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March 17, 2010 12:23 PM

Judge Allows $168 Million Suit Against Holland & Knight

Posted by Zach Lowe

A state trial judge has allowed the receiver in a Ponzi scheme case to pursue a malpractice lawsuit against Holland & Knight for allegedly failing to disclose pertinent facts in documents given to potential investors in what turned out to be a $168 million Ponzi scheme, according to the Daily Business Review, an Am Law Daily sibling publication. 

The firm has been adamant in interviews with both the DBR and The Am Law Daily that its lawyers did nothing wrong in preparing the offering documents for Arthur Nadel's bogus investment vehicle. Nadel has since pleaded guilty to running a $168 million Ponzi scheme and faces up to 300 years in prison, the DBR reports. Private investors and the court-appointed receiver in the case have sued Holland & Knight, alleging that the offering documents failed to mention that New York disbarred Nadel in the 1980s after revelations that he dipped into client escrow accounts, according to our prior reporting. Between 2003 and 2006, some of the documents did not make clear that the accountant supposedly managing Nadel's funds was not a certified public accountant. Partner Scott MacLeod was the lead Holland & Knight partner working for Nadel, and the receiver's suit names MacLeod as a separate defendant, the DBR reports.

The receiver, Burton Wiand of the Tampa-based firm Wiand Guerra King, charged H&K with aiding and abetting the fraud, malpractice, and breach of fiduciary duty. The trial judge hearing the case dismissed the aiding and abetting claim but kept alive the others. Wiand is seeking $168 million in damages from the firm. 

Private investors also have filed a class action in federal court making similar charges against the law firm, the DBR reports. That will be an interesting case to watch. White-collar crime experts have told us that investors will have a difficult time proving malpractice claims against the law firm, since the investors themselves will have to show they were Holland & Knight clients and not just third-party beneficiaries of the firm's services. They could prove lesser claims--such as negligent representation--more easily if Holland & Knight took a lead role in preparing the documents rather than simply reviewing and signing them, those experts have told us. 

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