyers allegedly conspired with others whom prosecutors say raked in $1.25 billion from as many as 30,000 investors in a complex investment in viatical or life settlement insurance.

And an Orange County, Calif., lawyer was one of six men indicted in an 89-count complaint alleging a $52 million Ponzi scheme in sham real estate projects to develop luxury golf resorts.

The three lawyers, Robert Waldman, indicted in Orange County, and Michael McNerney and Anthony Livoti Jr., both from Fort Lauderdale, have not been convicted and they await trials.

Waldman's attorney, Paul Meyer of the Law Offices of Paul S. Meyer in Costa Mesa, Calif., would say only, "We're presently evaluating the evidence." McNerney's lawyer, Miami criminal defense solo practitioner Jose Quinon, could not be reached for comment.

Livoti's attorney, Joel Hirschhorn of Hirschhorn & Bieber in Coral Gables, Fla., said, "Mr. Livoti was not acting as a lawyer but was serving as an escrow trustee on thousands of policies. Not one penny was ever misappropriated from Livoti's account.

"Where investors were misled was by the salesperson, and Livoti was not involved in sales," he said.

"Mr. Livoti is innocent and intends to vigorously defend himself," said Hirschhorn.

Assistant U.S. Attorney Andrew Levi in Miami, one of the prosecutors in the case said, "McNerney and his firm were aware of a lot and Livoti was seeing chronic problems with cash levels" at Mutual Benefit Corp., the company at the center of the alleged fraud in Florida.

In general, "lawyers are people close to sophisticated financial transactions and who engage in setting up companies, mergers and compliance at investment brokerage houses, so lawyers have a fair amount of knowledge of the process of securities regulation and areas of lack of oversight," said Peter Keane, an ethics professor at Golden Gate University School of Law in San Francisco.

"It would seem strange if lawyers were not drawn into these types of swindles," he said.

"They may see golden opportunities for themselves with investments or hedge funds, things most people don't purport to understand," Keane added.

"There is no hidden danger there for a lawyer who stays on the level, if they give advice that is above board," he said. "To face jeopardy, the lawyer would have to be the one running the scheme or have been actively advising and encouraging clients to do it," he said.

McGowan said he tells his students, "Always be prepared to walk away from a potential client and be prepared to be fired or fire a client if you're not getting clear answers to what is going on."

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