Legal Malpractice

An Unusual Breach of Fiduciary Duty, But no Legal Malpractice

By (Andrew Lavoott Bluestone)

Typically a claim of breach of fiduciary duty involving an attorney will be an afterthought, or an alternative pleading, sometimes a duplicitive one, sometimes an independent cause of action.  Rarely does it stand alone.  Here, an attorney is accused of aiding a ponzi scheme, and really big numbers are involved.  As Nolene Walder of the New York Law Journal writes:

"Nearly two years after the arrest of a hedge fund manager for cheating investors out of $20 million, a New York lawyer has become ensnared in the fallout from the scheme.

In a civil suit filed last week in Manhattan Supreme Court, the Alexander Dawson Foundation claims that hedge fund manager Mark Bloom, the owner of North Hills L.P., "received assistance" from three accountants as well as attorney Victor M. Rosenzweig, who served as the director of North Hills Management LLC, a general partner of the hedge fund.

The complaint, among other things, accuses Mr. Rosenzweig, who is of counsel at Olshan Grundman Frome Rosenzweig & Wolosky, of breach of fiduciary duty.According to the suit, the foundation lost more than $9.75 million as a result of the fraud, the bulk of which was intended to be used to educate school children."Had Plaintiffs been made aware of Bloom's fraud in June or July 2005, they would have withdrawn from the Fund immediately," the complaint alleges.

Thomas J. Fleming of Olshan Grundman, who represents Mr. Rosenzweig, vigorously denied the allegations  .In 2009, Mr. Bloom pleaded guilty in the Southern District to five counts, including securities fraud and mail fraud.According to the foundation, accountant Robert M. Graber of Davis, Graber, Plotzker & Ward was retained to audit the fund's annual financial statements for the years ending in 2001-03 and gave the fund a "clean opinion," in spite of the fact that the records contained information relating to Mr. Bloom's scheme.

Even after Mr. Graber learned that Mr. Bloom had withdrawn $8 million from the fund without documentation, the accountant "personally reassured the trustees" of Alexander Dawson Inc., the investment arm of the foundation, of the fund's "sound financial condition and failed to disclose Bloom's conduct," the complaint says.

Peter J. Larkin of Wilson Elser Moskowitz Edelman & Dicker, who represents Mr. Graber and his accounting firm, said his clients denied the allegations and would vigorously defend the case going forward.

The foundation also alleges that Brian Zucker of the accounting firm of Zucker & Associates "provided substantial assistance to Bloom's fraud by preparing materially false schedule K-1s."

Stephen Jacobs of Landman Corsi Ballaine & Ford, who represents Mr. Zucker, said in an interview that the claims against Mr. Zucker and his firm were completely without merit.
 

Full post as published by New York Attorney Malpractice Blog on January 14, 2011 (boomark / email).