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Ponzi scheme and legal malpractice go hand-in-hand in suit

When we write about legal malpractice in our Newark Litigation and Appeals Law Blog, common themes are missed deadlines, failure to know the law and failure to follow clients' instructions. That is because, in general, when an attorney fails to protect his or her client's legal interests, it is because of incompetence rather than an actual intent to hurt the client.

However, a court case out of Boise, Idaho, shows that not only are a small number of attorneys incompetent, a few of them may actually be committing fraud. An attorney for a realty investment firm was recently named in a legal malpractice suit that accuses him of a number of things, including being a key player in a Ponzi scheme that reaped in $80 million.

The alleged scheme was exposed after a realty investment company filed bankruptcy in 2008. A court-appointed trustee in charge of the bankruptcy liquidation of the company has now filed a complaint stating that he uncovered legal malpractice, securities fraud, conspiracy and federal racketeering violations when he invested the company.

The company was founded by two friends--one of whom ended up as general counsel for the company and is now being sued for legal malpractice--in 1979 and it became a nationwide leader in the field of tenant-in-common transactions. This is when two people or more by shares of a property. According to the complaint, investors were lured in with stories of successful real estate holdings throughout the country, when in fact the company was doing little more than taking money from new investors to pay old investors.

A classic Ponzi scheme, it "robbed Peter to pay Paul," according to the complaint.

When the company filed bankruptcy, it had more than $2 billion in property and managed other assets worth around $2.65 billion. About 10,000 investors, however, had filed claims in the billions of dollars.

When someone works with a lawyer to deal with a legal dispute or provide advice on legal interests, one certainly does not expect his or her lawyer is engaged in self-dealing or fraud. Those who are the victims of legal malpractice have a right to seek legal recourse.

Source: Courthouse News Service, "Attorney Accused in Giant Ponzi Scheme," Philip A. Janquart, June 8, 2012

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