Ponzi schemes

The best law school professors have practical experience that allows them to draw from personal memory to bring a lesson to life for students. One professor who often lectures students on their ethical obligations can now draw from her own experience to tell students about what happens when lawyers lie to federal judges to help clients perpetrate a fraud.

The irony is scrumptious.

You’d think that getting busted for lying to a judge and benchslapped silly would doom a law professor, but that’s premature. She’ll probably lose her job for failing as a professor first….

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Counselor, you’re out of order.

Lawyer jokes notwithstanding, most lawyers are ethical, honorable, and competent. That’s why we tend to focus on attorney misbehavior in these pages; it’s more newsworthy. If a lawyer complies with the law or serves a client well, that’s not exactly “news”; it’s what lawyers are supposed to do, and what most lawyers do most of the time.

Alas, sometimes lawyers fall short of our profession’s high standards. Today we look at allegations of a high-ranking government lawyer abusing the perks of his office, a tax lawyer engaging in tax fraud, and a real estate lawyer who has people real mad — after taking $4 million from them.

Which of these attorneys deserves to be our Lawyer of the Day? We’ll describe their alleged misdeeds, outline the reasons for and against Lawyer of the Day honors, then let you vote for the winner….

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Yesterday, Judge Laura Taylor Swain issued a curious evidentiary decision. In the fraud trial of several aides to Bernie Madoff, the judge ruled that prosecutors will have to Photoshop out a decoration from pictures of Madoff’s office. Lawyers for Daniel Bonventre argued that photos of the decoration, a four-foot statue of a screw, would be unduly prejudicial.

A Ponzi scheme operator flaunting a statue of a giant screw sounds a lot more probative than prejudicial, actually.

In any event, the art is not coming into evidence and is coming out of any pictures of the office. There may not have been a good reason to introduce the piece into evidence, but introducing Photoshop to the legal process creates a whole new wrinkle in the fabric of the “reality” put in front of juries….

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Bernie Madoff

The SEC needs more resources to protect investors. It’s grossly undercapitalized and it doesn’t have money to hire the right people. Basically it’s a training ground, by the time people are qualified they leave and work for private firms.

They didn’t catch me because the whistleblower, Harry Markopolos, was leading them down the wrong alley. He was an idiot.

– Infamous Ponzi schemer Bernie Madoff, offering his thoughts on why the Securities and Exchange Commission is unable to effectively police financial markets, during a two-hour long interview with the WSJ’s MarketWatch.

Peter Madoff (via Getty Images)

You can call notorious Ponzi schemer Bernard Madoff many things, but thankfully you can’t call him a lawyer. Although he has gotten to know the law quite well over the years, thanks to his journey through the legal system, Bernie Madoff has no formal legal training law degree.

[UPDATE (6:40 p.m.): As noted in the comments, Madoff briefly attended Brooklyn Law School.]

But Bernie Madoff’s brother, Peter Madoff, is an attorney. Peter graduated from Fordham Law School in 1970 and is a member in good standing of the New York bar, next scheduled to register in October 2014.

Query why Peter Madoff hasn’t been disbarred. In June 2012, he pleaded guilty to numerous federal charges related to his service as “chief compliance officer” of Madoff Securities. In December 2012, he received a sentence of ten years in prison.

Now that Peter Madoff’s in the Big House — FCI Estill, according to the handy BOP Inmate Locator — let’s have a look at the big house he leaves behind. The federal government is trying to sell it for a sizable sum, almost $4.5 million….

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Ed. note: This is a new series from Bruce MacEwen and Janet Stanton of Adam Smith Esq. and JDMatch. “Across the Desk” will take a thoughtful look at recruiting, career paths, professional development, human capital, and related issues. Some of these pieces have previously appeared, in slightly different form, on AdamSmithEsq.com.

Three years ago I published What Laterals Need to Know: A Modest Proposal, which essayed the thought that firms had an obligation to disclose certain information about the firm in advance to a prospective lateral partner.

At the time I wrote, I treated it more or less as a thought experiment, but we now see that shirking that obligation can come back to bite firms with sharp and large teeth right here in the real world, as seen in Henry Bunsow’s high-profile suit against Dewey’s former leadership (accusing them of running a “Ponzi scheme,” and alleging he’s out $1.8-million in lost capital, among other damages). The gist of Bunsow’s action is that Dewey’s leadership painted a misleadingly rosy picture of Dewey’s financial health, and failed to disclose its obligations in deferred compensation. Bunsow further alleges that former chairman Stephen Davis withdrew his own capital investment after he was forced out of his leadership role and “took those funds personally to the disadvantage of the firm and his fellow partners.”

My three-year-old proposal was that firms be obliged to prepare the equivalent of a Private Placement Memorandum for laterals — equally available to incumbent partners as well, of course.

I also noted that the reaction of most readers would probably fall into polar camps: That my proposal was “fascinating” or else “preposterous”….

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Paul Campos

It’s a Ponzi scheme, in almost a literal sense. You’re taking money from current students and paying it to unemployed graduates.

Paul Campos, a law professor at the University of Colorado Law School, commenting on a scheme that many law schools use to find work for otherwise unemployed recent graduates in the hopes of boosting their employment statistics.

Today Allen Stanford, the former knight turned convicted Ponzi schemer, learned his fate. He was just sentenced by Judge David Hittner (S.D. Tex.).

Did Stanford get a bigger sentence than Bernie Madoff? The prosecution sought a longer sentence — 230 years for Stanford, compared to the 150 years received by Madoff.

Find out the Stanford sentence, and comment, over at our sister site Dealbreaker.

Thomas Jefferson once wrote, “I tremble for my country when I reflect that God is just, that his justice cannot sleep forever.” In contrast, Thomas Jefferson School of Law does not tremble before the toothless authority of the ABA. In fact, the school feels free to respond to utter institutional FAIL with peevish blame-shifting. Either TJSL has a serious problem with its admissions standards or it fails students once they arrive. Or some combo platter thereof. Does it matter? Let’s all stipulate that this is a “bad thing.” But what, if anything, should be done?

There are obviously a range of legal/societal stances toward the treatment of “bad things.” Bad things like cigarettes are legal but have mandatory warning labels. Bad things like the New York Lottery are just a Darwinian tax on the ignorant. Predatory subprime mortgage lenders are subject to a patchwork of federal and state laws. Ponzi schemers face criminal fraud charges. Where a law school charging $120,000 for a dubious product fits into the scheme of bad things is open to debate. So we reader-sourced the question. Last week, we conducted a research poll asking:

• Should the ABA impose national minimum LSAT and/or GPA standards for entry into accredited law schools?
• In what range should the LSAT & GPA cutoffs be?
• Should law schools lose their accreditation if their graduates’ bar passage rates fall below a certain threshold?
• Below what level should a school’s accreditation be in jeopardy?

After the jump, you tell us whether and where the lines should be drawn….

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Judge Jed Rakoff appreciates a man who doesn't know what he's doing.

Don’t worry about investing in a Ponzi scheme as long as you are smart or lucky enough to recoup your money before the whole thing falls apart. That is the upshot of U.S. District Judge Jed Rakoff’s decision to significantly limit the amount of money trustee Irving Picard can seek from New York Mets owner Fred Wilpon.

It’s a huge decision. Because a professional sports franchise is involved (and I’m using the term “professional” very loosely when talking about the Mets), how this impacts Wilpon and the team on the field will dominate most of the headlines and discussions about the ruling.

But make no mistake, Judge Rakoff’s ruling will have a major effect on how much money is ever recovered for victims of Madoff’s shenanigans, and could have an effect on the future liability for all investors in Ponzi schemes….

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