Legal Ethics

Judge OKs Prosecution Letters Saying Criminal Lawyers Can't Use Madoff Money for Workers' Defense

In a ruling that puts criminal defense lawyers for former employees of Bernard L. Madoff between a rock and a hard place, a federal judge has upheld the right of government prosecutors to warn counsel not to use money that might be associated with Madoff’s record-breaking Ponzi scheme as legal fees.

The lawyers had argued that what they claim was a belated and overreaching government notice that the funds are potentially subject to forfeiture required dismissal of the criminal case against their clients, reports the New York Law Journal.

However, Judge Laura Taylor Swain of the Southern District of New York disagreed, saying that this case is distinguishable from United States v. Stein, 495 F.Supp.2d 390 (2007), in which charges against former KPMG partners and employees were dismissed because the government pressured the firm into choosing between changing its policy of covering defense costs or being perceived as uncooperative with prosecutors.

In this case, by contrast, “the government alleges that the funds used or sought to be used to pay defendant’s attorneys constitute or are derived from proceeds traceable to the commission of the offenses charged,” she states in a written opinion.

Meanwhile, “the problem we, as a law firm, face, is this: If we draw down on escrow or take payment from unrestrained assets” from defendant Annette Bongiorno, “the government has put us on notice … we could, one would argue, be engaged in the act of money laundering,” if the funds are determined to be “proceeds of illegal activity,” her lawyer, Maurice Sercarz of Sercarz & Riopelle tells the legal publication.

He says the legal fees issue needs to be resolved before the criminal case proceeds.

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