Lawyers are often viewed as the gatekeepers because of their position in corporate transactions. In two cases brought this week unfortunately the lawyers were more than gatekeepers, they were at the center of the wrongful conduct. One is SEC v. Levin, Case No. 1:12-cv-21917 (S.D. Fla. Filed May 22, 2012). It named as defendants George Levin and Farnk Preve who sold promissory notes in an entity which acquired lawsuit settlements. The interests in the lawsuits were acquired from attorney Scott Rothstein, a principal in the firm of Rothstein, Rosenfeld and Adler, PA.
Mr. Rothstein was operating a massive Ponzi scheme. Beginning in 2005 Mr. Rothstein offered interest in purported legal settlements at a discount. The suits were supposedly settled sexual harassment, whistle-blower and qui tam actions against corporate defendants. The settlement amounts were, according to Mr. Rothstein, deposited in his trust account for the benefit of the plaintiffs and were to be paid out over a period of time. Investors were given the opportunity to purchase an assignment of the proceeds at a discount. The settlements were fictitious. Prior to its collapse in 2009, about 173 investors paid in over $157 million. Mr. Rothstein is currently serving fifty years in a federal prison. He was disbarred in November 2009.
Messrs. Levin and Preve solicited investors to purchase promissory notes issued by a company controlled by defendant Levin, Banyon 1030-32, LLC which was the general partner of investment fund Banyon Income Fund, L.P. Investors were told that the fund was acquiring settlements from Mr. Rothstein. They were assured that the two men carefully reviewed the pertinent papers prior to purchasing any settlement. They were also told in the private placement memorandum that the fund was the successor of an entity which had profitably purchased more than $1 billion in settlements from Mr. Rothstein over the prior two and one half years.
What investors were not told is that many times interests in the settlements were purchased without obtaining any documentation. They also were not told that by May 2009 Mr. Rothstein had ceased making payments on a majority of the settlements Mr. Levin and his entities had purchased and that additional payments were contingent on raising at least $100 million to purchase more settlements. The complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The case is in litigation.
U.S. v. Weisberg (E.D.N.Y. Filed May 21, 2012) named as defendant Attorney Martin Weisberg, formerly a partner in the New York office of an international law firm. One involved two of Mr. Weisberg’s clients, Xybernaut Corporation and Ramp Corporation. While serving as outside counsel and a member of the board of directors, co-conspirators of Mr. Weisberg secretly caused the companies to issue shares to themselves at a discount which were later resold overseas. Mr. Weisberg was paid kickbacks from the proceeds of the sales to include false statements regarding the conspirators’ ownership and control of the securities in filings made with the SEC. In another scheme Mr. Weisberg took about $1.3 million of interest earned on a $30 million deposit he held that belonged to another corporate client.
This week Mr. Weisberg pleaded guilty to one count of money laundering and one count of conspiracy to commit securities fraud. He is awaiting sentencing.
ABA Program: The New Era of FCPA Enforcement and the Collapse of the Africa Sting Cases: Time to Reevaluate? Tuesday June 5, 2012, 12:00 PM to 1:30 PM EST, Live in Washington, DC and webcast.
Moderators: Thomas O. Gorman, Partner, Dorsey & Whitney LLP, Washington, D.C. and Frank C. Razzano, Partner, Pepper Hamilton, LLP, Washington, D.C.
Panel: John D. Buretta, Deputy Asst. AG, Criminal Division, DOJ, Washington, D.C.; Charles E. Cain, Deputy Chief FCPA Unit, SEC, Washington, D.C.; France Chain, Senior Legal Analyst, Anti-Corruption Division, OECD, Paris, France; Prof. Mike Koehler, Butler University, Indianapolis, Ind.; Hon. Stanley Sporkin, Washington, D.C.; Greg D. Andres, Partner, Davis Polk, New York, New York; Eric Bruce, Partner, Kobre & Kim, New York, New York. Live Presentation from Washington, DC.
Co-hosted by Dorsey & Whitney LLP and Pepper Hamilton, LP at Penthouse at Hamilton Square, 600 Fourteenth St., N.W. Washington, D.C. Click here for more information (here)