Full article here. This is child’s play compared to what some of the biglaw firms are doing to help banks foreclose the entire state on worthless paper:
A federal judge in Arizona has given preliminary approval to an agreement where the Milwaukee law firm of Quarles & Bradywould pay $26.5 million to settle class-action claims that it aided an alleged Ponzi scheme that resulted in two bankruptcies and $900 million of investor losses when the real estate bubble burst.
Another law firm, New York-based Greenberg Traurig LLP, has agreed to pay $61 million to settle related claims.
“You don’t see settlements that large by law firms unless there are multiple smoking gun documents that would, in effect, sink the Bismarck in a court of law,” said Andrew Stoltman, a Chicago lawyer who represents plaintiffs in securities cases and was not involved in the case.
Quarles’ Phoenix office represented Radical Bunny LLC, a securities dealer that raised money for Mortgages Ltd., an Arizona mortgage broker that provided mostly high interest rate loans to real estate developers. By late 2005, Mortgages Ltd. was insolvent and on the path to bankruptcy, surviving only because it was borrowing more money from investors, the investors alleged in a complaint filed in U.S. District Court in Arizona in May 2010.
New money from investors was essential for Mortgages Ltd.’s operating expenses and to cover interest due to previous investors, the complaint said. Radical Bunny executives never told the investors that Mortgages Ltd. was insolvent, it said. In 2008, both firms declared bankruptcy and Mortgages Ltd.’s top executive committed suicide, the complaint said.
“Although the firm believes its conduct was at all times lawful and ethical, in order to avoid the burden, expense and uncertainty of continued litigation Quarles & Brady agreed to settle the class action for $26.5 million,” Jon E. Pettibone, managing partner of the firm’s Phoenix office, said in a statement. The investors had originally sought damages of $900 million from the firm, the statement said.
The U.S. Securities and Exchange Commission and the Arizona securities division found no fault in Quarles’ representation of Radical Bunny, the law firm said. Florence Harmon, an SEC spokeswoman, declined to comment.
A 2008 Supreme Court decision restricted claims that could be made against third-party advisers like lawyers and accountants for aiding and abetting. The plaintiffs relied on Arizona’s state securities laws to make their case.
Violations not reported
The investors’ complaint alleged that Quarles lawyers knew Radical Bunny was operating illegally and that they had an ethical responsibility to resign from the account and report the violations to securities regulators.