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Sunday
Feb032013

Two Prominent Law Firms Sued For Roles in Stanford and Shapiro Ponzi Schemes

In two separate lawsuits filed last week, court-appointed lawyers overseeing the fall-out from Allen Stanford's $6 billion Ponzi scheme and Nevin Shapiro's $930 million Ponzi scheme alleged that each scheme was assisted by lawyers at two prominent national law firms.  Ralph Janvey, the court-appointed receiver for Stanford's scheme, sued Proskauer Rose LLP and one of its attorneys for aiding and abetting Stanford's scheme.  Joel Tabas, the trustee for Shapiro's failed Capitol Investments USA, sued Shook, Hardy & Bacon ("SH&B") and one of its lawyers for providing legal assistance to Shapiro's scheme.  Each of the suits is seeking unspecified damages. 

Shapiro was accused of running a Ponzi scheme that raised nearly $1 billion from investors who thought they were investing in a highly-profitable grocery wholesaling business.  After pleading guilty to securities fraud, Shapiro was sentenced to a twenty-year prison term.  One of Shapiro's high-school friends, Marc Levinson, became an attorney at prominent Miami firm SH&B, where he soon began advising Shapiro on various issues.  According to Tabas, the firm "aided and abetted" Shapiro's violation of numerous federal securities laws, even after an internal memo circulated by the firm in December 2006 concluded that Shapiro was likely violating federal securities laws.  Tabas has recovered over $35 million for investors thus far.

As outlined in Janvey's lawsuit, attorney Thomas Sjoblom had spent twenty years at the Securities and Exchange Commission ("SEC") before working in private practice where Stanford became one of this clients.  During his tenure at prominent law firms Chadbourne & Parke LLP and Proskauer Rose, Sjoblum is accused of falsely stating to investors that he had personally confirmed that Stanford Financial was not a Ponzi scheme.  Additionally, Janvey alleges that Sjoblum thwarted the SEC's investigation of Stanford by instructing Stanford to hide documents, relaying misinformation to Stanford's auditors, and misleading the SEC. Janvey is preparing to make his first distribution to victims in the upcoming months. 

Owing partly to the existence of extensive malpractice insurance, law firms have increasingly found themselves as a target of charges that they assisted or failed to discover a client's perpetration of a Ponzi scheme.  This has resulted in recent high-profile settlements and jury awards involving several prominent firms, including:

  • Quarles & Brady LLP's and Greenberg Traurig $77.5 million settlement for their role in the $900 million Mortgages Ltd. Ponzi scheme; and
  • Holland & Knight LLP's $25 million settlement with the receiver for Arthur Nadel's $400 million Ponzi scheme.

 Both firms have denied wrongdoing.  

A copy of the SHB Lawsuit is here

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