Greenberg Traurig Trying to Settle Class-action Accusing Complicity in Ponzi Scheme

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In a rare move for law firms, Greenberg Traurig and Quarles & Brady are trying an $88 million settlement of a class-action that accuses them of complicity in a $900 million Ponzi scheme. On Wednesday, Greenberg agreed to settle charges for $61 million and Quarles & Brady received preliminary approval for a settlement amount of $26.5 million. The approval was given by U.S. District Judge Frederick Matone in Phoenix.

Greenberg Traurig issued a statement saying, “While we have always stood behind the work we did in this matter, entering into this settlement is a sensible step for the firm.” Greenberg Traurig got embroiled in the matter while advising the now-defunct firm Mortgages Ltd. Quarles & Brady, was in for advising Radical Bunny, an investment firm which funded Mortgages Ltd. If the settlement submissions are finally approved by the court, then the class-action would end against the law firms.

In a statement, Quarles & Brady said that it “believes its conduct was at all times lawful and ethical.” However, it wanted to settle the case to avoid future expenses and uncertainty. The firm also maintained that neither the SEC nor the Arizona securities regulators had yet found any fault in the firm’s involvement in the matter.

  

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Before its implosion, Arizona-based Mortgages Ltd used to make high-interest bridge loans to real estate developers. In its turn, Radical Bunny helped to obtain $197 million from investors to fund Mortgages Ltd. However, the class action alleges that Mortgages Ltd was already insolvent by 2005 and had been raising the money to fund the extravagant lifestyle of its CEO Scott Coles. Coles committed suicide in June 2008 and thereafter, the firm filed for bankruptcy. Radical Bunny also followed suit.

Investors sued Greenberg Traurig and Quarles & Brady, as they alleged the actions of the law firms as counsel to the Ponzi scheme organizers helped to deceive investors and allowed illegal sale of securities. Both the law firms continue to deny such allegations, but have filed to settle the class action for a cumulative sum of $88 million to avoid future uncertainties.

However, the lawyers for the plaintiffs are skeptical and maintain that approval of the settlements “would trigger a mass exodus of partners leaving the class members with a largely uncollectible paper judgment.”

The case is Facciola v. Greenberg Traurig, LLP, U.S. District Court for the District of Arizona, 10-cv-01025.