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March 8, 2012 5:04 PM

K&L Gates Sues Casino Over Gambling Debts Incurred by Ex-Partner

Posted by Brian Baxter

City of Dreams Macau

Having surpassed Las Vegas as the world's largest gambling center, Macau and its bustling casinos are grabbing headlines lately, some of them related to the ways in which Am Law 100 firms are catering to the growing needs of clients doing business in the special Chinese administrative region.

At the moment, K&L Gates is focused on Macau for a different reason: The firm is seeking to recover money stolen from clients and gambled away by a former partner.

The firm sued Hong Kong–based Melco Crown Entertainment, the owner of two Macau casinos, this week over funds misappropriated from client accounts, according to the South China Morning Post (SCMP), which first had news of the litigation.

The lawsuit comes some nine months after the resignation of former K&L Gates corporate partner Navin Kumar Aggarwal, who was charged with six counts of theft and forgery by Hong Kong police for allegedly taking money from client escrow accounts at the firm. The SCMP reports a hearing in the criminal proceedings against Aggarwal has been scheduled for April 2 in Hong Kong.

Aggarwal—who at one point was detained in the Lai Chi Kok Reception Center, the same Hong Kong facility that temporarily housed former Crowell & Moring counsel Douglas Arntsen last year after he was detained in an unrelated matter that also involved client escrow accounts—later admitted to stealing client money to pay off mounting gambling debts, according to sibling publication The Asian Lawyer.

K&L Gates sued Aggarwal last year to recover roughly $2 million that its former partner stole from a client escrow account for RIM China, a management consulting company for the Chinese retail market, according to The Asian Lawyer. The firm claims Aggarwal transferred the funds to a subsidiary of Las Vegas–based Wynn Resorts Ltd., which also owns two casinos in Macau.

A K&L Gates spokesman declined to comment on the litigation against Aggarwal, 44, or on the firm's action against Melco, which owns the Altira Macau and City of Dreams casinos in the Chinese gambling hub.

Citing a writ filed against Melco in Hong Kong high court earlier this week, the SCMP reports that K&L Gates is seeking a court order to find out how much Melco reaped via Aggarwal's wagering and what his net winnings were during his visits to the company's Macau casinos.

According to the SCMP, the writ states that K&L Gates has paid a total of $15 million in restitution to four clients—Hui Kau-mo, Mark Lightbown, Golden Bridge United Holdings Group, and Laxmi Niwas Jhunjhunwala—whose escrow accounts were raided by Aggarwal.

The SCMP also reports that K&L Gates claims in its filing against Melco that Aggarwal transferred more than $4 million from client accounts to Melco that he used, along with other funds, for gambling. Aggarwal’s net loss was almost $1.3 million, according to the SCMP.

K&L Gates's Hong Kong office has been shaken up since Aggarwal's resignation last June. The Asian Lawyer reported in October that former office head Clifford Ng had left K&L Gates for Boughton Peterson Yang Anderson, the Hong Kong affiliate of domestic Chinese firm Zhong Lun.

Ng and Aggarwal both arrived at K&L gates via legacy firm Preston Gates & Ellis, where the latter made partner in 2000 and which the former joined as a partner in 2003 after leaving a position as a consultant at Canadian firm Stikeman Elliott, according to The Asian Lawyer. Both Ng and other K&L Gates partners in Hong Kong have been named as defendants in suits filed by several clients seeking reimbursement for missing funds it held in trust, The Asian Lawyer reports.

According to the SCMP, K&L Gates has attached to its suit against Melco a letter the firm claims Aggarwal wrote to Asia managing partner David Tang after his resignation last June, confessing his role in the escrow embezzlement scheme.

"Dear David," the SCMP reports the letter reads. "I am really sorry about everything. I am not sure if its possible but I really hope the firm survives all this caused by me. I know the gravity of the crime committed. I can't live with this."

"I am very sorry that you and the others have to face all this and clear the mess," Aggarwal adds, according to the newspaper. "The money that I stole was used to pay my gambling losses that I have accumulated over the years. I was using one 'escrow' to cover the other. I don't know what the devil got into me. Sorry."

An e-mail sent to Melco general counsel Stephanie Cheung seeking comment on the K&L Gates suit was not immediately returned. Melco spokeswoman Maggie Ma gave The Am Law Daily a statement that was also provided to the Macau Daily Times.

Melco said through Ma that the company had become aware of the filing by K&L Gates earlier this week, and that it intended to "fight those allegations of misappropriation vigorously." Melco also noted that it is a creditor of Aggarwal.

Photo: City of Dreams, Wikimedia Commons

 

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The key lesson here is that sordid tale is the need to establish adequate controls over escrow funds, as described in http://kowalskiandassociatesblog.com/2012/01/24/difficult-times-sometimes-create-desperate-people-who-do-desperate-things-loss-prevention-in-handling-client-escrow-funds/ .

I am sure that K&L had controls, but it is alarming how many firms do not.

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