Attorney Misconduct, Legal Ethics, Money, Real Estate, White-Collar Crime

Managing Partner Accused Of Embezzling $30 Million From Clients

A firm alleges that its former managing partner siphoned off a cool $30 million from client escrow accounts to live like a proverbial rock star.

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UPDATE (2/24/16): Federal prosecutors have secured an indictment in this matter. Check that out here.

If you’re going to steal millions from clients, at least make a good story out of it. Like blowing hefty sums on luxurious private air travel and wiring millions to casinos to cover gambling debts. Make it a rock star story right up until the very end.

Of course, it’s hard to imagine a lawyer successfully stealing millions. There are just too many checks in place to let it get that far. It felt like the only thing anyone needed to know to pass professional responsibility was to respect escrow accounts. You just make sure all the money you’re watching for your customers, consumers, lenders and employees is always accounted for. There’s inevitably more than one person handling the bank statements. It’s just hard to lose millions.

Nonetheless, one law firm with offices around the country thinks it’s discovered more than a minor problem in its accounts. In fact, it just filed a lawsuit against its former managing partner, alleging that he siphoned off a cool $30 million from client escrow accounts to live like a proverbial rock star….

Morris Hardwick Schneider, along with its affiliated entity LandCastle Title, filed a lawsuit on Monday alleging that its former managing parter Nathan Hardwick (technically Nathan Hardwick IV, to give it that extra pretentiousness) had “systematically depleted the Firm accounts, including Firm Trust Accounts and Firm Operating Accounts, for his personal benefits.” The scheme described in the complaint is complex, involving a constant theft upon Peter to compensate Paul — moving money from one account to another to keep anyone from uncovering the extent of the operation — as well as multiple specific instances of altering bank statements to throw others off.

And where did the money go? From the complaint:

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The Firm’s banking records reflect, among other improper transfers, Hardwick’s diversion of trust funds including approximately $6,300,000.00 to Divot, a holding company controlled solely by Hardwick and unrelated to the operation of the Plaintiffs’ businesses, approximately $1,000,000.00 to pay providers of private jet services, approximately $645,000.00 for payment of losses Hardwick suffered in connection with failed property investments, and approximately $4,000,000.00 in wire transfers to casinos.

I really hope the casino debt is the result of throwing $4 million on Black 17 in a last-ditch effort to cover a looming account shortfall. But based on the brazenness of the alleged activity, it’s unclear that Hardwick would have been that eager to legitimately replace the funds:

Further, Hardwick misappropriated funds from the accounts of the Firm and/or LandCastle to fund a portion of his $3,000,000.00 purchase of a luxury condominium unit in The Residences at The St. Regis Atlanta in February 2013. Moreover, after having drained the Firm Operating Accounts, Hardwick continued to take regular disbursements, but caused or directed those disbursements to be made from Firm Trust Accounts, For example, thus far Plaintiffs have identified disbursements made from Firm Trust Accounts directly to Hardwick between January 2012 and July 2014 approximating $390,000.00.

That could be a fun Lawyerly Lairs? Here’s a gallery of units. The smallest floor plan available is 3,200 square feet and tends to go around $2.5 million. Here’s a floorplan of one of the slightly bigger units — it’s not necessarily Hardwick’s but you can get a sense (click to embiggen):

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Thankfully, the firm has a savior lined up:

Fidelity National Title Group, a major title insurance firm, has stepped in to acquire a 70 percent stake in Landcastle. Fidelity “stands behind the funds you have on deposit, or may in the future deposit” with Landcastle or the law firm, according to a letter to clients posted on the Morris Hardwick Schneider website.

So that’s nice.

All told, the firm says $30 million is missing. How could they have lost so much? Do they have trouble counting?

COUNTY III – CONSTRUCTIVE TRUST

OK, so “count” isn’t their strong suit.

We’ll keep following this matter as it develops. If you want to read the whole complaint, check it out on the next page….

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