This Madoff guy is causing problems for everyone. Obviously, his own investors have had the worst of it, but he’s spewing off all sorts of collateral damage, too. Some are innocent, for example, the Paul Weiss lawyer whose alimony calculation got completely screwed up. But some deserve it.
One side effect of the fallout has been increased scrutiny into other fund managers who have posted questionably consistent results. An investigation into one has dragged Holland & Knight deep into the muck. After the jump, the story of how the Tampa firm got involved with a guy who hasn’t had an original idea yet.
Art Nadel is a “mini Madoff” whose customers claim he swindled them out of $350 million – a bargain compared to the billions Madoff pled guilty on. Gawker outlined the similarities:
The Madoff parallels are many. Nadel marketed his funds to the Jewish community of Sarasota, Fla., just as Madoff preyed on synagogue-goers from Manhattan’s Upper East Side to Palm Beach. Like Madoff’s firm, Nadel’s Scoop Management handled funds for charities; the YMCA Foundation of Sarasota had $1.1 million entrusted to Nadel. Like Madoff, Nadel worked through layers of corporations and funds. Valhalla Management, a money management firm, subcontracted all of its money management to Nadel’s Scoop Management. And like Madoff, Nadel claimed to have a computerized trading strategy that produced consistently superior returns.
Nadel even tried the whole park-the-car-with-a-suicide-note trick. That old saw, of course, was most recently attempted by hedge-fund manager Sam Israel. For those who are interested, Dealbreaker posted a few tips for faking your suicide a few months ago, in light of Nadel’s botched job.
Nadel has pled not guilty to a 15-count indictment. He’s being held until he posts a $5 million bond, which will be a problem considering the SEC has frozen his assets.
Back to BigLaw, though.
Nadel’s investors (well, one, anyway, he’s trying to start a class action) realized they’re not likely to recover much from him or his businesses, so they’re casting a wider net. They’ve sued Holland & Knight, alleged the firm’s involvement in preparing the private-placement memoranda was either malpractice or negligent representation.
According to the Herald-Tribune,
the suit alleges: that the PPMs omit that Nadel was a disbarred lawyer arising from financial improprieties; that employee Michael Zucker was not really a certified public accountant or alternatively had misrepresented himself as a CPA; that no review of Nadel’s operations had been conducted by any licensed independent accountant; that insufficient profits were being generated by the Nadel funds to pay reported returns; that Nadel and his companies were acting as investment advisor without required registration; and that the various Nadel funds were really being operated as a Ponzi scheme.
The H-T also reports that Nadel graduated from NYU in ’78 but was disbarred in ’82 for taking $50,000 out of an escrow account to pay off a loan shark.
AmLaw Daily reports that the plaintiffs will have a tough row to hoe:
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.
This is yet another case that has to clear every advisor’s new favorite hurdle: Stoneridge.
H&K denies the charges and says it will defend vigorously. This is relatively commodity work. Legal fees on the Form D for Victory Fund LLC’s 2002 offering were reported as $200,000. Anyone know who the lawyers were on these deals?
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Listed as John Doe on complaint: See http://hklaw.posterous.com.
Amended Complaint may have the details you seek.
Listed as John Doe on complaint: See http://hklaw.posterous.com.
Amended Complaint may have the details you seek.