Posted May 13, 2010 03:31 pm CDT
Investors who claim they lost $900 million in an alleged Ponzi scheme run by a mortgage company have named two law firms as defendants: Greenberg Traurig and Quarles & Brady.
The class action lawsuit was filed Tuesday in Arizona federal court, the American Lawyer reports. The plaintiffs claim the law firms violated state securities laws, an apparent attempt to bypass a Supreme Court decision limiting liability against third parties accused of participating in corporate wrongdoing.
Nearly 2,000 investors are claiming losses. The suit claims the now-bankrupt company Mortgages Ltd. sold its real-estate mortgage loans to investors, then used the money to pay operating expenses, pay investor interest, fund redemptions and finance a lavish lifestyle for CEO Scott Coles, the story says.
According to the suit (PDF posted by the American Lawyer), Greenberg partner Robert Kant prepared 11 private-offering memorandums for investors without disclosing that Mortgage Ltd. was essentially insolvent. Nor did he disclose that a separate company selling the loans to investors, Radical Bunny, was an unlicensed securities dealer, the suit claims. Kant is not named as a defendant.
Radical Bunny was represented by Quarles & Brady. The law firm was hired, the suit says, after Kant warned Radical Bunny executives they needed securities counsel so their pictures would not end up “on the front page of the Arizona Republic.”
“The Quarles law firm, like the Greenberg law firm, turned a blind eye to Radical Bunny’s refusal to disclose its past securities violations to new investors,” the suit alleges.
Both law firms maintain they operated properly. A Quarles & Brady statement says the law firm represented Radical Bunny for a portion of 2007, and it has cooperated in investigations. “Our conduct was at all times lawful and ethical,” according to the statement, issued on behalf of Jon Pettibone, the managing partner of Quarles & Brady’s Phoenix office. According to the Greenberg Traurig statement, “We believe our representation was appropriate in all respects.”