Nadel Receiver Sues Holland & Knight, Alleges Failure to Root Out Fraud
Posted Sep 1, 2009 1:38 PM CST
By Debra Cassens Weiss
Holland & Knight is facing a malpractice suit filed on behalf of the court-appointed receiver trying to recover assets for investors who lost money to alleged Ponzi schemer Arthur Nadel.
Receiver Burton Wiand received court approval to sue the law firm last month, the Sarasota Herald-Tribune reports. The suit (PDF), filed Monday in state court in Sarasota, Fla., names as defendants Holland & Knight and one of its Orlando partners, Scott MacLeod, who handled legal work for Nadel’s investment funds.
The suit alleges that Holland & Knight failed to discover that Nadel, a former lawyer, had been disbarred for taking client money out of trust accounts. It also says the firm failed to ensure adequate checks and balances in the hedge funds, failed to discover Nadel’s fraud, and had conflicts of interest by representing Nadel’s investment funds and management entities.
The suit also alleges Holland & Knight learned that the hedge funds were being sold through illegal solicitation activities, but covered up the problem by disguising improper compensation as public relations payments.
The Tampa law firm Johnson, Pope, Bokor, Ruppel & Burns is representing the receiver on a contingency basis. The suit seeks punitive damages for alleged breach of fiduciary duty, legal malpractice, and aiding and abetting fraud.
The Securities and Exchange Commission has accused Nadel of overstating the amount in his hedge funds by more than $340 million. The new suit says Nadel maintained a “veil of secrecy” over the funds, made all of the investment decisions, and commingled the assets in his own securities trading account. He then announced investment returns that “bore no relationship to reality,” the suit says.
Holland & Knight is already facing two investor lawsuits for its representation of the Nadel hedge funds. The firm has argued it has no duty to investigate its clients and is entitled to take them at its word, the Herald-Tribune story says.
Holland & Knight gave this statement to the ABA Journal: "The firm's position remains unchanged. We've done nothing wrong, and we intend to vigorously defend this lawsuit."
Updated at 4 p.m. CT to include statement from Holland & Knight.