Paul Hastings Seeks to Settle Suit Alleging Legal Work Aided ‘Ponzi Scheme’
Paul, Hastings, Janofsky & Walker is seeking to settle a lawsuit that contends the law firm should have been aware that the billboard company it was advising was selling investments that were nothing more than a Ponzi scheme.
The suit contends the law firm helped the company, Mobile Billboards of America, convince California regulators that the company’s billboard sales to investors were a business offering rather than securities that were subject to additional oversight, according to the Fulton County Daily Report. The suit claims the offering materials contained false information and that investors relied on the documents.
The amount of the proposed settlement is under court seal, but a letter from an investor (PDF posted by the Fulton County Daily Report) who objects to the settlement suggests the law firm would pay at least $4 million, the legal publication says.
The suit was originally filed as a class action by the appointed bankruptcy receiver for the company and five investors who bought billboard “units” for $20,000 over a seven-year term. The amended complaint (PDF posted by the Fulton County Daily Report) says the firm’s only early research into the securities issues was performed by a summer associate who warned in a memo that the company faced “a significant risk of an enforcement action” by California or federal securities regulators. The suit says the partner overseeing the work, Michael Lindsey, told the billboard company to disregard the memo.
After the company learned that the Securities and Exchange Commission was investigating its activities, the matter was referred to a securities lawyer at Paul Hastings, who concluded the billboard offering was a security and a Ponzi scheme, the complaint says. At that point, he began negotiating with the SEC.
Paul Hastings says in court documents that it wasn’t aware of fraudulent activities by its clients and that it had a reasonable basis to portray the investment program as a business opportunity instead of a security.
