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August 20, 2009 5:17 PM

Shopping Mall Heiress Sues Neal Gerber, Alleging Massive Misconduct

Posted by Zach Lowe

The daughter of the founding family of General Growth Properties has filed a monster lawsuit against  Neal, Gerber & Eisenberg, alleging the Chicago-based firm created a bewildering mix of investment vehicles through which they mismanaged her trust fund--costing her at least $300 million. 

Schiff Hardin is representing the plaintiff, Mary Bucksbaum Scanlan, the 40-year-old daughter of Martin Bucksbaum, who cofounded the real estate empire that peaked with the creation of General Growth Properties. (General Growth, which bought up malls all over the country, filed for bankruptcy in April.)

Neal Gerber has been the family's go-to law firm for nearly 40 years, with name partner Marshall Eisenberg handling much of the work, the suit says. During that time, the firm managed Mary Bucksbaum's trusts and created  an investment vehicle, General Trust Co., that served as an overall corporate trustee for the various family trusts. Eisenberg and others close to him were also major stockholders of General Growth, the lawsuit says. 

The overlapping interests created untenable client and personal conflicts, the suit says. Eisenberg and Earl Melamed, another partner at the firm, crafted transactions that sucked money out of Bucksbaum's personal trusts in an attempt to benefit General Growth as it collapsed last year, the complaint alleges.

The suit accuses the lawyers of loaning $90 million to two General Growth executives to help them cover losses linked to General Growth's plummeting stock price. In addition, the lawyers had the trusts take out a $500 million loan from Citigroup in 2004 to fund more purchases of General Growth stock.

When that loan came due, they allegedly sold $300 million in assets from Mary Bucksbaum's trust to pay the loan down, the suit says. Those assets came from holdings other than General Growth stock, the suit says, including various safe bonds.

By selling $300 million in such assets, the Neal Gerber lawyers tied the health of Buckbaum's trust even more closely to that of General Growth--transactions made without Mary Bucksbaum's knowledge, the suit says. 

The lawyers continued to use Bucksbaum's trust funds to buy General Growth stock as late as the fall of 2008, when the company's stock price crashed to less than $2 per share. (It peaked at $67 per share in 2007.)

In all, Bucksbaum claims she has lost $1.7 billion from trusts that once held $2.5 billion. But the $300 million used to pay the Citigroup loan is at the center of the suit. 

Frederick Sperling, the lead Schiff Hardin lawyer representing Bucksbaum, declined to comment. Stephen Novack of Novack and Macey, who is representing Eisenberg and the firm, released a statement saying the defendants are "terribly disappointed" in the suit, and that Neal Gerber "diligently and loyally represented Bucksbaum" for her entire life. 

Any losses she suffered were due to the broader economic collapse, not legal malpractice, Novack said. 

The suit seeks unspecified damages and the return of attorney fees Bucksbaum paid Neal Gerber as the fraud was happening. It charges the firm, Eisenberg and Melamed with malpractice and breach of fiduciary duty.

Eisenberg and his firm have been down this road before. In 2004, two young heirs to the Pritzker family fortune filed a lawsuit accusing Neal Gerber of orchestrating a "malicious" scheme to cut them out of the family fortune, according to an article about the case from The American Lawyer

That suit has since been settled, the terms of which are sealed, says Dan Webb, a partner at Winston & Strawn who represented one of the plaintiffs. 

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