Legal News

Our Ponzi Nation: Holland & Knight Sued Over Alleged Nadel Fraud

By Ashby Jones

In the latest chapter of Our Ponzi Nation (subtitled: Lost Ponzibilities), we turn to Holland & Knight. The firm has been sued by lawyers for investors claiming to have lost about $4.5 million in the Ponzi scheme Florida fund manager Arthur Nadel is alleged to have run. The plaintiffs allege the offering documents the firm helped Nadel prepare omitted a handful of key facts, including that Nadel had been disbarred for fraud. Click here for the AmLaw Daily story.

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 (not available), filed in state trial court last week. Federal authorities have since charged Nadel with using those funds to orchestrate a $360 million Ponzi scheme.

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.

Peter Henning told told the Am Law Daily that the plaintiffs will have a hard time making their case against the firm. He says the negligent misrepresentation claim will largely hinge on how big a role Holland & Knight lawyers played in the preparation of the offering documents. 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.”

Nadel, who is being held in prison until he posts a $5 million bond, pleaded not guilty late last month to a 15-count fraud charge. The indictment, which was unsealed on April 28, also seeks to force Nadel to forfeit $360 million and property.

Full post as published by Law Blog - WSJ.com on May 19, 2009 (boomark / email).