A New York federal judge has rejected the latest fee request by the court-appointed receiver and his law firm for work in the ongoing WexTrust Capital receivership. WexTrust was charged in 2008 with operating a Ponzi scheme that defrauded hundreds of investors out of millions of dollars. Fee requests submitted by the court-appointed receiver, Timothy Coleman, and several firms he has retained for various legal work involved with the receivership, have increasingly come under scrutiny, and in several instances, rejected. Several of these fee requests were analyzed in an order issued Wednesday by Judge Denny Chin of the United States Court of Appeals for the Second Circuit.
Judge Chin, who coincidentally was the same judge who sentenced infamous Ponzi schemer Bernard Madoff to 150 years in federal prison, has shown a willingness in the WexTrust receivership to closely scrutinize proposed fees paid to professionals in comparison to victim distributions. In the beginning of the case, after Coleman's firm Dewey & LeBoeuf submitted a bill for $2.2 million for twenty days of work, Judge Chin issued an order asking the firm to exlplain its billing practices, and noted what Judge Chin characterized as high rates for a securities receivership proceeding. The rates in question included $285 per hour for summer associates and paralegal billing rates of $175 to $275 per hour.
In Judge Chin's Wednesday order, Coleman sought the approval of a settlement between the estate and WexTrust's former law firm, Much Shelist Denenberg Ament & Rubenstein, P.C. ("Much Shelist") concerning malpractice claims, along with Coleman's tenth request for legal fees relating to his role as receiver. Noting that the proposed settlement required no payment from Much Shelist and would bar future claims by the Receiver or victims, Judge Chin found that the settlement was not in the best interest of the receivership estate, and declined to approve the settlement. Next addressing the request for legal fees by Dewey & LeBoeuf, Judge Chin took issue with the fact that the firm had received $9,423,212 in fees - nearly twice the amount paid out to victims thus far. Noting that the SEC had recommended that the fee application be deferred until the end of the case, Judge Chin denied the firm's request.
The fee issues in the WexTrust receivership come several months after investors in the alleged Stanford Ponzi scheme claimed that the expenses of the receiver, Ralph Janvey, amounted to nearly all of the assets recovered thus far for the benefit of victims. The claim later led to an SEC investigation that included Janvey's fees incurred to date.