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May 18, 2009 1:07 PM

Holland & Knight Sued Over Ponzi Docs

Posted by Zach Lowe

Several investors who lost about $4.5 million combined in the Ponzi scheme Florida fund manager Arthur Nadel allegedly ran have sued Holland & Knight, claiming the offering documents the firm helped Nadel prepare failed to mention several key facts--including that Nadel had been disbarred for fraud, according to the complaint. 

The documents in question are so-called private placement memos Nadel prepared to entice investors to throw their money into one of several funds Nadel controlled, according to the complaint, filed in state trial court last week. Federal authorities have since charged Nadel with using those funds to orchestrate a $360 million Ponzi scheme, Bloomberg says

Holland & Knight is listed as Nadel's general counsel on those memos, and the plaintiffs have charged the firm with malpractice and negligent representation for failing to perform due diligence on the memos. 

In a statement, the firm said it does not discuss pending litigation but will defend itself "vigorously" against the allegations.

The memos left out the fact that New York disbarred Nadel in the early 1980s after learning that Nadel dipped into an escrow account to pay loan sharks, the complaint says. Between 2003 and 2006, some of the offering documents associated with Nadel's funds did not make clear that the accountant for the funds was not a certified public accountant. (Some offering documents did state that fact clearly, however.) 

Peter Henning, a professor at Wayne State University and a lead contributor to the White Collar Crime Prof blog, tells The Am Law Daily that the plaintiffs, repped by Golson Legal in Tampa, Fla., will have a hard time making their case against the firm. To prove malpractice, the investors will have to show they were clients of Holland & Knight and not just third-party beneficiaries of their services, Henning says. "That is very tough," he says. 

As for the negligent representation claim, that will depend largely on how big a role Holland & Knight lawyers played in the preparation of the offering documents, Henning says. If the lawyers actively drafted the documents or discussed the facts included in them with Nadel, the case could work. If they simply reviewed them, the case law lines up against the plaintiffs, Henning says. "If the lawyers just reviewed the documents, that is not going to be good enough," he tells The Am Law Daily. 

Scott MacLeod, the Holland partner named in the suit, did not respond to a message seeking comment. 

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