The Firms

April 14, 2011 4:08 PM

Andrews Kurth Sued for Malpractice Over Allen Stanford Work

Posted by Brian Baxter

UPDATE: 4/29/11, 7:00 p.m. The 10th paragraph of this story has been updated with a statement from Andrews Kurth general counsel Gerald Bracht.

A former client is accusing Andrews Kurth of malpractice, negligence, and breach of contract in a suit filed on Wednesday in state court in Houston.

In a 24-page complaint, Walton Houston Galleria Office, L.P., a Houston-based real estate investment firm backed by billionaire Neil Bluhm, claims Andrews Kurth neglected to inform the company about an SEC investigation into another one the firm's clients, R. Allen Stanford.

Stanford served as the head of Stanford Financial Group (SFG), a Houston-based financial services company that federal prosecutors now claim was actually a $7 billion Ponzi scheme. (Court proceedings against Stanford, who faces securities fraud and money laundering charges, were temporarily postponed in January after a judge found Stanford too mentally unstable to stand trial.)

The civil complaint states that SFG took out space in a key Walton property, the Galleria Towers in The Galleria development in Houston, and engaged in lease and sale negotiations for the property. Andrews Kurth represented both SFG and Walton in those negotiations in 2005, according to the complaint, after Walton agreed to let its lawyers advise both sides of the deal. But the transaction fell through and Stanford sued Walton in late 2005. After SFG collapsed in 2009, Walton was still tied up in the litigation and couldn't sell the property, which cost it millions in attorneys' fees and lost lease revenue, the company claims.

Walton's suit against Andrews Kurth comes one year after a report by the SEC's inspector general criticized the conduct of current Andrews Kurth corporate governance head Spencer Barasch, a former assistant director of the regulator's regional office in Fort Worth that was investigating Stanford for fraud. The report recommended Barasch face possible sanctions and disbarment for his role making decisions to "quash investigations" of Stanford's alleged crimes and then representing the accused Ponzi schemer just months after leaving the SEC. (Click here for a copy of the inspector general's report.)

Walton's complaint against Andrews Kurth claims that Barasch told colleagues that the firm should represent Stanford in the SEC's inquiry in June 2005. That is allegedly when Andrews Kurth became aware of the Ponzi scheme, money laundering, and other illegal activities occurring at SFG. The firm continued to depict SFG as a legitimate entity to Walton, one with which it could conduct business, according to the complaint. Andrews Kurth represented Walton from 2004 until January 2008.

Walton is seeking damages of at least $10 million from Andrews Kurth for malpractice and other professional negligence as a result of allegedly concealing information about Stanford and SFG.

Thomas Ajamie, managing partner of Houston firm Ajamie, is representing Walton in the case, along with partner Dona Szak. Ajamie declined to comment on the suit. (The American Lawyer profiled Ajamie, a former Baker Botts partner, last year for his work winning a $112 million RICO claim on behalf of security company ADT.)

Murray Fogler, a partner at Houston's Beck Redden & Secrest, is representing the firm in the litigation. An Andrews Kurth spokeswoman declined to comment on the Walton suit, citing the firm's policy of not discussing pending litigation, but the firm's general counsel Gerald Bracht did speak briefly with The Am Law Daily.

"When we were representing Stanford in the purchase transaction, Walton was represented by separate counsel," Bracht says. "And when we were representing Walton in the lease transactions, Stanford was represented by separate counsel. I think it's important that people understand that we were not on both sides of the same transaction. We don't think that the petition has any merit whatsoever."

Andrews Kurth has publicly defended Barasch, who remains with the firm despite the possibility of criminal charges being filed against him. Last month eight Stanford investors sued the SEC, citing the "negligent supervision of Barasch by his SEC supervisors," according to a complaint filed in that case.

"Spencer Barasch served the SEC with honor, integrity and distinction," Andrews Kurth managing partner Robert Jewell said in a statement at the time. "We disagree with the characterization of Mr. Barasch's involvement put forth by the inspector general in his report last year in regard to the [SFG] matter."

Barasch's supporters claim that he's been made a scapegoat by federal regulators under fire for not catching Stanford sooner. But he's not the only lawyer to face scrutiny following the fallout from SFG's collapse.

Adams and Reese and Louisiana firm Breazeale, Sachse & Wilson were named as defendants in February in one of several suits filed by an official investors committee working with the court-appointed receiver for SFG.

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