Posted Nov 04, 2011 02:53 pm CDT
Contending that legal work performed by Foley & Lardner helped a former client perpetrate a claimed Ponzi scheme that stripped some investors of their life savings as insiders looted assets, a trustee in the Chapter 11 bankruptcy case for that client, DBSI Inc., has sued the law firm.
Filed in federal court in Delaware, the suit says Foley lawyers worked with DBSI principals to establish fraudulent investment and tax structures. The Idaho-based real estate investment company allegedly used these structures in developing a $500 million fund intended to attract investors to put money into what the trustee describes in the suit as “a sprawling, fraudulent real estate investment empire” and a Ponzi scheme, according to the Am Law Daily.
The suit, which indicates that other lawyers not practicing at Foley & Lardner also worked with DBSI, asserts claims for legal malpractice, fraud, civil conspiracy, and aiding and abetting a breach of fiduciary duty. The suit also seeks repayment of alleged fraudulent transfers.
“Foley knowingly aided and assisted the insiders in unlawfully looting tens of millions of dollars from the DBSI companies and their unwitting investors,” the suit contends. “By way of its active involvement in the scheme to defraud, discussed herein, Foley injured the DBSI companies and their investors by increasing the liabilities of the DBSI Companies, decreasing their fair asset value and ultimately decreasing revenue.”
Reuters also has a story.
Law firm representatives declined to comment or could not be reached for comment, the articles say.