Monday, May 16, 2011

Client’s Ponzi Scheme Gets Law Firm and Attorney Sued

A bankruptcy trustee filed suit April 28th against Estate Financial Inc.’s (EFI) former attorney and her employing firm, Bryan Cave LLP, alleging that their legal advice led to more than $100 million in losses from over 1,500 investors.

The complaint claims that Bryan Cave LLP, an international law firm with lawyers in St. Louis, and one of its attorneys from its Los Angeles office, Katherine Windler, failed to advise EFI to conform to various California and federal laws.

The suit, filed in the central district of California, alleges that Windler and Bryan Cave were retained to conduct a compliance review and audit of EFI’s business practices. The compliance review revealed that EFI was in violation of “countless real estate, securities and corporate laws, rules and regulations.” According to the complaint, regardless of this knowledge, Windler “counseled EFI to continue its current business activities,” which allegedly allowed EFI principals Karen Guth and Josh Yaguda to steal over $100 million from investors through a ponzi scheme. The scheme involved selling membership interests in a fund held by EFI, the Estate Financial Mortgage Fund, LLC, under restricted or expired permits. The complaint cites to various documents and email communications between Windler and EFI’s principals evidencing her purported knowledge of the fraud.

In 2009, Guth and Yaguda pleaded guilty to 26 felony counts of fraud. Guth is serving 12 years in prison and Yaguda 8 years.

This lawsuit serves as a tragic reminder to attorneys that performing in accordance with the rules of professional responsibility should always be at the forefront of any client matter. It also provides a chilling warning to corporations about the need for reputable and honest compliance counseling.

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